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Jayasuriya - Globali..

Globalization, Sovereignty, and the Rule of Law:

From Political to Economic Constitutionalism?

Kanishka Jayasuriya

Introduction

Understanding the complex relationship between globalization and the rule of law

is a difficult and elusive task because it is a question that invites us to consider in

detail cognate issues such as the nature of the state and sovereignty. Too often,

however, these issues are either quickly dismissed or dealt with in a rather

simplistic manner. This essay attempts to rectify some of these defects and to

foreground the notion of sovereignty in the analysis of the transformation of the

rule of law wrought by globalization. This claim may seem odd, because if one

word is writ large in the debate over globalization it is surely ‘sovereignty.’ But it

is a debate cast in terms of the decline of sovereignty in the face of deep structural

changes in the world economy. In contrast, I would like to argue that the most

significant changes in legal institutions and the rule of law are best viewed in

terms of the transformation of sovereignty rather than its decline.

Pushing to the forefront the transformation of sovereignty, rather than its

decline, serves to place questions about the rule of law and globalization in a new

light. For one, it forces us to acknowledge the way in which the changing architecture

of power both globally and within the state serves to rupture and fragment

the institutions and processes of governance; from this perspective, globalization

is as much an internally as an externally driven process. In short, the most important

consequences of globalization are to be felt within the boundaries of what is

usually regarded as the domain of domestic institutions, thereby unsettling the

settled boundaries between domestic and international domains. A further consequence

of this dissolution of the boundary between the domestic and the international

is to render problematic those accounts of global legal order or even

regional legal orders such as the European Union that attempt to move existing

models of sovereignty up another notch. Even the contribution of David Held, 1

while marking a welcome effort to examine issues of democracy and the rule of

law in a global context, remains trapped within the framework of the conventional

and static model of sovereignty. In a nutshell, the suggestion is that the transformation

of sovereignty challenges our received notions of constitutionalism and

law, and any progressive response to these changes must respond creatively to the

transformation of sovereignty and governance.

At the heart of the changes in the nature of sovereignty lies a shift towards the

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and 350 Main Street, Malden, MA 02148, USA.


From Political to Economic Constitutionalism?: Kanishka Jayasuriya 443

dispersion and dissolution of powers of governance in institutions in civil society

as well as the economy. 2 The basic form of this shift can be summarized as a

move away from government to governance. To be sure, this shift is still in its

embryonic stages and its full implications are still to be worked out, but there is

no doubt that profoundly important changes are taking place, not so much at the

level of governance, about which much of the debate mistakenly takes place, but

in the form of governance. If for much of the nineteenth century there was a

process of legal unification and centralization around the liberal state, then the last

century has seen a gradual acceleration of legal fragmentation and dissolution.

Globalization has hastened and crystallized these tendencies, but, as Neumann so

astutely pointed out, 3 legal deformalization is rooted in a fundamental transformation

of capitalist economies over the greater part of the twentieth century.

Consider this process as analogous to the relative coiling and uncoiling of a set

of legal forms around a central pillar supporting legal institutions. As governance

has become diffused, law has come to rely less and less on this pillar. In short, as

MacCormick observes, the tight link between political and legal sovereignty and

the valorization of political sovereignty in standard accounts of the rule of law is

increasingly coming apart at the political seams of the territorial state. 4 At the

same time, the debate about globalization and the rule of law remains trapped

within the confines of this couplet of political and legal sovereignty. In this

context, a key contention being advanced here is that the development of complex

sovereignty moves us beyond this conventional horizon of the rule of law and

requires a research agenda of an entirely different order. Consequently, this work

is cast more in the nature of an exploratory navigation beyond the conventional

horizon, rather than a definitive conceptualization.

An important element of this transformation of sovereignty is the transition

from political constitutionalism to a kind of economic constitutionalism. The

intertwining of law and the territorial state was reflected in the forms of political

constitutionalism that developed with the liberal state in the nineteenth century;

these can be understood as an attempt to constitutionalize executive authority. Yet

with the development of complex sovereignty has come a form of economic

constitutionalism that gives a juridical cast to economic institutions, placing these

institutions beyond politics. Of course, the growth of these notions of constitutionalism

have been noted by others such as Gill and Petersmann, 5 but my main

contention here concerns how this shift towards an economic constitutionalism

has been driven by deep-seated changes in the form of sovereignty.

These developments clearly pose complex challenges for the democratic left.

The structural dynamics altering the nature of sovereignty are deep-seated and

well entrenched. This set of circumstances demands the formulation of new

models of democracy appropriate to the emerging complex sovereignty. One such

democratic model of the global order, it is proposed, may be constructed along

republican lines with a strong emphasis on public autonomy, in terms suggested

by Habermas. 6 The republican emphasis on developing the individual capacity for

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444 Constellations Volume 8, Number 4, 2001

contestation yields a more promising and attractive democratic alternative to the

forms of economic constitutionalism that now represent the dominant paradigm

of the emerging complex sovereignty of the global legal order. But developing

this alternative must go alongside a more detailed exploration of the relationship

between globalization, sovereignty, and the law.

Sovereignty and Globalization

Globalization shapes sovereignty. That much is clear, even self-evident. But the

crux of the argument here is that globalization shapes the very form of sovereignty;

hence, the focus should not be on the content or degree of sovereignty that

states possess but on the form that it assumes in a globalized economy. Adopting

this position permits us to examine sovereignty not as an abstract idea whose

essence can somehow be distilled by scholars of international relations and law, 7

but as a dynamic institution that needs to be historically situated. This historical

perspective on sovereignty enables us to isolate two key aspects of the transition

to a complex sovereignty: first, the uncoupling of law and territorial state; and

second, the evaporation of the boundary between the domestic and the international

spheres. The coupling of territorial and political sovereignty, or law and the

state, has been central to the foundation of many of the debates over legal positivism.

A useful and revealing approach to this issue may be found in the work of Carl

Schmitt. Though a foe of liberal legalism, Schmitt was perceptive in highlighting

the fundamental dualism between law and the state. 8 At the same time, however,

Schmitt’s statist perspective also depended on adopting a particular understanding

of sovereignty, one that is being rapidly transformed – a point which he

himself recognized in his institutionalist writing of the 1930s. Schmitt sharply

distinguished between the elements of the constitutional state (Rechtsstaat) and

its political essence, identified in terms of the political identity of the ‘people,’

which he argues has priority over the liberal components of the constitution. 9

Here, the political essence represents the ethical and cultural homogeneity of the

people and stands in sharp contrast to the pluralist values of a liberal parliamentary

order. By proposing that elements of the liberal constitutional state are not

integral to the state, Schmitt made his now familiar claim that constitutional rights

could be waived in states of exception where there are fundamental internal or

external threats to order. From this perspective, the problem of liberal legalism is

that it constantly elides the need for sovereign decision.

These issues have by now been canvassed in a growing literature on the political

and legal theory of Carl Schmitt and need not detain us here. Rather, what is

noteworthy is the dependence of both these ‘Schmittian’ arguments and those of

his leftwing critics such as Neumann and Heller on what might be called a

Weberian problematic. 10 At the heart of this problematic is the distinction

between legality and legitimacy, or between the substantive elements of the

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From Political to Economic Constitutionalism?: Kanishka Jayasuriya 445

constitution and those parts “which embody the rights, institutions and procedures

of an inferior notion of legality, which essentially applies to the practice of pluralist

democracy.” 11 But this is itself a product of a particular model of sovereignty

that has coupled – however tenuously – law and the state. It is exactly this relationship

between law and the state that is in the process of being transformed in

a very significant way. Ulrich Preuß makes the very perceptive point that Schmitt

and a number of political theorists of both the left and right

share the idea that the coherence of society has to be provided through the unitary

power of the state. Since the split of multitudes of individuals and the ‘disorder’ of

society cannot create collective reason, it is the homogeneity and unity of ‘the

state,’ and its sovereign power, which forges and represents the quasi-transcendental

destiny of society. Schmitt is a conspicuous representative of this statist tradition

in the twentieth century; he radicalizes the antimony between the heterogeneity of

society and its incapacity to generate collective reason on one hand, and the unifying

force of sovereign power that embodies reason on the other. 12

In essence, the suggestion is that the antinomy between sovereign power and a

heterogeneous society is appropriate to a model where governmental powers are

centralized and concentrated within the state apparatus. Precisely this model of

sovereignty is now being transformed.

As law and the territorial state are uncoupled, powers of governance are

becoming increasingly fragmented and diffused within the market and civil society;

this poses an immense challenge to the traditional antinomies – between

legality and legitimacy as well as between sovereignty and society – that underpinned

the ‘governmental’ model of sovereignty. In essence, one of the most

important aspects of globalization has been the fragmentation and dispersion of

governmental powers in both the civil society and the market – moving, in a

sense, from a governmental to a governance model of sovereignty: sovereignty

becomes fragmented and distributed across a range of institutions.

Before examining some of these features, it should be borne in mind that one

manifestation of these developments may be found in the tremendous growth of

private international authority. Take a few examples: international standard associations

are now having a major impact on the rules and procedures of corporations

and states; there is a rapid growth of arbitration impinging on the traditional

legal domain of the state, and an increasing importance of trade associations ranging

from insurance to accountancy. 13 Private authority in the international system

is only one aspect of these developments. Of equal significance is the increasingly

important role played by domestic regulatory agencies such as independent

central banks that operate relatively autonomously from the structures of political

accountability. 14 The very growth of these aspects of the global economy has reinforced

the rise of modes of institutional self-regulation.

Unshackling legal order from the state has created an emerging ‘institutional’

legal order – call it an ‘autopoietic system,’ 15 ‘institutional normative order,’ or

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446 Constellations Volume 8, Number 4, 2001

indeed global governance 16 – which points to the dispersion and fragmentation of

governance in civil society and the market. In this connection, Preuß points out

that what “seems to be evident is the insight that state power, however legitimized,

has become a more and more inappropriate medium of societal regulation, at least

for modern societies approaching the twenty-first century.” 17 This institutional

order can take either an economic constitutionalist form or a more republican

form. But there is no doubt that a democratic response to these changes requires

us to confront this significant transformation in the form of sovereignty.

The International-Domestic Divide

An equally important aspect of the transformation of the form of sovereignty is

the blurring of the divide between the domestic and the international. Much of the

literature on globalization takes what could be termed an external perspective on

sovereignty, since it focuses on the external constraints on state action. 18 The

standard account of how globalization affects sovereignty maintains that the rapid

integration of the global economy (for example, the increasing intensity of trade

and financial flows) serves to limit the functions of the sovereign state. But the

problem with this ‘flow’ model is that it leaves untouched the fundamental binary

divide between the external and the internal. Indeed, as Clark points out, in this

binary divide:

the very unity of sovereignty thus seems to find expression in its bifurcation. In fact,

it has been remarked that it was the very potency of this separation that salvaged

sovereignty as a concept when its validity was otherwise increasingly called into

question. 19

The binary divide has produced an unhelpful debate over the extent to which

sovereignty has been lost as a consequence of globalization.

Susan Strange, in a sophisticated analysis of these changes in the global political

economy, provides a two-fold argument: first, all states – small and weak –

have had their authority and functions greatly diminished because of the integration

of states into the global economy; and second, “some of the fundamental

responsibilities of the state in a market economy – responsibilities first recognized,

described and discussed at considerable length by Adam Smith over 200

years ago – are not being adequately discharged by anyone.” 20 By identifying the

significant increase in the power of non-state actors in the global system, Strange

makes an important contribution to the study of the state and the global political

economy. In particular, she draws attention to the power of financial markets in

constraining the ability of states to effectively intervene in large areas of

economic life. While offering a valuable and perceptive analysis of the impact of

globalization on the state, this account suffers from a zero-sum conception of

sovereignty: either you have sovereign capacity or you don’t.

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From Political to Economic Constitutionalism?: Kanishka Jayasuriya 447

This zero-sum perspective is critically flawed to the extent that it neglects the

degree to which sovereignty is being transformed from within the state rather than

from external sources. As against this externally driven model of globalization, it

will be argued that the main sources of change are to be found in changes to the

internal structure of firms, markets, and the state. Increasingly, the emergent

global economy – precisely because globalization is a microeconomic process –

requires regulation of areas previously considered part of the domestic domain. 21

This, in turn, means examining the way state structures operate at the interstices

of the domestic and international arena. For example, the increasingly complex

global financial markets require a fairly complex process to harmonize securities

regulations. 22 But this legal harmonization can only be achieved by institutionalized

structures of cooperation between domestic and international agencies.

Moreover, the regulatory cooperation implicit in the harmonization of law reflects

the fact that the imperatives of a global economic order cannot be easily

subsumed under the traditional notions of international law. This is because such

regulatory cooperation requires the removal of the very boundaries between the

international and the domestic that have been so central to the practice and theory

of international law and international relations. 23

What is being suggested here is that, if globalization is internally driven, then

the very form of sovereignty challenges the binary divide between the domestic

and the international which has been the staple of both political science and international

law. For one, we need to pay more attention to changing patterns of political

rule and order in the global economic system. From this vantage point, a key

issue for any understanding of the global political economy is how economic

order is produced and reproduced in the global economy. Globalization brings

with it a new ensemble of governance institutions, which in turn shape and influence

the architecture of states. That, of course, is the point: globalization changes

the internal architecture of the state.

If this argument is valid, then globalization is serving not so much to reduce

the functional capacity of state as to reshape sovereignty in the process of transforming

the state. Clark puts this well when he observes that:

What is happening to sovereignty is a shadow play of the transformations that the

state is currently undergoing. We might then suggest that there is not only a twofold

linkage – between the concept of the sovereignty and statehood – but a triangular

relationship – between state, sovereignty, and globalization. All three, of

necessity, are synchronized in their movements. 24

What then are implications of this argument for study of the rule of law? It

underlines the fact that the task of creating democratic foundations for the rule of

law in a global order is more complex than suggested by writers such as Held. 25

It is simply not possible to somehow create a kind of transnational state which

imitates the conventional model of the state; such a conception implicitly relies

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448 Constellations Volume 8, Number 4, 2001

on the very binary divide between the domestic and the international eroded by

globalization. Put differently, it is not possible to put the sovereignty genie back

in the conventional state bottle.

At the heart, then, of the transformation of the sovereign model is the separation

of the territorial state and law. In particular, the form of sovereignty that is

emerging is increasingly fragmented; this runs counter to the notion of sovereignty

as authoritative dominance over a given territorial area. 26 In essence, the

contention is that sovereignty, as an institution defined by norms and practices, is

not something static or natural; it should be seen as an institution whose form

changes in response to underlying structural changes in the global economy. From

this viewpoint, we need to critically analyze the legal and normative frameworks

that underpin the development of new modes of governance in the global economy.

More especially, one important manifestation of these changes in sovereignty

has been a shift from a form of political jurisprudence, reflected in forms

of political constitutionalism, to more ‘institutional’ and economic constitutional

forms.

Complex Sovereignty and the Fragmentation of Sovereignty

Emerging forms of ‘complex sovereignty’ break down the internal structural

coherence of the state, replacing it with autonomous regulatory agencies whose

purpose is to meditate between the international and the local or national. The

emergence of polycentric centers of power within the state 27 internationalizes

certain agencies (e.g., central banks) within the state, while at the same time

breaking down the boundaries between domestic and international politics and

law. Again, these emergent properties of sovereignty pose important, even revolutionary,

implications for the study of international law and politics.

One of the cardinal features of the modern state – as Ruggie points out, modern

because the conjoint development of territoriality and sovereignty is part and

parcel of the emergence of modernity 28 – is the development of ‘internal sovereignty’

or internal coherence within the state. A central feature of the early state

was the conflict between autonomous centers – be they corporate or ecclesiastical

– as they sought to defend their prerogatives and immunities. However, one of

the major features of the nineteenth-century state was its emergence as the exclusive

center of all authoritative decision-making; the state institutionalized the

principle of internal sovereignty and thereby established a unitary ‘monistic’ legal

order. As Poggi correctly observes:

Mature modern states are intrinsically “monistic” and represent in this a return to

the Roman tradition, whereby the princep’s power was derived from the will of the

populous. The Continental juristic construction of the state as person is a characteristically

sophisticated way of expressing this principle. 29

The value of Poggi’s formulation here is to draw our attention to the way law and

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From Political to Economic Constitutionalism?: Kanishka Jayasuriya 449

sovereignty were intertwined in the development of the early modern state.

Kriegel has drawn attention to how early modern jurists sought to distinguish the

sovereign state from feudalism; at the center of this contrast was law. Kriegel

notes that:

the doctrine of sovereignty that establishes the supremacy of the state and the legitimacy

of this supremacy does not defend power without limits but rather a selfdetermined

power that recognizes no restraints other than the law that it gives

itself. 30

It is beyond the brief of this essay to consider this argument in more detail, but

for our purposes it is sufficient to note the way the state, law, and sovereignty are

intertwined in the development of political constitutionalism. From this perspective,

legal positivism provides a jurisprudential foundation for this internal sovereignty.

The development of this ‘monistic’ legal order rested on a

constitutionalization of the state and the identification of a political community

on which it rested. While legal positivists – as Schmitt argued 31 – often decried

politics, it remains the case that the legal order that positivism seeks to describe

implicitly rested on the development of a form of political constitutionalism. 32

It should also be noted in this context that this juridical unification of the state

went hand in hand with the development of a notion of a civil society. This is an

important point: the development of internal sovereignty allowed the state to

clearly distinguish itself from both civil society and the market. Hence, the autonomy

of both civil society and the market order is conditional on the emergence of

certain forms of sovereignty. An illustrative example is that the notion of universal

citizenship is only comprehensible in a context where there is – to use Poggi’s

terminology – a ‘monistic legal order.’ But perhaps more importantly, it underlines

the fact that the coherence of the state is of primary importance in establishing

a juristic foundation for a domestic legal order which can be said to

constitutionalize the political bargaining between different interests unleashed by

the growth of capitalism. In short, it constitutionalizes conflict, which, in a paradoxical

way, has been vital for the dynamism of capitalist market economies. It is

this ‘politics of bargaining’ that has been eroded with the development of

economic constitutionalism.

Fragmentation of Sovereignty and the New Ordo-Liberalism

With the globalization of economic relations there is a growing incongruity

between the territorial notion of sovereignty and the flow of economic activity.

This, in turn, disrupts the internal unity or coherence of the state and allows various

agencies and institutions within the state to develop a high degree of autonomy

and independence. The resulting fragmentation of the domestic order of the

state is critical to the development of international forms of regulatory gover-

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450 Constellations Volume 8, Number 4, 2001

nance. For this reason, the global governance of the economy requires the internationalization

of state agencies and institutions, but this can only occur if these

institutions possess a degree of autonomy from other institutions within the state.

In other words, the fragmentation of the state is the form that sovereignty takes in

an increasingly global economy.

It is important to remember, of course, that even within the parameters of the

nineteenth-century state, internal sovereignty was never completely dominant.

According to Poggi:

the army, the police, the diplomatic service, and sometimes top judicial bodies

maintain substantial autonomous lines and traditions of political action, with the

result that each operates in some cases as “state within a state,” as de facto holder

of autonomous political prerogatives. 33

Nevertheless, the fact remains that globalization has accelerated the development

of autonomous agencies, or of ‘states within a state.’ Slaughter underlines these

observations by noting that trans-governmental networks of regulatory agencies,

such as central banks, rather than supranational institutions, are increasingly

preferred as a form of governance of the global political economy. She argues that

“[d]isaggregating the state permits disaggregation of sovereignty as well, ensuring

that specific state institutions derive strength and status form participation in

trans-governmental order.” 34 In brief, the globalization of economic relations

increasingly fractures the internal cohesiveness within the state, leading to the

creation of ‘islands of sovereignty.’

A good example of this fragmentation or disaggregation of the state is the

development of independent central banks. Central bank independence provides

a means of purchasing – albeit not always successfully – domestic stability

through the credible commitment to pursue ‘market friendly’ monetary policy; 35

but this comes at the cost of the fragmentation of the state and the increasingly

procedural nature of monetary policy. A major reason for the enhanced power of

central banks is the growing importance of monetary policy in an era dominated

by the demand for more global financial integration. It is important to recognize

that these changes reflect not just a shift of policy instruments from fiscal to

monetary policy, but also a shift of power within the state towards agencies such

as central banks. 36 This was not merely a technical adjustment that entailed the

adoption of a new set of policy instruments, but a significant change in the mode

of coordination within the state. In turn, this trend toward more independent

central banks reflects profound structural changes in the international political

economy, particularly the increasing importance of global transnational financial

structures. Therefore, the emergence of independent central banks and the reconfiguration

of the state that this implies are manifestations of deeper structural

changes taking place in the global political economy, especially in the nature of

international markets.

A prime example of these developments is the European Central Bank (ECB).

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From Political to Economic Constitutionalism?: Kanishka Jayasuriya 451

In institutional terms, the ECB can act independently and will have a legal personality

(Art. 106 (2) EC Treaty); its authority does not emanate from a community

institution. 37 Even more significantly, the institutional independence of the ECB

is ensured by statute; interestingly, this is set out in a separate protocol which stipulates

that “most of the provisions of this protocol can only be changed through

an amendment to the EC Treaty.” 38 In short, these provisions mean that the independence

of the ECB is constitutionalized in a way that distinguishes it from even

highly independent central banks at the national level. Moreover, under the ECB

even national central banks have a legal capacity that allows them to act independently

of their home governments. 39

Independent central banks are not just actively engaged in the regulation of

international financial markets; they also participate in these regulatory systems

as independent, autonomous actors. In turn, these agencies are often required to

implement international regulations or agreements at the national level. Slaughter

aptly terms this the “nationalization of international law.” 40 However, the important

factor to observe is the manner in which structural changes in the global political

economy lead to changes in the form of state sovereignty. These changes

serve to radically reconstitute our understanding of the traditional boundaries

between the international and the domestic spheres because agencies such as

independent central banks are simultaneously part of the domestic order and a

range of global governance mechanisms.

Equally important with respect to this fragmentation of authority, as we noted,

is the rapid growth of private international authority. One of the best examples of

this is the growth of international arbitration, particularly in newly industrializing

countries like China. In effect, in these states arbitration carves out an independent

domain within the national legal order; it thereby fragments internal domestic

authority. In more general terms, as Cutler notes with respect to the international

maritime industry: “Merchant autonomy from state regulation is being reasserted .

. . in the context of renewed commitments to the superiority of merchant custom

as a source of legal regulation and private arbitration as the preeminent method for

settling disputes.” 41 Other examples from sectors such as the securities industry

reinforce these arguments. 42 For our purposes, three key aspects of the emergent

system of private global authority warrant special mention:

1) Many of these private regimes operate, as Cutler perceptively observes, on the

basis of norms or customs, and in many respects they point to the growth of a

new international customary law. 43

2) The state does not disappear, but is actively engaged in the management of

these regimes; this requires the engagement of independent regulatory agencies

which, in turn, entails the involvement of private economic actors.

3) Most of these regimes depend on the application of informal standards and

rules, bearing out Neumann’s analysis of the increasing deformalization of law

under the condition of modern capitalism. 44

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452 Constellations Volume 8, Number 4, 2001

Clearly, what stands out about these changes in the global legal order is not just

the changing form of law in the global economy, but also the increasingly antipolitical

and economistic character that jurisprudence takes in the new global

economy.

Just as political constitutionalism lay at the heart of the intertwining of law and

the state, a form of economic constitutionalism is coming to dominate the

jurisprudence of the new global economy. Economic constitutionalism refers to

the attempt to treat the market as a constitutional order with its own rules, procedures,

and institutions that operate to protect the market order from political interference.

These forms of economic constitutionalism demand the construction of a

specific kind of state organization and structure: a regulatory state whose purpose

is to safeguard the market order. Given the affinity of this arrangement to the

German ordo-liberal school of thought, it may be appropriate to call the emerging

jurisprudence a kind of global ordo-liberalism. It is useful to focus on the

writings of this school because it highlights the link between authoritarian politics

and constitutional conceptions of economic order.

Pivotal to ordo-liberalism and its prominent exponents such as Eucken 45 was

the notion that the construction of economic order cannot be left to the spontaneous

actions of the market but needs to be created through the political ordering

(Ordnungspolitik) of the state. 46 The state should not attempt to manage the economy;

rather, it should provide a system of juridical institutions that would facilitate

the construction of the market. In fact, in its emphasis on the role of economic

institutions in creating market order, it presages the new institutional economics.

Within an ordo-liberal perspective, economic order reflects the presence of

fundamental traits and characteristics distinctive to that particular economic

order. But having chosen a certain kind of economic order, concerted political

action is needed to create and sustain that particular economic order. Accordingly,

this conception of economic order places a high premium on the role of juridical

processes in safeguarding and creating market order. For economic constitutionalism,

a strong state was a necessary element of economic order, but its role was

essentially confined to providing the framework for an economic constitution that

underpinned the reproduction of that order. In this regard, it is worth noting that

there is a strong resemblance between the ideas espoused by Schmitt and the

ordo-liberals in Germany in the 1930s with the recent rise of the law and economics

movement. 47 Both are cases of a jurisprudence attempting to ground law not

in the political process but in terms of the values of the institutional order, which

are of course perceived as ‘natural’ and consequently disembedded from the play

of politics and power.

Unlike the law and economics movement, however, the ordo-liberals have a

clear conception of the political ramifications of notions of economic constitutionalism.

48 Eucken and other members of the ordo-liberal school were very

concerned about the anti-competitive effects of society on the economy. 49

Echoing Schmitt, Eucken argued that by the end of the nineteenth century the

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From Political to Economic Constitutionalism?: Kanishka Jayasuriya 453

state was increasingly captured by private interest groups; this led to the politicization

of the economy, which in turn weakened the state. 50 In other words, the

main purpose of economic constitutionalism was to protect the economy from

these political pressures; this could not be but authoritarian.

In fact, in his work in the 1930s Schmitt develops a form of institutional

jurisprudence that effectively recognizes the fragmented nature of the state. He

suggests that, rather than the two-fold distinction between the state and the individual,

it may be more plausible to draw a three-way distinction between the

economy, the state, and the private sphere. The most interesting element here is

the attempt to carve out a distinctive non-state but public sphere of economic

activity. More specifically, Schmitt argues there should be an autonomous

economic administration:

an economic sphere that belongs to the public interest and should not be seen as

separate from it. Still, this is a non-state domain that can be organized and administered

by these same business agents, as it happens in any genuine autonomous

administration. . . . Without an autonomous economic administration, in the sense

of that intermediate sphere, a real new order would be hardly thinkable. 51

The autonomous economic administration that Schmitt refers to in this context

dovetails with the institutionalist jurisprudence he adopted as against ‘decisionism’

(his earlier preferred option) and ‘normativism’ (by which he meant liberal

legalism). Schmitt increasingly used the notion of concrete order to emphasize

how law should reflect the underlying – and of course deeply reactionary – values

and norms of social and economic institutions. Schmitt’s theory of concrete order

finds a near-perfect echo (though without any of the philosophical or political

sophistication) in the work of Robet Ellickson, a leading member of the law and

economics movement. 52 Like Schmitt, Ellickson emphasizes the underlying

norms – which are always seen as natural – that order economic institutions.

As Neumann pointed out, this institutional jurisprudence (and we might add

here the cognate notions of ‘order’ and security) became the jurisprudence of a

fracturing state, characterized by polycentric centers of power. 53 What is more

important for our purposes is exactly how institutional jurisprudence – be it in the

form of the ordo-liberals or the law and economics movement – reflects the internal

fragmentation of sovereignty in the new global economic order. Indeed, it is

in this context that the emergence of autonomous economic administration can be

aptly called a putative global ordo-liberalism. And again, the point is not the

retreat of the state but its internal transformation from the political constitutionalism

associated with legal positivism to the economic constitutionalism that

supports many of the governance structures of the new global economic order.

‘Economic constitutionalism’ attempts to place certain market regulatory institutions

beyond the reach of transitory political majorities or the actions of the

political executive through procedures that provide for a high degree of autonomy

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454 Constellations Volume 8, Number 4, 2001

for a range of economic institutions. The creation of insulated institutions is

designed to protect economic practice from the influence of democratic politics.

Like the ordo-liberalism of the 1930s, the main purpose of economic constitutionalism

is to protect the economy from political pressure by developing a politics

of anti-politics. We might recall in this context that some of ordo-liberalism’s

prominent exponents were closely associated with the extremely conservative von

Papen government of the early 1930s.

Today, the development of a whole range of institutions, from independent

central banks to the governance programs of the World Bank, as well as the

increasingly juridical nature of international trade and financial institutions,

reflect attempts to constitutionalize the market while simultaneously depoliticizing

a range of economic institutions. 54 The functioning of the global economic

order requires the existence of juridical institutions that will promote economic

order, and its terms are often couched in a language of security. In turn, this means

not the retreat of the state, but instead a new form of regulatory state that is able

to constitutionalize the economy. This economic constitutionalism requires

changes to domestic constitutional and legal arrangements that raise problematic

issues for those concerned to enhance democratic governance.

Towards a Global Republican Order

In responding to the democratic challenges posed by the transformation of sovereignty,

we need to explore alternatives to the putative ordo-liberalism of the

global economic order. To what extent is it possible to construct an alternative,

more democratic jurisprudence within the context of the fragmentation of sovereignty

that I have detailed above? In responding to this challenge, it is imperative

that we explore new democratic forms of governance that are appropriate to the

changing circumstances of sovereignty in the global order. Of course, within the

limited confines of this paper I can only indicate some pointers in the right direction

– one that can steer the global economic and political system towards a more

republican legal order.

There now exists a fairly broad literature on republican approaches to law that

is valuable in highlighting some of the key elements of a republican approach.

These studies, however, have two major lacunae. First, they neglect the impact of

globalization on patterns of both domestic and international governance. For

example, what lessons does republicanism have for institutions such as the World

Trade Organization (WTO) that now have a major influence on domestic legal

institutions? Second, much of the republican approach implicitly assumes a kind

of uniform public sphere where conceptions of the common good can be unproblematically

established. Indeed, classical republicanism seems to assume the very

existence of a uniform undifferentiated kind of public sphere that is no longer

possible in the context of the significant transformation of the internal sovereignty

of the state. A republican approach needs to spell out clearly how institutions like

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From Political to Economic Constitutionalism?: Kanishka Jayasuriya 455

independent central banks can be made more democratic and responsive. In

essence, the need is for a republicanism appropriate to the changing nature of

sovereignty.

The work of MacCormick on the European Union, though not specifically

republican, suggests some promising lines of inquiry. Broadly, MacCormick uses

the notion of subsidarity to explore the potential for a form of democracy consistent

with the fragmentation of authority within the European Union. In particular,

he suggests that subsidarity can be broken down into four sub-components:

1) the familiar market subsidarity, which allows for the operation of the market

in the provision and production of certain goods;

2) a collective subsidarity, which emphasizes the participation of individuals in a

range of collectivities such as work places, associations, or political parties;

3) a rational legislative subsidarity, which “endorses the need for effective representative

democracy expressed through legislatures at provincial, federal, and

all-Europe levels, while unduly overshadow more local ones”; 55 and

4) a comprehensive subsidarity through which deliberation “may come to be

constitutive of a common good, or of the common perception of a shared

good” by fostering institutions.

This focus is valuable because it points the way towards constitutionalizing

subsidarity in such a way that it can be clearly distinguished from the kind of

economic constitutionalism that informs the jurisprudence of the new global

economic order. It thereby brings an alternative political jurisprudence to bear on

emerging governance institutions. One of the key differences between the

economic constitutionalism and this ‘constitutional subsidarity’ lies in the fact

that, whereas the former seeks to essentially privatize governance, the latter seeks

to devolve governance by making it more public, democratic, and deliberative. It

seeks to build not a managerial civil society, but a political civil society composed

of publicly accountable associations and regulatory entities.

Within an international context, this includes placing more emphasis on the

deliberative procedures of organizations like the WTO. Building on Habermas, we

need to acknowledge that private and public autonomy are mutually interdependent.

56 However, the challenge for transnational governance institutions is to

creatively develop modes of public accountability. While a consideration of this is

beyond the brief of this essay, it seems clear that any such move toward public

autonomy must not only seek to involve all interested stakeholders in public

discussion and debate, but also must provide groups and individuals with the

capacity to influence deliberations. Equally important are measures to ensure that

public decisions are reasoned out and subject to a process of public justification.

This needs to be sharply distinguished from the idea of transparency – a common

currency in many international organizations – which has little to say about the

process of justifying public decision-making. In contrast to an economistic notion

of transparency, the idea of public justification is explicitly political and intimately

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456 Constellations Volume 8, Number 4, 2001

connected to the operation of the deliberative process. This principle belongs to

what MacCormick calls ‘comprehensive subsidarity’ and is vital to building

public autonomy in transnational structures of governance.

But these elements of a neo-republican model need to be complemented by a

direct and more explicit focus on the notion of freedom from domination that has

been identified as one of the central elements of republican political thought. 57 In

this regard, one plausible strategy of democratic reform is to move towards a form

of what Pettit calls ‘contestatory democracy.’ He identifies this as a form which

would represent public decisions as democratic in a further sense – and to a further

extent legitimate – so far as they are capable of withstanding individual contestation,

in particular contestation forums and under procedures that are acceptable to

all concerned. 58

The model of contestation has much to offer those who wish to democratize

‘autonomous economic administration’ while at the same time building avenues

for individuals to challenge and resist these governance structures. Clearly, more

work has to be done in thinking through mechanisms by which contestation can

be developed in a range of governance structures. But its attraction rests on the

fact that it enables us to expand on the political notion of opposition in the circumstances

of fragmented sovereignty. It provides a political counterpart to the emergent

ordo-liberalism which finds no room for – and indeed is positively hostile to

– the idea of opposition.

Conclusion

At the heart of new global ordo-liberalism is the privatization of public governance.

This shift to ‘autonomous economic administration’ brings with it a

jurisprudence of economic constitutionalism which stands in sharp contrast to the

political constitutionalism associated with legal positivism. For much of the nineteenth

century, the state gave rise to what may be described as a monistic legal

order distinguished by political constitutionalism. But globalization has accelerated

the fragmentation of the state by producing polycentric centers of power.

This diffusion of power brings with it the economic constitutionalism associated

with the emergent forms of global ordo-liberalism.

It is clear that the left must respond creatively to this transformation of sovereignty

by developing an alternative normative model able to challenge the dominant

economic constitutionalism. With this in mind, I have proposed a

neo-republican alternative that seeks to develop the constitutional notion of subsidarity

into modern governance structures by politicizing civil society. More

specifically, it seeks to foster political opposition within the domain of

‘autonomous economic administration’ by an emphasis on deliberation and

contestability. Clearly, this is meant to be a first cut at these issues by pinpointing

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From Political to Economic Constitutionalism?: Kanishka Jayasuriya 457

some of the issues that need to be confronted in order to develop a democratic

project for transnational governance.

One underlying theme of this essay is that the project of cosmopolitan governance

is more complex than suggested by some of its leading protagonists, such

as Held. 59 Admittedly, Held is on the right track in arguing that cosmopolitan

governance needs to be at the heart of any democratic political project in the

current era of globalization. Of this there can be no doubt. However, the theory of

cosmopolitan democracy suffers from a rather limited notion of sovereignty. If, as

I have argued, ‘power’ is not leaking away from the state but instead the state

itself is being reconfigured, it follows that theories of cosmopolitan democracy

need to recognize the emergence of this complex sovereignty. For one, it compels

us to confront the emerging orthodoxy of economic constitutionalism and move

towards ‘consititutionalizing’ the emergent regulatory state in a more political

direction. This is an important challenge for those committed to advancing the

project of cosmopolitan democracy.

NOTES

1. David Held, Democracy and the Global Order: From Modern State to Cosmopolitan

Governance (Stanford: Stanford University Press, 1995).

2. In this context, civil society refers to the way in which public and private actors are engaged

in regulatory activities. See Gunter Teubner, “Concepts, Aspects, Limits, Solutions,” in Teubner, ed.,

Juridification of Social Spheres: A Comparative Analysis of Labour Corporate Government: Trust

and Social Welfare Law (New York: De Gruyter, 1987). For example, most regulatory agencies –

domestic and international – now place increasing emphasis on compliance which in turn often

places demands of monitoring and governance on private agencies and organizations. In the international

context see Kanishka Jayasuriya, “Globalization, Law, and the Transformation of Sovereignty:

The Emergence of Global Regulatory Governance,” Indiana Journal of Global Legal Studies 6, no.

2 (Spring 1999): 425–55. These points are further reinforced by the recent emphasis placed on civil

society by multilateral agencies such as the World Bank. This is very much a managerial understanding

of civil society where the accent is decidedly on the effective management of governmentdefined

goals or objectives. There is little in this model to suggest a civil society that would enable

individuals to contest and challenge relations of domination. The important point to be noted here is

that this managerial civil society, in seeking to privatize the institutions of public governance, has

troubling consequences for a democratic understanding of the rule of law.

3. Franz Neumann, Behemoth: The Structure and Practice of National Socialism (New York:

Oxford University Press, 1944); The Rule of Law: Political Theory and the Legal System in Modern

Society (Leamington Spa: Berg, 1996).

4. Neil MacCormick, Questioning Sovereignty (Oxford: Clarendon, 1999). While

MacCormick’s analysis is mainly concerned with implications of the EU for the sovereignty of the

West European state, it is also a study that has broad implications for the study of transnational

governance.

5. Stephen Gill, “Globalisation, Market Civilisation, and Disciplinary Neoliberalism,”

Millennium 24, no. 3 (1995): 399–423. Gill perceptively identifies the shift from politics of bargaining

associated with many multilateral programs. See also E. Petersmann, Constitutional Functions

and Constitutional Problems in International Economic Law (Boulder: Westview, 1991).

6. See Jürgen Habermas, Between Facts and Norms: Towards a Discourse Theory of Law and

Democracy (London: Polity, 1994).

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458 Constellations Volume 8, Number 4, 2001

7. For an illustration of such an approach, see Alan James, Sovereign Statehood (London:

Allen & Unwin, 1986).

8. For a recent overview and commentary on the work of Schmitt, see William E. Scheuerman,

Carl Schmitt: The End of Law (Lanham, MD: Rowman & Littlefied, 1999).

9. Carl Schmitt, Verfassungslehre (Berlin: Duncker und Humblot, 1965); The Crisis of

Parliamentary Democracy, tr. Ellen Kennedy (Cambridge, MA: MIT Press, 1985).

10. For a particularly impressive delineation of this problematic in the work of Weimar legal

debates, see David Dyzenhaus, Legality and Legitimacy: Carl Schmitt, Hans Kelsen and Hermann

Heller in Weimar (Oxford: Clarendon, 1997).

11. Ulrich Preuß, “Political Order and Democracy: Carl Schmitt and his Influence,” in Chantal

Mouffe, ed., The Challenge of Carl Schmitt (New York: Verso, 1999), 167.

12. Ibid., 176.

13. See Clair A. Cutler, Virginia Haufler, and Tony Porter, eds., Private Authority And

International Affairs (New York: SUNY Press, 1999).

14. In fact, to a large extent the divide between what is private and public power becomes

increasingly ambiguous in the operation of these regulatory agencies.

15. For the notion of ‘autopoietic system,’ see Teubner, “Concepts, Aspects, Limits, Solutions.”

Teubner’s analysis has been greatly influenced by the work of Luhmann on complexity. See Niklas

Luhmann, A Sociological Theory of Law (London: Routledge Kegan Paul, 1985).

16. See Kanishka Jayasuriya, “Authoritarian Liberalism, Governance and the Emergence of the

Regulatory State in Post-Crisis East Asia,” in Richard Robison, Mark Beeson, Kanishka Jayasuriya, and

Hyuk-Rae Kim, eds, Politics and Markets in the Wake of the Asian Crisis (London: Routledge, 2000).

17. Preuß, “Political Order and Democracy,” 177.

18. See, for example, the work of Paul Hirst and Grahame Thompson, Globalization in

Question: The International Economy and the Possibility of Governance (London: Polity, 1996).

19. Ian Clark, Globalisation and International Relations Theory (Oxford: Oxford University

Press, 1999), 73.

20. Susan Strange, The Retreat of the State: The Diffusion of Power in the World Economy

(Cambridge: Cambridge University Press, 1996), 14.

21. Wolfgang H. Reinicke, Global Public Policy: Governing Without Government?

(Washington: Brookings Institution, 1998).

22. See, for example, J. Wiener, Globalisation and Harmonisation of Laws (New York: Pinter,

1999).

23. See Anne-Marie Slaughter, “The Real New World Order,” Foreign Affairs 76, no. 5 (1997):

183–97. Slaughter points out that one of the most interesting developments has been the emergence

of a network of regulatory agencies that may well form a putative transnational regulatory order. In

this context, see also Jayasuriya, “Globalization and Law.”

24. Ian Clark, Globalisation and International Relations Theory (Oxford: Oxford University

Press, 1999), 79.

25. David Held, (1995) Democracy and the Global Order: From Modern State to Cosmopolitan

Governance (Stanford: Stanford University Press, 1995).

26. See Jayasuriya, “Globalization and Law.” Much of the ‘formalist’ approach to sovereignty

attempts to identify various ‘attributes’ of sovereignty and makes the claim that while the capacity

to make autonomous choices may diminish, its authority and identity remain intact. This is an argument

that has been made forcefully by Stephen Krasner, Sovereignty: Organized Hypocrisy

(Princeton: Princeton University Press, 1999). However, the problem with this argument is that it

fails to recognize that globalization reshapes the character of the internal authority or domestic

sovereignty and the state. From this standpoint, sovereignty and globalization are mutually constitutive.

For a similar argument, see Clark, Globalisation and International Relations Theory.

27. For a discussion of the notion of the fragmented or regulatory state see Jayasuriya,

“Authoritarian Liberalism, Governance and the Emergence of the Regulatory State in Post-Crisis

East Asia.” It is important to note that these agencies have relationships with specialized domestic

and international constituencies.

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From Political to Economic Constitutionalism?: Kanishka Jayasuriya 459

28. John Ruggie, “Territoriality and Beyond: Problematizing Modernity in International

Relations,” International Organisation 47, 1 (1993): 139–74.

29. Gianfranco Poggi, The Development of the Modern State: A Sociological Introduction

(London: Hutchinson, 1978), 93.

30. Blandine Kriegel, The State and the Rule of Law, tr. Marc A. LePain and Jeffrey C. Cohen

(Princeton: Princeton University Press, 1995), 32.

31. For an interesting and critical analysis of Schmitt’s critique of Hans Kelsen see Dyzenhaus,

Legality and Legitimacy.

32. For a recent account which develops such an argument see Jeremy Waldron, Law and

Disagreement (Oxford: Oxford University Press, 1999). Waldron emphasizes the implicit rule of

legislative assembling theories of legal positivism.

33. Poggi, The Development of the Modern State, 94.

34. Slaughter, “The Real New World Order,” 196.

35. For a discussion of central bank independence, which places it in the context of changes in

the global political economy see Kanishka Jayasuriya “The Political Economy of Central Banks,”

Australian Journal of Political Science 29, no. 1 (1994): 115–34; Sylvia Maxfield, Gatekeepers of

Growth: The International Political Economy of Central Banks in Developing Countries

(Princeton: Princeton University Press, 1997).

36. For an analysis of the development of the regulatory state, see Kanishka Jayasuriya

Globalisation and the Changing Architecture of the State: Regulatory State and the Politics of

Negative Coordination,” Journal of European Public Policy, 8, no. 1 (2001).

37. René Smits, The European Central Bank: Institutional Aspects (The Hague: Kulwer Law

International, 1997), provides a useful analysis of the legal background of the ECB.

38. Laurence Gormley and Jakob de Haan, “The Democratic Deficit of the European Central

Bank,” European Law Review 21, no. 2 (1996): 101.

39. For a detailed analysis of the European Central Bank, see Jayasuriya, “Globalisation and

the Changing Architecture of the State.”

40. Slaughter, “The Real New World Order,” 192.

41. A. Clair Culter, “Private Authority in International Trade Relations: The Case of Maritime

Transport,” in Cutler, Haufler, and Porter, eds, Private Authority and International Affairs, 315.

42. See Geoffrey Underhill, “Keeping Governments Out of Politics: Transnational Securities

Markets, Regulatory Cooperation, and Political Legitimacy,” Review of International Studies 21

(1995): 251–78.

43. Clair A. Culter, “Private Authority in International Trade Relations.”

44. Neumann, The Rule of Law. For a revealing examination of the relevance of Neumann’s

analysis for our understanding of the relationship between globalization and law, see William E.

Scheuerman, “Economic Globalization and the Rule of Law,” Constellations 6, no. 1 (1999): 3–26.

45. Walter Eucken, The Foundation of Economics: History and Theory in the Analysis of

Economic Reality (London: Hodge, 1950). See, Alan Peacock and H. Willgerodt, German

Neoliberals and the Social Market Economy (London: Macmillan, 1989).

46. See Petersmann, Constitutional Functions and Constitutional Problems in International

Economic Law, 63. For an excellent overview of ordo-liberalism and its impact on the German and

European competition policy, see David J. Gerber, “Constitutionalizing the Economy: German

Neo-liberalism, Competition Law and the ‘New’ Europe,” The American Journal of Comparative

Law 42 (1994): 25–84. However, he underestimates the heavy dose of authoritarian liberalism

implicit in the economic constitutionalism of the ordo-liberal jurisprudence.

47. See the recent work of Richard Posner, The Problematics of Moral and Legal Theory

(Cambridge, MA: Harvard University Press, 1999).

48. In fact, on this basis economic constitutionalism may well lend support to a kind of

authoritarian liberalism. On this notion of authoritarian liberalism in the context of the legal and

political thought of Schmitt see Renato Cristi, Carl Schmitt and Authoritarian Liberalism: Strong

State, Free Economy (Cardiff: University of Wales Press, 1998).

49. See Gerber, “Constitutionalizing the Economy.”

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460 Constellations Volume 8, Number 4, 2001

50. Eucken, The Foundation of Economics.

51. Carl Schmitt, “Strong State and Sound Economy,” in an Address to Business Leaders reproduced

as an Appendix in Cristi, Carl Schmitt and Authoritarian Liberalism, 225–26.

52. Robert Ellickson, Order without Law (Cambridge, MA: Harvard University Press, 1991).

The affinity between the new norms jurisprudence and Carl Schmitt’s institutional jurisprudence

lies in the rejection of legal formalism and the consequent attempt to ground law in the underlying

norms and values of market institutions and processes. For Ellickson, the law should reinforce, and

develop these underlying structures of norms of market institutions, not displace or supplant them.

Moreover, both Schmitt and Ellickson explicitly neutralise norms such that their growth and emergence

are dislocated from relations of power.

53. Neumann, The Rule of Law.

54. Over and above the normative affinity there may well be a more tangible connection between

the ordo-liberal ideas on the one hand and the law and economic movement as well as the new institutionalism

on the other, that informs many of the policies of organisations like the WTO and the

IMF. The connection may in part be traced through Hayek and Schmitt through to the Chicago law

and economics movement. Like the ordo-liberals, Hayek was influenced by Schmitt’s attack on the

‘pluralist party state.’ For the relationship between Hayek and Schmitt see Scheuerman, Carl

Schmitt: The End of Law, 209–-24. For Hayek’s influence on the early Chicago law and economics

school see Neil Duxbury, Patterns of American Jurisprudence (Oxford: Clarendon, 1995), 342.

55. MacCormick, Questioning Sovereignty, 155.

56. See Habermas, Between Facts and Norms.

57. For an elaboration of this argument, see Philip Pettit, Republicanism: A Theory of Freedom

and Government (Oxford: Clarendon, 1997).

58. Philip Pettit, “Republican Freedom and Contestatory Democratization,” in Ian Shapiro and

Casiano Hacker-Cordon, eds., Democracy’s Value (Cambridge: Cambridge University Press,

1999), 180.

59. See Held, Democracy and the Global Order.

© Blackwell Publishers Ltd. 2001

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