Conclusion

The final chapter summarizes the arguments of the book that have exposed the ‘philosophical externalities’ of regulatory competition. If taken seriously as an interpretive framework of law production and reform, regulatory competition commits us to an understanding of law that is inconsistent with other views about law and its role in society that we appear to hold. What does not follow from these arguments is that regulatory competition and the resulting law markets are, in any possible scenario, inherently bad. It would be utopian to assume that the clock on the structural preconditions that have led to competitive dynamics in several areas of law could simply be turned back. To a significant extent, regulatory competition is one of the many symptoms of globalization. The global integration of political, legal, and economic spheres in numerous ways calls into question the role and impact of the nation state. What you think about regulatory competition therefore may not depend so much on the plausibility of its resulting in a race to the top or the bottom in legal standards, but on what you think about the purpose and function of the state in a globalized world.

Political Values under Competitive Pressure

The arguments presented in this chapter spell out the idea that regulatory competition, or the existence of law markets, is at odds with how the state, as the primary political entity of our time, works—or should work. The chapter argues that regulatory competition runs counter to the normative implications of concepts such as state autonomy, democracy, as well as political and legal authority. These are arguments that sit within the conceptual framework of moral and political philosophy. Their starting point is the way in which we understand these normative concepts and to what extent a political and legal reality that is shaped by regulatory competition is consistent with this understanding.

Introduction

During recent decades, mobility of people and capital has increased dramatically, for reasons both political and technological. Common markets, open borders, air traffic, and the Internet have made it faster and less expensive to change places—and jurisdictions. As a result, law itself has increasingly become a good that is subject to the market mechanism. Not only is it easier to move; people are also given more and more opportunities to choose which legal rules shall apply to their company, their contract, their marriage, or their insolvency proceedings. States grant these opportunities, and they respond to them by competing with their legal products and services against other suppliers for the favour of demanders. This chapter introduces the term ‘regulatory competition’ and lays out the contours of the book as a whole as well as the contents of its individual chapters.

Regulatory Competition and Utilitarianism

The hypothesis this chapter sets out from is that regulatory competition is promising as a political strategy only if one shares a number of basic premises that are associated with political utilitarianism. The chapter thus discusses the following questions. In what way could regulatory competition be interpreted as being linked to utilitarianism? To what extent does the appeal of law markets depend on utilitarian assumptions that also underwrite welfare economics? An answer to these questions leads to the conclusion that problems with certain utilitarian assumptions translate into criticisms of regulatory competition as a policy approach. Two particular instances of regulatory competition are used to illustrate its utilitarian pedigree and associated problems. First, tax competition and its effects on states’ ability to implement policies leading to resource redistribution. Second, labour law regarding the employee involvement in corporate decision-making, particularly by mandatory co-determination.

Regulatory Competition

This chapter introduces regulatory competition as a conceptual framework and factual phenomenon. It discusses the structural preconditions of a ‘law market’, including state suppliers’ incentives to compete at all. It closes with a glance at a number of areas in which competitive dynamics among legislators can be found to operate. Law markets have emerged in a growing number of fields, most prominently in the ‘charter competition’ between US states for being chosen as a place of incorporation, with Delaware being the market leader. Another example that has been under intense academic scrutiny is tax competition: states compete for tax revenue and try to offer ‘tax products’ that appeal to mobile individuals and corporations. Further examples discussed in this chapter are drawn from contract, labour, and insolvency law, as well as dispute resolution.

Law as a Contested Commodity

Several types of philosophical arguments have been offered as to why some things should not, or cannot, consistently be bought and sold, such as human organs, Nobel Prizes, or democratic votes. Starting from the debate about so-called ‘contested commodities’, this chapter deals with the commodification of law itself and discusses whether philosophical criticism regarding the commodification of certain types of goods and practices is applicable in the context of law as a product as well. The argument’s starting point is that regulatory competition leads to the law being perceived as a commodity that is subject to the market mechanism. It proceeds with a discussion of the premise that the market mechanism comes with its own kind of valuation, with the price mechanism serving as the primary indicator of value. Criticism of commodification and commercialization is often based on the perception that market valuation tends to be dominant over other evaluative standards, sometimes ‘crowding out’ considerations that cannot be directly translated into market vocabulary. Under conditions of regulatory competition, there is a case to be made that some of the normative considerations, the values and principles that underlie legal rules would in case of conflict be ‘crowded out’ by the imperatives of success in a global law market.

The Economic Case for Regulatory Competition

This chapter discusses arguments in favour of and against regulatory competition—and systems competition—from an economic perspective. The first strand of positive arguments refers to the merits of competition in general, in the Hayekian sense of a discovery procedure for efficient solutions in situations of dispersed and undisclosed knowledge. Competition among suppliers of legal products—the argument goes—should help to identify and establish efficient legislative solutions. The second type of argument builds upon the premise that regulatory competition serves as a restraining factor against the Leviathan state. Competitive structures based on credible exit threats by law’s addressees could force governments to consider the interests of legal customers instead of, for example, taxing excessively. The chapter proceeds with a discussion of arguments that have questioned the promise of regulatory competition from an economic perspective, such as the selection principle. The most prominent criticism is that regulatory competition brought about by a law market leads to a ‘race to the bottom’ instead of a ‘race to the top’ in the quality of legal rules, such as a ‘race to laxity’ in the case of mandatory standards designed to prevent negative externalities.