1.1 A World Order Analytical Framework

According to Adam Harmes, much of the political science literature on federal, regional and global governance has been compartmentalized by level and dominated by theoretical approaches emphasizing the competition between governments or between territorially based groups, or the role played by unique national institutions.¹⁶ We think that to avoid the pitfalls of methodological nationalism on questions related to economic constitutionalism, we need to embed our approach in a world order analytical framework in order to accurately reflect a complex interplay between ideas, institutions and material potentials across borders.

Our use of the term ‘world order’ is not meant to be a normative reflection of an order that is seen to be desirable or ethically and morally justified – our use is historical, that is, it is intended to reflect the actual, really existing structures and practices of rule and how they are related to the hierarchical constitution of power within a particular global economic system. That system today is dominated by a relatively small number of powerful capitalist states such as the USA and increasingly China, and by regional associations such as the European Union. Indeed, as the constitution of power operates in an integrated international capitalist system, national or domestic economic constitutions ought to be also understood within the framework of multilateral organizations and treaties which are intertwined with and modified by the visible and invisible operations of corporations and other business entities – in the longue durée of modern capitalism and its associated political and class formations.

As such, ‘new’ constitutionalism harks back to forms of representation associated with the pre-democratic age dominated by oligarchic property and dynastic power, that is, to before and following the three great bourgeois revolutions – the so-called Glorious Revolution in England of 1688–1689, and the French and American Revolutions at the end of the 18th century. However, the world we live in is not the same as that of the 18th century: its political economy is dominated by concentrations of capital in the form of giant monopolistic or oligopolistic corporations, trusts and institutional investors involved in 24/7 transactions.¹⁷ Indeed, we will argue that new constitutionalism allows for a significant amplification of the power of capital on a world scale. This is why we need to look not only at domestic laws and changes to constitutional structures, but also to the quasi-constitutional effects of international agreements and other mechanisms of neoliberal globalization.¹⁸ The underlying assumption of a domestic economic constitution is that the country functions in an autarkic manner, reflecting a form of methodological nationalism, but this is hardly ever the case. For instance, emblematic endeavours of economic constitutionalism designed by prominent ordoliberal intellectuals (Alfred Müller-Armack and Jacques Rueff) on both sides of the Rhine – the ‘Act Against Restraints of Competition’ (1957) and the Plan Pinay-Rueff (1958) which prioritized a balanced budget, monetary stability and the opening-up of trade – should be understood against the background of meeting the European Economic Community (eec) targets and objectives a few months after the signature of the Rome Treaty.¹⁹ As Damien Piron reminds us, European laws that regulate national public finances are the most manifest illustration of this disciplinary logic, as the norms regulating European budgetary governance seek to reassure the investor against the whims of democracy. Budgetary politics are thus conceptualized and constructed as a ‘forbidden territory’, a realm ‘above popular pressures’. It is therefore no coincidence that the sixth state reform (transfer of more than 20 billion euros to the Belgian regions and communities in 2010) was adopted while the European Council of Ministers had decided to start an Excessive Deficit Procedure (edp) against Belgium. In France, it was no coincidence that, despite François Hollande’s parliamentary majority’s resistance, Emmanuel Macron’s labour law was forced through the National Assembly without a vote (49.3 procedure) in order to demonstrate the willingness of the French government to undertake neoliberal reforms, a few days before the European Commission decided what to do about France’s failure to meet its Excessive Deficit Procedure targets in 2015.²⁰

Besides, decisions taken in the realm of economic constitutionalism (for instance, the free movement of capital) are inherently relational. Thus, when countries engage into free trade and investment agreements with the United States, this association automatically limits their rights to use capital controls.²¹ Domestic, regional and international elements of economic constitutionalism should therefore be conceptualized in a global perspective so as to unveil the ways in which they may synergize into coherent principles of action on a world scale.

1.2 The Role of Organic Intellectuals

The role of ‘organic intellectuals’ has been absolutely crucial in operating this process. In his prison writings, Antonio Gramsci urged that we should distinguish between ‘traditional’ intellectuals (who inscribe themselves in an historical continuity uninterrupted by the most complicated and radical socio-political changes) and ‘organic’ intellectuals (who belong to a specific social group and reflect the interests and views of that group, such intellectuals include bankers, lawyers and politicians, as well as other class-conscious theoreticians).²² The role of organic intellectuals in articulating the ideas giving birth to and developing global constitutionalist arrangements (and their links to large capital) cannot be overstated.

As far back as the 17th century, Hugo Grotius thus provided ideological and discursive justifications for Dutch supremacy with his concepts of international law and freedom of the seas, which clearly served to facilitate and justify the expansion of Dutch naval power and the activities of Dutch trading companies and business monopolies. In the 20th century, neoliberal organic intellectuals such as James M. Buchanan and Friedrich A. von Hayek have focused mainly on national constitutional orders but have extended this to discuss the constitution of the EU²³ and world order.²⁴ They wished to remove fundamental constitutional and governance questions from political contestation in order to insulate the rights of property and capital from the purview and constraints of democracy and broader political participation, thus separating and insulating ‘constitutional politics’ from ‘ordinary politics’. This separation was intended to discursively include certain kinds of considerations while excluding others that might point towards different forms of regulation or entirely different forms of society.²⁵ The contribution of organic intellectuals is sometimes crucial in changing the ‘spirit of the time’.

Thus, the neoliberal Milton Friedman had predicted the rise of inflation in the 1970s. Indeed, ‘stagflation’ – which the Keynesians believed to be impossible – created an intellectual crisis for the adherents and advocates of the post-war welfare state and the Keynesian economics on which it was based, opening the way for attacks on its credibility and legitimacy as the prevailing form of political economy macroeconomic management.²⁶

However, it would be restrictive to assume that most of this work of critique of the prevailing orthodoxy was carried out simply by American scholars. As Rawi Abdelal made clear, the role of French organic intellectuals has also been absolutely pivotal. Indeed, while the Europeans – and particularly the British, Germans and Dutch – supported liberal rules for capital movements, three French policy-makers/intellectuals in the EU, Organization for Economic Co-operation and Development (oecd), and imf all played central roles in actually crafting the informal and formal rules of those organizations. Jacques Delors of the European Commission, Henri Chavranski of the oecd, and Michel Camdessus of the imf each took part in proposing new liberalizing rules for the members of their organizations.²⁷ This cohort from the Mitterrand era did much more than acquiesce in a new world of increasingly mobile capital. The French government and these French policy-makers attempted to manage it by simultaneously writing the rules of the international financial architecture and in building the authority of the organizations (EU, oecd, imf) that helped to govern the system.²⁸

To be clear, the phenomenon of transnationalization of capital through the implementation of accommodating constitutional and global governance frameworks is nothing new, but its contemporary scale is massive. Indeed, the transnationalization of capital has to be inscribed in the longue durée of capitalist development and can be traced back to the Italian city-states and Europe of the 12th century. Fernand Braudel documented the transnational power of merchant capitalism and its extension through trading and financial links across Europe and throughout the world, partly supported in this endeavor by some of the normative and governing frameworks of the Holy Roman Empire.²⁹

As Braudel noted, capitalism is a hierarchical, monopolistic and frequently predatory force that seeks to extract surplus across social formations and political jurisdictions. Capitalist forces operate across space and time and employ their chief privilege, the ‘ability to choose’ (between jurisdictions and activities). The great predators of the world today (e.g. Amazon, Google, Facebook, Nestle, Monsanto) are thus able to take advantage of “national” structures of production and social reproduction in an era in which many states’ social welfare, health and educational provisions have been reduced or privatized, generating a depletion of human security and social provisions, as well as new forms of generalized health and social risks.

1.3 Global Governance as a Hybrid of Public and Private Actors

Although often state-led, the governance of the political economy is influenced by a myriad of private actors. In the 19th century, the role of haute finance was crucial to the establishment and maintenance of the Concert of Nations system, dominated by Britain, which was the link between the political and economic organization of the world: “independent of single governments, even of the most powerful, it was in touch with all, independent of central banks, even the Bank of England, it was closely connected with them…”.³⁰ Indeed, 19th century imperialism and new forms of accumulation produced much of the foundation for global governance as we would understand it today, particularly its technical managerial aspects with a mediating role devoted to the nascent international organizations.³¹

The post-war capitalist world was, however, characterized by efforts to institutionalize new and somewhat more inclusive frameworks of governance. After 1945, the historic compromise that had to be made for capitalism to survive entailed the inclusion of some representation of organized labour. Yet, the deep capitalist economic crises of the 1970s weakened the Left and renewed the influence of conservative and liberal political forces. With capital mobility increasing and the dollar-gold system of fixed exchange rates abandoned, the post-war Bretton Woods international monetary order was transformed. Throughout the 1970s and 1980s, the growing influence of neoliberal precepts and policies and their promotion by the business community gradually sanctified capital mobility as one of the defining features of financial globalization and economic orthodoxy. Indeed, business circles mobilized politically through the creation and expansion of a large number of lobby groups and think tanks, which began to influence governments, donate to more free-enterprise oriented political parties, and promote a free-market outlook among the public more generally, including an emphasis on the need to rein in inflation.³² Examples of such organizations include the American Enterprise Institute, the libertarian Cato Institute, the Heritage Foundation and several US-based Political Action Committees (pacs), as well as the transnationally-oriented Mont-Pelerin Society.³³ Together, these organizations and their organic intellectuals waged what Antonio Gramsci called a ‘war of position’ to advance the strategy and influence of the class forces they represented. Although these intellectuals adopted different approaches, they were in effect a transnational neoliberal political party in all but name.

The aim of a ‘war of position’, as opposed to a war of movement, is to slowly build up the strength of the social foundations of a new state, the underlying logic being that change within civil society needs to precede and promote change in political society in order to create the new desired form of state. For Gramsci, only a war of position is likely, in the long run, to bring about such structural changes. This involves building up the socio-political base and organizations (e.g. political parties) for change.³⁴ Together, these lobby groups and think tanks sought to promote a more neoliberal approach among politicians and the public.³⁵ This entailed the repudiation of the historical compromise of post-war reconstruction (i.e. solidaristic and relatively planned Keynesian political economy) and the promotion and emergence of a neoliberal political perspective which excluded organized labour from its governing practices, coupled with constantly renewed efforts to intensify the commodification of land, labour and capital. Essential to these stabilizing attempts has been the promotion of an ideological and political framework of ‘good governance’, whose foundations are examined in the next subchapter.

Nonetheless, global governance as it really is, with its intensifying class, race, caste and gendered inequalities, has neither stabilized nor legitimated the actually existing world order.³⁶

2.1 ‘Good Governance’: For Whom and for What?

So to address the concept of ‘good governance’ particularly in political economy, however, one should first of all perhaps establish a distinction between the ‘liberal’ and the ‘neoliberal’ conception of free trade. Indeed, while classical liberals tended to support free trade and international capital mobility for reasons of mutual gains and international peace, neoliberalism supports them primarily for creating the inter-jurisdictional policy competition that its advocates believe will lock in free market – or free enterprise – policies domestically. Neoliberalism is thus much more opposed to forms of international cooperation (such as the harmonization of tax and regulatory policies related to wealth redistribution and the correction of market failures) which might undermine this policy competition among governments.³⁹

As M. Mahmoud Mohamed Salah aptly put it, the principle of economic constitution was gradually universalized in three phases: (1) nationally through the extension of the ‘rule according to higher law’ logic; (2) regionally through European integration; (3) globally in the framework of multilateral organizations. Following the alleged failure of dirigiste and socialist experiments and dramatic increases in public debt, the principle of interjurisdictional competition was a key to the universalization of economic constitutionalism. Ever more attractive laws for investors and the decisive action of the imf and World Bank in prioritizing anti-inflationist policies efficiently eclipsed the prospect of recovery plans based on better wages and labour conditions, public investment or public budgeting to fund improved public services. Thus, the 1980s and 1990s bore witness to a remarkable convergence between the criteria and norms enforced by the World Bank, the imf, the oecd and the rules set out in the Treaties of Maastricht (1992) and Amsterdam (1997). Whatever the context, priority was given to austerity, balanced budgets and monetary stability or so-called ‘sound policies’. ‘Good governance’ therefore refers to this approach aimed at entrenching global ‘best practices’ via concepts of limited welfare and public services provision, minimal or self-regulation of business and finance, and pro-market reforms, partly locked in by the juridical, legal and regulatory frameworks of what we call the new constitutionalism of disciplinary neoliberalism.⁴⁰

Neoliberal strategy seems to take inspiration from the theoretical framework that American economist James Buchanan advocated, premised on a clear distinction between what he termed ‘constitutional politics’ (the overarching frameworks of ‘quasi-permanent rules’) and ‘ordinary politics’ (struggles and debates within constitutional rules that define the political limits of the possible). Buchanan thus stated that “explicit constitutional limits on the intrusion of politics into the market have the further advantage of providing stability of expectations for persons and groups, internal and external, who might make long-term investments”.⁴¹ Thus, ‘normal politics’ is strictly a politics within rules, and for Buchanan constitutions should be considered quasi-permanent in order to become elements of ‘genuine political capital’.⁴² At stake in this separation is the protection of capitalist private property, including through macroeconomic policies that will contain inflation – hence the argument made by neoliberals on the need for ‘fiscal and monetary constitutions’. By fiscal constitution, Buchanan means specific measures to prevent deficit financing by governments, such as balanced budget amendments or precise stipulations as to the size of budget deficits, as with the Maastricht Treaty and its caps on public debt (60% of gdp) and budget deficits (3% of gdp) for all member countries, since such deficits may be linked to inflation and erode the value of capital and assets of creditors. With regard to money and inflation, Buchanan argues that individuals can be made more secure and independent with a regime that “embodies predictability in the money-goods exchange regime”.⁴³ The long-term objective is to limit democratic control over economic policymaking in an effort to benefit transnationally-oriented capital.⁴⁴ Mechanisms of ‘good governance’ thus entail the separation of economics from politics on a global scale.

Interestingly, neoliberals tend to employ the same concepts of market efficiency and internationalist discourse used by classical liberals to promote capital mobility and free trade – coupled with the ideological contention that free trade and international capital mobility have the ability to promote both democratization and interdependence – rather than to defend the benefits of the creation of an exit option and policy competition at the international level.⁴⁵ Although ubiquitous, their notion of ‘efficiency’ is seldom properly defined. It derives from the neoclassical assumption that competitive markets are inherently efficient, a claim that can be associated with the types of assumptions which make up what Gramsci called ‘common sense’. This refers to how sometimes folkloric or scientifically unfounded assumptions about society, politics and the economy become uncritically accepted.⁴⁶ The neoclassical view relies on three main conceptual tenets and assumptions concerning the efficiency of economic systems and processes – all of which are questionable in an era of concentrated economic power in the form of monopolies, oligopolies and the capture of political systems by big capital: The principal tenet is reflected in: (1) the concept of market efficiency (understood as meaning all relevant information is present in the market and is subsequently reflected in the price system); (2) that neoliberalism fosters economic efficiency (all factors of production are used in the most rational way); (3) and finally this results in social efficiency. Social efficiency is conventionally related to the Pareto efficiency criterion. This postulates a (hypothetical) situation where no individual or preference criterion can be made better off without making at least one individual or preference criterion worse off (thereby tending ideologically to uphold the existing distribution of activities and rewards). Neoliberal efficiency arguments tend to operate according to neoclassical economic theory which suggests an optimum market structure of ‘perfect competition’ between a myriad of small producers who are price takers as opposed to price makers. However, ‘perfect competition’ is a utopian mirage in a world of oligopolistic or monopolistic competition. In capitalism today oligopolies and monopolies control and dominate markets and systems of distribution – whether that market is physical or virtual (e.g. Apple, Google, Amazon, etc.). Of course neoliberals could argue that productive efficiency might be achieved through economies of scale – which most of the large monopolies and oligopolies would probably argue justifies their dominant market positions.⁴⁷ However this latter view is contested by anti-trust and competition measures taken by different jurisdictions to attempt to counter the dominance of gigantic corporations.

Nevertheless, the neoliberal common sense notions of efficiency are generally propagated in political and media discourse and they help justify the push for binding free-trade and investment agreements (e.g. nafta, the Single European Act) and all are strongly supported by dominant elements in the business community. Globally, the efforts to promote free trade have manifested themselves most prominently in the business community’s strong support for the conclusion of the Uruguay Round of the General Agreement on Tariffs and Trade (gatt) negotiations and the creation of the World Trade Organization (wto). In this way, the promotion of capital mobility and free trade was unequivocally endorsed by dominant business and conservative media, as well as by liberal outlets such as the New York Times or the Washington Post.⁴⁸ With this in mind, our next subchapter examines some of the consequences of freeing capital movements.

2.2 International Capital Mobility and Policy Competition

Capital controls were a fundamental element in the original Bretton Woods system. Indeed, both John Maynard Keynes and Harry Dexter White were in favor of protecting the nascent welfare states from the potential destabilization that could stem from capital flight. Accordingly, capital mobility was antithetical to the spirit of the Bretton Woods Agreement. Indeed, its architects envisaged an international framework that substantially limited policy and fiscal competition in order to allow post-war Keynesian policies to succeed. The return to international capital mobility under a regime of liberalized financial markets and free trade in recent decades has changed this state of affairs. With the internationalization of finance, capital controls, once part of the Bretton Woods orthodoxy, have become heretical again,⁴⁹ at least in the discourse of ‘good governance’. Liberalizing the movement of capital, one of the main pillars of neoliberalism, has had a decisive disciplinary effect on states and has severely and durably restricted their policy autonomy.

In their rhetoric, Friedrich von Hayek and Milton Friedman singled out exchange controls as particularly oppressive for individual freedom. Exchange controls limit the ‘exit option’ of capital holders, that is, the right to exit or enter a specific political jurisdiction with their capital intact. The exit option of course includes the right to move capital to the so-called offshore world. Capital controls, by contrast tend to limit how capital mobility (and capital flight) can exercise a disciplinary effect on governments. For Hayek, state control on foreign exchange (capital controls) constituted a decisive advance on the path to totalitarianism and equated to the suppression of individual liberty.⁵⁰ For Friedman, capital controls were the “most effective way to convert a market economy into an authoritarian economic society”.⁵¹ In the name of freedom, neoliberal thinkers have therefore promoted the cross-border mobility of capital and encouraged the preservation of the associated ‘exit option’ in order to discipline governments, parliaments and national trade unions to introduce and accept neoliberal economic policies as both efficient and justifiable.⁵²

Acknowledging the aim to secure the protection of private property rights and to transform public policy in accordance with the interests of internationally mobile capital, the International Monetary Fund made capital market liberalization a condition for membership and access to its loans, thus indirectly limiting democratic control over domestic economic policymaking. The new norm of free movement of capital has also been legally locked in via a patchwork of bilateral, regional and global legal and institutional mechanisms. At the bilateral level, many countries have concluded investment and free trade agreements with the US, which strongly limited the rights of these countries to use capital controls. Regionally, the EU, nafta and the Association of Southeast Asian Nations (asean) institutionalized the free movement of capital to various extents. Globally, the wto constitutionalized the freedom of capital movements in the General Agreement on Trade in Services (gats) and the Trade Related Intellectual Property Rights (trips) frameworks. But it is perhaps at the International Monetary Fund that important attempts to globally constitutionalize the free movement of capital have been undertaken with incomparable zeal.⁵³ By 2005, the combined liberal rules of the EU and other oecd member states governed some 70 to 80% of the world’s capital flows.⁵⁴

As a result, many nations and jurisdictions (including offshore centres, some of which are sovereign principalities) increasingly engage in a ‘commercialization of sovereignty’ in order to compete to attract internationally mobile capital. This policy competition has constraining effects on social and labour rights, promoting a race to the bottom on such rights, which in turn further increases the power of capital relative to labour.

2.3 Competitive Federalism and Tax Policy

In his article, Damien Piron contends that Belgian fiscal federalism is characterized by the willingness to introduce competitiveness into the realm of economic and fiscal affairs as well as consolidation in the budgetary realm.⁵⁵ Thus, the gradual strengthening of the mechanisms of inter-regional fiscal competition had a disciplinary effect on regional fiscal policies. Thus, numerous consulting firms are now advising affluent households and companies with regards to the community or region they should domicile in for tax purposes. In parallel, budgetary discipline is now orchestrated by the state in order to reassure investors and public debt holders. After these multiple reforms, the Belgian federated entities have acquired large budgetary resources (proportionally the highest in Europe) and regions have obtained large fiscal autonomy. This is because the taxes that were previously collected by the central government before being ‘rebated’ to federal entities progressively became ‘regional taxes’ whose control by federal entities is progressively more severed. Therefore, the content of the Special Law relating to the financing of the Communities and the Regions (sfl) – the cornerstone of the Belgian economic constitution – was a vector of conversion for federal entities to the neoliberal imperatives of economic and fiscal competitiveness and ‘cleansing’ of public finances. A similar logic as that depicted by Piron is at play at the regional and global level.

Indeed, for James Buchanan, federalism is essential to organize competition and is indissoluble from the constitutional provisions he is calling for, as the principle of federalism emerges directly from the market analogy.⁵⁶ Competitive federalism is therefore a key component of constitutional economics. The creation of a Common Market (EU) prevented governments from using their regulatory authority to erect trade barriers against goods and services emerging from other political units.⁵⁷ This automatically entailed the institutionalization of an ‘exit option’ on the continent, and indeed the centralization of control over those policy capabilities related to free trade, capital mobility and private property rights. In parallel, this reasoning implied the decentralization of those policy capabilities that related to wealth redistribution and the correction of market failure,⁵⁸ illustrating the contradictions and consequences of the centralization/decentralization dialectic at the heart of the practices of ‘good governance’.

These juridical frameworks, associated with immense technological advances such as computerized transactions, have allowed many firms and affluent households to move their money abroad in order to evade taxation or international sanctions, as the series of offshore leaks shedding light on these practices (Luxembourg Leaks, Swiss Leaks, Panama Papers, Paradise Papers) has revealed. Tax evasion is also institutionally locked in by the principle of unanimity in EU decision-making, which is a primary instrument to perpetuate the frameworks of market-preserving federalism.

Change is also blocked politically within the EU institutions, as some Member States are themselves offshore centres (Luxembourg, the Netherlands, Ireland, Channel Islands, City of London, etc.) and can use their veto power to oppose more ambitious policies aimed at combating money laundering and tax evasion. In sum, it is possible to note the stability of the new constitutionalism in the realm of international tax policy. The structural power of capital remains intact thanks to: (1) legal and institutional constraints (banking secrecy, international free trade agreements and treaties) which create a framework prohibiting the taxation of certain transactions and (2) geopolitical dimensions (internationally mobile capital is capable of playing off one political jurisdiction against another) that tend to discipline governments, parliaments and trade unions.⁵⁹ In similar fashion to the ‘world capitalist’ enterprises (banks and trading companies) depicted by Fernand Braudel in the era of merchant capital, financial and other corporate capital can now operate across time and space and oppose many obstacles that may exist or may be created to inhibit their profit making, e.g. more ambitious and progressive taxation schemes. In this way, the principle of unanimity in EU decision-making, the difficulties in creating a political consensus over banking secrecy, and the ideological support for an exit option justified by the ‘competitiveness’ discourse all inflect the prevailing political discourse and capacities for regulation and taxation.

In short, ideological, legal and institutional mechanisms all currently serve to lock in the rights of mobile capital and the regressive tax regime which is favourable to their accumulation strategies.

Multilateral taxation initiatives, e.g. on bank secrecy and the role of the offshore world do exist with the most recent attempt to harmonize up corporation tax initiated by the new Biden Administration in 2021 at the Group of 20 (G20) and in the oecd. Much remains to be seen as to whether the new initiatives will succeed but they have seldom been met with real as opposed to rhetorical success. For example, in 2009, G20 countries urged tax havens to sign more than a dozen information exchange treaties under the threat of economic sanctions. Because of this major coordinated initiative against tax evasion at the global level (associated with the regionally-oriented European Union Savings Directive), the world’s tax havens signed more than 300 treaties, which led policy-makers to affirm that “the era of bank secrecy was over”.⁶⁰ Alas, the data collected by Gabriel Zucman and Niels Johannesen suggests that these treaties have had quite a modest impact on bank deposits in tax havens, and that they did not trigger significant repatriation of funds, provoking instead a relocation of deposits between tax havens. Indeed, the least compliant havens have attracted new clients, while the most compliant ones have lost some, leaving roughly unchanged the total amount of wealth managed offshore. This finding challenges the rhetorical claims among policy-makers that the G20 tax haven crackdown was a success, thus proving the limits of a sequential approach (as opposed to a ‘big-bang approach’) in fighting tax evasion.⁶¹

2.4 A Strategy of Depoliticization

One of the central goals of economic constitutionalism is to ‘depoliticize’ the question of money. This, it was argued, was the neoliberal best means to provide the ‘public goods’ of ‘sound money’ and macroeconomic stability.⁶² This strategy is perhaps best exemplified by the technocratic governance of the Eurozone⁶³ and by how the imf treats capital controls as a technical matter and not as a political issue. In this way, economic policy is depoliticized, so that it can apparently be put in the hands of technocrats and removed from democratic decisions.⁶⁴ Capital controls are thus disparaged as inconsistent with good governance while in reality their abandonment is part of a ruling class-based project supported by Western governments that favours internationally mobile capital and associated large asset holders. Consequently, the imf institutional view not only leaves the structural power of transnational capital intact,⁶⁵ it also serves to increase it and to embed it institutionally in the governing structures of world capitalism.

In the Global South, as M. Mahmoud Mohamed Salah rightfully underlines, market liberalization was presented as a ‘modernization’ tool and instituted as conditional for imf loans and programmes.⁶⁶ The main aim of these structural adjustment policies was to ‘include national economies into the global economy’ through trade liberalization measures which entailed the relaxation of barriers to entrepreneurial activities (licensing, rationing, price regulations) and the retrenchment of the state in market activities (suppression of subsidies, dismantling of public monopolies and their privatization). The principle of conditionality was also enforced in the post-Soviet world, where all new entrants into the European Union were required to adopt strict competition laws and other neoliberal reform measures, all in the name of abstract and contestable concepts of economic ‘efficiency’ and ‘competitiveness’.

As may have been clear from our earlier points, such ‘efficiency’ never seems to incorporate ‘social’ or ‘human’ dimensions or indeed ever to be conceptualized outside of prevailing liberal economic discourses. The notions of socially and ecologically sustainable growth, redistribution of income under conditions of increasing inequality, the adequate funding of efficient and affordable public services including for health and well-being, investment in research and renewable energies are markedly absent from the policies predicated by ‘good governance’ in the Western world as for the Global South. This reflects a historic convergence of the reform of colonial and postcolonial societies under neoliberal governance and discourse. Indeed, it might seem obvious to say that these frameworks are not consistent with the material and human interests, or indeed the very survival of humankind and the integrity of the planet, its biosphere and its life-forms. It remains to be seen whether this might change – for example in the now massively indebted Member States of the European Union and in the post-Trump United States – in an era of intensified climate change, economic and social crises and health and other emergencies.⁶⁷

3.1 New Constitutionalism and Democracy

As previously suggested, new constitutionalism involves political and legal reforms to redefine the nature and scope of the political in capitalist societies via a series of pre-commitment mechanisms. These include constitutions, laws, property rights and various institutional arrangements, designed to have quasi-permanent status. Law is central to the constitution of the power of capital, the nature of the state and its formal and legal separation from civil society.⁶⁸ Around the globe, constitutional reforms have transferred an unprecedented amount of power from representative institutions to not only the executive branch but also to judiciaries, operating the astonishingly rapid transition to what may be called a global ‘juristocracy’⁶⁹ or what Friedrich von Hayek termed, following Michael Oakeshott, a ‘nomocratic’ (law-governed) society.⁷⁰ In this way, the raison d’être of new constitutionalism – and its associated market-preserving federalism – is to make alternative futures – for example socialist alternatives – illegal, to prevent future governments from undoing commitments to a disciplinary neoliberal pattern of accumulation. It thus operates across time and space and, in so doing, entails efforts to politically contain challenges to the disciplinary neoliberalism project through co-optation, domestication, neutralization and depoliticization of opposition.⁷¹

This state of affairs is utterly problematic from a democratic standpoint. Indeed, neoliberals argue for the redefinition of the political in order to construct a ‘protected domain’ that secures individual freedoms against encroachments of the power of the state and pressures of the ‘tyranny of the majority’ in democratic systems. In the liberal lexicon, democracy is therefore not a primary political concept, as the dominant political subject (or the effective sovereign) of the new constitutionalism is the investor, or the holder of large private property rights.⁷² Friedrich von Hayek argued that democracy is only acceptable insofar as it is coupled with strictly limited government: the powers of any temporary majority must be limited by long-term principles, constrained by a constitution that limits the powers of government.⁷³

Neoliberals thus oppose notions of ‘social justice’ in the sense of positive commitments to social redistribution to compensate for the inherent tendency towards wealth concentration and inequalities of condition under market-based disciplines: for Hayek justice is secured on an equal basis through an effective Rule of Law. This forms the basis of what Hayek called catallaxy⁷⁴ (the facilitation of spontaneous exchange processes and the associated mutual adjustment of individual economies in a market system), governed by a state that exists only to enforce property rights through constitutional constraints and binding rules and regulations on democratic life, which is the economic component of a nomocracy. For Buchanan, this is key to the creation of an ‘efficient social order’ that is premised on individual choice. In this way, neoliberal approaches – based on Constitutional Political Economy and Public Choice – advocate a form of structuralism founded upon methodological individualism as the basis for this so-called ‘efficient social order’.⁷⁵

This reasoning also strongly echoes the precepts of ordoliberal organic intellectuals such as Walter Eucken and Franz Böhm.⁷⁶ In their framework, the state needs to be strong enough to provide an ‘order’ (Ordo) so as to develop the normative and political concept of ‘order-based policies’ (Ordnungspolitik), that is, a framework justifying and governing the actions of both the state and firms under competitive capitalism. For jurist Franz Böhm, the economic constitution is the “comprehensive decision (Gesamtentscheidung) of a society concerning the nature and form of the process of socio-economic cooperation”.⁷⁷ For Walter Eucken, economic constitution (the rules of the game) is a political matter,⁷⁸ and its institutional core should comprise strict competition policy and tight monetary policy, the latter being orchestrated in Germany by the German Act Against Restraints of Competition and the creation of the ‘independent’ Bundesbank in 1957, although independent central banking was technically not prescribed by proponents of the Freiburg School of ordoliberalism.

With an economic constitution, these elements become part of a distinct realm. Their logics and procedures are insulated from democratic interference: they do not directly answer to the parliamentary state, even less so to the pressures of the street. A quintessential contemporary example at the regional level is therefore the European Central Bank, one of the many ‘independent’ central banks that have proliferated since the early 1980s – and one of the most independent and powerful. This independence gave central banks substantial latitude to act as a lender of last resort and thus to massively bail out banking and corporate interests following the crash of 2008, a discretionary move which increased both the concentration of assets as well as of firms and went against the ordoliberal orthodoxy of strict competition.⁷⁹ While central banks are independent of governments, their boards of governors are largely drawn from the ranks of private financial interests, not from trade unions or from the ranks of heterodox political economists.⁸⁰ This echoes the dialectic of socialization/desocialization inherent to new constitutionalism which we underlined in the introduction: socialization of financial and corporate losses goes hand in hand with the protection of capital from expropriation and seizure, while the socialization of capital through nationalizations or redistribution is firmly prohibited by treaties (desocialization).

Independent central banking belongs – alongside balanced budget amendments and intellectual property rights provisions in trade agreements – to what Adam Harmes terms horizontal new constitutionalism,⁸¹ i.e. those measures that do not directly rely on the disciplinary effects of capital mobility and the exit option. The next subchapter explores what Harmes calls vertical new constitutionalism, that is, the lock-in mechanisms that rely on capital mobility and the exit option and are thus directly connected to market-preserving federalism.

3.2 Market-Preserving Federalism and the Capillary Power of Disciplinary Neoliberalism

The aim of market-preserving federalism (including not only within national jurisdictions but also along regional or global lines) is to impose constraints on socialist or even social-democratic forms of government intervention by locking in inter-jurisdictional competition. Two broad principles apply for the design of market-preserving federal systems: (1) subnational governments should not have the ability to limit the right to exit (or enter) their jurisdictions in order to ensure a national economy characterized by the free movement of individuals, firms and goods; (2) neoliberals generally advocate decentralization of labour and environmental regulation and certain forms of tax collection and social spending. Whereas classical fiscal federalism seeks policy efficiency by having the supply of public policies match the demand for them, market-preserving federalism emphasizes the ‘locking-in’ of free-market policies through the creation of an exit option and policy competition.⁸² The structural power of capital is thus affirmed and institutionalized through the predominance of international finance and transnational corporations in the global political economy.⁸³ Furthermore, legal and institutional constraints contained in the treaties do more than just fulfilling the ordoliberal dream of organizing competition: they prohibit the nationalization or socialization of capital while capital losses are constantly socialized in times of crisis to ensure the survival of the capitalist system. In other words, new constitutionalism binds future governments and makes it even harder to transcend the neoliberal regime of governance in the coming decades.

This ability to freeze policy tools and thereby influence ideological orientations on the long run is part of the capillary power of disciplinary neoliberalism, i.e. powers that reach into the very crevices of everyday activity and politics as a result of budgetary and fiscal discipline. Indeed, the disciplinary dimension is central to the prioritization of capitalist enterprise, which is considered the primary, vital, life-giving force in a regime of ‘competitiveness’. As a political project, disciplinary neoliberalism seeks to ensure that large capital generally becomes the sole and uncontested arbiter of public policy and development. Damien Piron shows the progressive capillary aspect of these structures in Belgium with the three phases of Belgian financial federalism delineated in his paper: ‘vertical budgetary legitimacy’ (1970–1988), ‘horizontal budgetary legitimacy’ (1989–2000) and ‘fiscal legitimacy’ (since 2001). Moreover, this tendency is related to the innovation and intensified application of practices of surveillance in the political economy, or ‘panopticism’. These include new levels of technological sophistication applied instrumentally, for purposes of social control and avoidance of losses that reduce the individual (or the state, for that matter) to a manipulable and relatively inert commodity by corporations and powerful market participants.⁸⁴ The ultimate goal is to instantiate and institutionalize the ideological claim that ‘there is no alternative’ to neoliberal governance.⁸⁵

3.3 Globalization from Above Is Contested from Below

Despite its powerful fortifications and institutional support, new constitutionalism remains a strategic political project, rather than a completed historical process. As such, it has a contingent and contested character.⁸⁶ Contestation is growing in the context of the recent organic crisis of capitalist societies – that is, crises of a deep structural and fundamental nature resulting in an impasse concerning the future that does not avail itself to traditional exit strategies or concepts of political and social renewal. The current economic, social, health and environmental stalemate also leads, as is clear to see, to the development of both degenerative/reactionary as well as progressive solutions/responses, with each beginning to gain traction politically. Centrist cross-class parties associated with prevailing patterns of global governance and corporate solutions have been losing secular appeal over the last 30 years, particularly in the oecd nations, a process that appears to have accelerated since the 2007–2008 global financial meltdown originating, once again as in the 1930s, on Wall Street.⁸⁷ By obliterating former social and economic protections and enhancing economic vulnerability, neoliberal capitalism seems to have sparked, once more, a ‘double movement’ of nationalist and populist backlash and it may well be that the current pandemic/economic and social crisis will intensify these developments.⁸⁸

The severe social dislocations occasioned by the policies deriving from new constitutionalism and disciplinary neoliberalism have therefore triggered new forms of contestation and resistance from those social groups that Gramsci called the ‘subaltern’. In his Notebook 25, Gramsci conceived subalternity in terms of class, race, culture, and religion – among other factors. For Marcus Green, this concept within the general trajectory of Gramsci’s thought, particularly with respect to subaltern political activity and the function of intellectuals, reveals the interconnection between the degeneration of political power, a crisis of representation, and social and political marginalization.⁸⁹ The 2018–2019 Yellow Vests (Gilets Jaunes) insurrection in France, with its blockade of roundabouts and its incursions in Paris’ beaux quartiers, is emblematic of some of the new types of spontaneous resistance movements that the European organic crisis has come to engender and reflect. Far from restricting their grievances to the gas tax increase and other threats to their systems of livelihood, the Vests gradually articulated an ambitious agenda for wealth redistribution, democratic reforms, social and environmental justice and the end of state repression.⁹⁰ Rather than succumbing to the elitist Zeitgeist that tends to amalgamate every political movement that does not conform to the status quo as forms of destabilizing ‘populism’, Harmes suggests that we should also conceptualize these movements as ‘anti-policy competition’ rather than ‘anti-globalization’ per se.⁹¹ We might add that they are not simply a revolt against elite technocracy but are often actively seeking to develop more inclusive forms of democratic participation and forms of accountability that depart from traditional representative democracy.

It would however be a huge mistake to underestimate the (uneven) institutionalization and political resilience of neoliberal power blocs, and their capacities to cope with, co-opt, or marginalize and crush resistance – particularly since, in many respects, neoliberalism represents a strategy of governing through crisis and, as Monnet pointed out in the context of European integration, developing its political projects of integration through responses to crisis.⁹² The ferocious repression of the Yellow Vests movement, or for that matter of every type of contestation in contemporary France, is a reminder of the overt brutality disciplinary neoliberalism is capable of engendering in a situation of dominance rather than hegemony that lies at the heart of the current ruling class project of European integration. However, our last subchapter will demonstrate that subtler methods exist to counter the blows of resistance in the EU and other institutions of global governance.

4.1 covid-19 and European Political Economy

From the very beginning, the European integration project was constructed on principles of economic constitutionalism, principles that were intended to be mechanisms to extend the internal market whilst at the same time introducing measures of widening scope that would incrementally limit the discretionary power of parliaments in economic policy-making at the European level, in effect keeping many democratic forces out of the governance of key elements of economic policy. How an economic constitution emerged in the more recent European context is reflected in the Maastricht Treaty of 1992, which paved the way for the introduction of the Euro as a means to consolidate the EU and laid out the general legal and political framework for the Economic and Monetary Union (emu).⁹⁴ Monetary policy is concentrated in the hands of the European institutions, whereas budgetary discipline and some coordination of economic policies remain mainly decentralized to Member States. Eurozone countries were restricted to budgetary deficits of no more than 3%, and their debt to gdp levels restricted to a maximum of 60%, so their debts to creditors were seen to be sustainable.

It was however without any apparent theoretical or economic grounding that a European consensus centred on the arbitrary 3% deficit rule emerged in 1981, when France’s deficit amounted to 100 billion Francs (which then represented 2% of its gdp). Influential French economist Guy Abeille thus deemed the 3% threshold an attainable goal.

Entrenched in the 1992 Maastricht Treaty, this 3% regulation was reinforced in the Treaty of Amsterdam in 1999, and consistently hardened ever since, notably with the 2013 Treaty on Stability, Co-ordination and Governance (tscg), whose Article 3.1b lowered the threshold of authorized budgetary deficit to 0.5%, in effect mandating a virtually balanced budget. Under tscg, surveillance has furthermore reached new heights: Excessive Deficit Procedure is automatically activated whenever a Member State transgresses the 3% limit. Indeed, the rules of separation of monetary and fiscal policy had not been relaxed since the 2008 banking crisis, which was reframed in dominant discourses as a ‘public debt’ crisis. Quite the opposite, the EU policy package had become more rigid and doctrinaire, such that with this crisis the new ‘economic governance’ constitution was being extended,⁹⁵ while simultaneously its neoliberal/ordoliberal discursive framing limited what was deemed politically possible on ideological grounds. At the apex of those financial and monitoring structures stands the European Central Bank (ecb), an institution heavily influenced by the private financial sector; ecb independence insulates it from democratic forces that might wish to constrain its policies.

Orthodox economists praise these innovations as maximizing competitiveness and ‘economic efficiency’ across the Eurozone⁹⁶ although that claim is yet to be reflected in living standards, political stability and a significant lowering of unemployment. By contrast, a Critical Political Economy (cpe) perspective analyzes not only economic effects but also how discourses emerge and which role they play in political struggles,⁹⁷ e.g. how these measures may reflect a shift to a more pervasively ‘authoritarian neoliberalism’⁹⁸ or indeed an ‘authoritarian constitutionalism’.⁹⁹ Some thinkers have equated the new architecture to a form of ‘transnational authoritarian statism’¹⁰⁰ and how crisis management can be understood as a means of restructuring power relations under new constitutional conditions of the European Union.¹⁰¹

4.2 The July 2020 European Rescue Plan and the response to the covid-19 Shock

At first sight, the Covid-19 shock in the Spring of 2020 turned all this architecture of austerity upside-down. The ‘symmetric’ coronavirus shock hit countries that were in highly asymmetric economic conditions. The more developed core (centred on Germany) had increased its productive and technological capacity while the Southern Periphery, caught between product competition with the EU and cost competition from emerging economies, had seen a decline in its manufacturing capacities.¹⁰² However, the core itself is dependent for its growth on the pattern of specialization within the EU, especially in a context of trade disputes with the United States. Indeed, the Southern Periphery is providing an outlet for increasing surplus of manufactures, while the Eastern Periphery is supplying cheap input for its industries.¹⁰³

The pandemic abruptly hit Italy in March 2020, before spreading all over the continent. Its dramatic effects exposed the fragility of peripheral states and shed light on the consequences of years of austerity in the EU: uneven material capacities, international dependence on manufactured goods and denuded public health systems and as a result scarce medical facilities to respond to the pandemic. Although the hastily declared lockdowns affected each European nation and region differently, the overall picture is one of a tremendous plunge in production and incomes and enormous pressure on public goods, public finances and, with that, on the project of European integration. For a few weeks, the press gauged the balance of forces in the ‘clash of neoliberalisms’ which saw Germany, France and the Southern Periphery – that were favorable to agreeing on an ambitious rescue plan – at crossed swords with the so-called ‘Frugal Four’ (Netherlands, Austria, Denmark, Sweden), a confrontation which, however, ultimately gave birth to the Covid-19 recovery plan in July 2020.

To a certain extent, the July European Recovery Plan of 750 Billion euros (390 billion in the form of loans and 360 billion in grants, in 2018 prices) can be seen, in the same fashion as the 2012 imf institutional view,¹⁰⁴ as a ‘departure from neoliberalism’, and therefore, admittedly, can be interpreted as a possible loosening of the new constitutionalist framework.¹⁰⁵ Yet, even though the Plan seemed to discursively drift away from new constitutionalism, it also signaled the return to more ‘ad-hoc’ measures in the form of conditionalities. There is no clear departure from austerity, as budgetary and financial conditionality seem to still be on the agenda for debtor countries. According to the ec’s ‘Proposal for a Regulation’ (Art. 17.4.a) the financial regulation will be “paid in installments once the Member State has satisfactorily implemented the relevant milestones and targets identified in relation to the implementation of the recovery and resilience plan”.¹⁰⁶ Thus, the symbolic (and probably temporary) suspension of the Stability and Growth Pact, with its purported willingness to ‘mutualize’ debts in the Eurozone and its discursive Keynesian elements may therefore serve to co-opt resistance and opposition movements in a context of growing inequalities and rampant Euroscepticism.

As a matter of fact, the European Rescue Plan seems weak and lacks ambition, especially considering the impact of the pandemic in the Southern periphery (e.g. in Spain and Italy) and there have been significant delays in disbursing the funds. Nonetheless, very little has been budgeted against poverty and to fight inequalities. Indeed, the Plan is not oriented towards redistribution at all, nor towards tax harmonization or for improved labour and environmental regulations, as progress in those areas would threaten the benefits of policy competition and will thus always meet strong resistance from neoliberal forces. To sum up, the EU witnessed a temporary suspension of disciplinary neoliberalism in order to meet the emergency. Member States acted in an extra-economic constitutional manner so as to absorb some of the blow of the pandemic and thereby signaled the continued relevance of some of their sovereign power. This begs the questions: What is the prevailing bloc of political and social forces at the heart of the EU that has the power to suspend these rules? Who holds sovereign power in the Eurozone?

4.3 The Restructuring of New Constitutionalism and Trasformismo

The EU is extending its easing of the state aid rule into 2021 (to cater for the continued needs of businesses) and some horizontal new constitutional measures seem to be contested even in the Netherlands,¹⁰⁷ quite incongruously given that the prosperity of the Dutch kingdom was partially built on its tax haven activities (and also ideologically that it developed its own tradition of public choice theory which dates back to the 1950s).¹⁰⁸ At the global level, the imf estimates that countries have increased spending or cut taxes by 11.7 trillion (12% of global gross domestic product) in 2020, and is encouraging states to consolidate their fiscal activism, which led even the Financial Times to bombastically claim that we are witnessing the ‘funeral of austerity’.¹⁰⁹ All these elements may suggest that disciplinary neoliberalism has been left in the lurch. Yet, it is our contention that, although new constitutionalism is being temporarily restructured, its foundations remain intact¹¹⁰ – or at least will likely remain so until a new wave of austerity and regressive taxation is imposed to finance the unprecedented levels of public debt within the EU.

In his study of the imf ‘institutional’ view on capital flows, Sacha Dierckx concluded that despite rhetorical changes and opposition from emerging markets, the framework leaves the structural power of transnationally oriented capital intact.¹¹² While the approach certainly implies a more flexible standpoint on capital controls, it remains within neoliberal limits. The imf ‘institutional view’ is one of ‘pragmatic neoliberalism’:¹¹³ it contains elements that appear as a departure from neoliberalism in an effort to incorporate and co-opt resistance.

In the tumultuous political context that followed the Risorgimento, Antonio Gramsci referred to this process of co-optation as trasformismo (transformism). In the Italian context, trasformismo manifested in the process whereby the so-called ‘historic’ Left and Right parties which emerged from the Risorgimento tended to converge in terms of program during the years which followed, until there ceased to be any substantive difference between them. This gradual but continuous absorption of the Party of Action by the Moderate Party reflected the fact that the Risorgimento was ‘a revolution without a revolution’, a ‘revolution-restoration’, or in Gramsci’s famous coinage, a ‘passive revolution’.¹¹⁴

The lack of legitimacy associated with neoliberal globalization explains why the global struggle is now increasingly mediated by trasformismo – attempts by ruling classes and élites to co-opt and incorporate opposed political forces and their intellectual leaders in order to make their power more legitimate and in so doing, help sustain the prestige of their regimes.¹¹⁵ The use of this tactic has been commonplace at the wto level, where transnational forces of radical change – especially the Alter Globalization Movement (agm) – are often co-opted, tempered and rendered relatively ineffective by powerful neoliberal interests,¹¹⁶ as well as in the EU. Thus, the British Trade Union Congress (tuc) and the UK Labour Party abandoned their longstanding opposition to the European Community and its subsequent extension through the Single European Act (sea). They did so in response to Jacques Delors’s announcement that the Single European Act would have a social dimension in the form of the Social Charter,¹¹⁷ while the sea was the first attempt – although not the decisive one – to redefine the internal market in such a way as to put freedom of capital on the same footing as the other three freedoms.¹¹⁸

Robert W. Cox has depicted these tendencies that relate to the aforementioned dialectic of inclusion/exclusion thanks to his long experience as Research Director at the International Labour Organization (ilo) in Geneva. International institutions and rules are generally initiated by the state which establishes its hegemony: they perform an ideological role in defining policy guidelines for states and to legitimate certain institutions and practices at the national level. In other words, these institutions reflect orientations favourable to the dominant social and economic forces. To counter the blows of resistance, elite talent from peripheral countries is co-opted into international institutions in the manner of trasformismo.¹¹⁹

Despite the extraordinary nature of the current events, crises remain moments of opportunity. Indeed, in spite of Mario Draghi’s dramatic commitment to do ‘whatever it takes’ (which Emmanuel Macron loudly echoed with his spring 2020 mantra ‘quoi qu’il en coûte’) to sustain economic growth and favour rising wages, the ‘Euro crisis’ (2011) became a pretext for the European Commission and the Council to put forward proposals to give the EU new powers to deal with core welfare issues and ‘economic unbalances’ under a new technocratic procedure without democratic debate: José Manuel Barroso’s ‘silent revolution’ to create an ‘economic government’ imposed from above.¹²⁰ Thus, the momentary display of fiscal activism and the temporary loosening of new constitutionalist rules could be analyzed as related to a strategy of containing or limiting popular pressure and democratic striving in a time of profound uncertainty and rapidly deteriorating standards of living for a majority of the European citizenry. In this instance, ‘passive revolution’ becomes a defence mechanism that seeks to avert a complete revolution: it can be analyzed as an effort to promote an unethical project of modernity that ultimately seeks to preserve the features of an exploitative, unequal and class-divided society.