1. Federalism, free movement and social rights: a role for the capability approach? Simon Deakin Capright/TLM workshop, Venice, April 2008

2. Legal aspects of capabilities Sen (1999) has defined capabilities in terms of the substantive freedoms which individuals have to achieve a range of desired ‘functionings’, thereby enhancing their well being and that of society as a whole. Particular institutions may assist, or frustrate, the process by which individuals ‘convert’ their endowments into functionings. How far it is possible to identify within the body of the law a juridical equivalent to ‘capability’ – capacitas – which gives expression to this idea?

3. Legal foundations of the CA Markets do not self-correct The exercise of individual choice depends on institutional capacity-building Reflexive or evolutionary governance is preferred to ‘one size fits all’ approaches

4. (1) Markets do not self-correct markets (including the ‘internal market’ or the ‘labour market’) rest on institutional foundations; they are not self-forming and do not spontaneously self-correct hence there is a role for the legal- institutional framework (as ‘conversion factors’) in both creating and also regulating markets

5. (2) Individual choice and institutional capacity-building the exercise of individual choices by actors in a market setting is not simply a function of being left alone by the state (‘negative freedom’) but of having the substantive capacity to act which is implied by having access to certain rights which the legal order recognises and protects (‘positive freedom’) These include rights recognized by private law in its narrow nineteenth century sense (the right to hold property and to make contracts – capacitas in the narrow sense of the term) but also some of the rights which the modern social state seeks to guarantee such as access to health care and education, participation in mutual insurance schemes for offsetting social and economic risks, and involvement in decent or meaningful work (capacitas in the broad sense).

6. (3) Reflexive or evolutionary governance the legal system is seen as embodying solutions to collective coordination problems which are more likely to endure when they are the result of a learning process, which involves the mobilization of the knowledge available to the actors concerned

7. Qualifying freedom of contract Certain types of transaction may be denied contractual force on the grounds that they infringe particular values which, exceptionally, take priority over the value of freedom of contract (public policy, in the common law; ordre public, in the civil law). These rules are necessary to preserve the market, and, occasionally, to preserve society against the market Thus the law recognises, again, that the market rests on a particular institutional order

8. The limits of private law However, private law offers an under-developed account of the basis for effective participation in economic life in modern societies, as form (an idealised notion of juridical equality and contractual autonomy) predominates over substance (asymmetrical bargaining power and all-pervasive externalities). Thus a return to private law, through ‘deregulation’, offers no straightforward solution

9. The limits of the regulatory state Shifts in technology, in the predominant forms of economic organization, in social structure, and in the scope and reach of markets, have cast doubt on the effectiveness of the paradigmatic legal institutions of the welfare state, above all the employment relationship In the neoliberal critique, social legislation is seen as constraining contract autonomy rather than providing a framework for contractual cooperation

10. Shifting judicial attitudes to ‘capacity’: the Lochner case (1905) ‘when the state, by its legislature, in the assumed exercise of its police powers, has passed an act which seriously limits the right to labor or the right of contract in regard to their means of livelihood between persons who are sui juris (both employer and employee), it becomes of great importance to determine which shall prevail, - the right of the individual to labor for such time as he may choose, or the right of the state to prevent the individual from laboring, or from entering into any contract to labor, beyond a certain time prescribed by the state’

11. The minority view in Lochner ‘It is enough for the determination of this case, and it is enough for this court to know, that the question is one about which there is room for debate and for an honest difference of opinion. There are many reasons of a weighty, substantial character, based upon the experience of mankind, in support of the theory that, all things considered, more than ten hours’ steady work each day, from week to week, in a bakery or confectionery establishment, may endanger the health and shorten the lives of the workmen, thereby diminishing their physical and mental capacity to serve the state and to provide for those dependent upon them’

12. Viking/Laval (2007) in the perspective of the CA The Court views the internal market as an ‘undistorted’ market space which can be created by the elimination of regulatory differences across the member states In describing the Swedish law supporting collective action in defence of basic labour standards as a distortion of the internal market, it strikes at the view that social rights can play a role in constituting the market and in offsetting externalities which can arise from asymmetries of information and bargaining power The Court prioritises the rights of enterprises in low- regulation states and risks a race to the bottom, undermining a reflexive approach to EU social policy formation

13. Which model for Europe… post Viking/Laval? Preserving diversity and national autonomy is essential for regulatory learning in federal systems Reflexive harmonisation techniques as first developed in the EU may be deployed more widely to ‘steer’ regulatory competition at a global level; but they are under threat from growing judicial activism (Viking/Laval, Volkswagen, etc.) Judicial intervention to strike down national rules setting basic standards for the regulation of business behaviour is anti-democratic, threatens a a race to the bottom, and undermines the OMC

14. Conclusion A legal framework constructed around the notion that the law has a role in protecting and enhancing capabilities is, it may be argued, in the process of emerging at these points of interaction between private law and social legislation. This would be a law of contracts in which the market was seen, not as an end in itself, but an institution for enhancing the substantive economic freedom of individuals; a law of contracts, in other words, in which the market was adapted to the condition of the individual, rather than the individual being adapted to the demands of the market.