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The interplay between the law of contract, the welfare state, and the quality of democracy has always been at the core of modern European legal systems.
From a historical perspective, it is easy to observe that – well before the rise of European Private Law (EPL) and well beyond the narrow link between contract and market – the grammar of obligations and contract has provided conceptual references upon which lawmakers, scholars, and public administrations have relied to reach a variety of rationalisations of the unprecedented institutional project we know as the welfare state. In questioning the private/public divide in some of its very pillars, this intertwined genealogy between private law and the public/democratic sphere has presented manifold challenges, a few of which can be mentioned.

On the “public” side, the rise of social rights (and the connected issue of their effectiveness) and the attempt to widen and democratise the entire welfare system had to balance the need to maintain a foundational asymmetry between private individuals and public “sovereign” – especially in shaping the organisation and provision of public services. It is no coincidence that the potential risks of this dialectic were promptly recognised by a champion of legal liberalism such as C. Reich, in his seminal contribution on “The New Property”.

On the “private” side, the need to think of contract as an institution relevant to private law and simultaneously inscribed in a complexified frame of reference contributed to innovative theorisations. Overcoming the most traditional views – those that saw contract as a discrete, isolated, adversarial, and strictly bilateral legal institution – allowed scholars, inter alia, to discuss the “social function” of contract, to recognise how contracts have distributive implications, and to reach a deeper understanding of how contract law relates to externalities and other social costs, not to mention the more recent debate on contractual justice.

As is apparent from what EU primary law provides in the domain of public services – referred to as services of general interest (SGI) under European terminology – the attempt to establish a “European social model” can be traced to this set of legal and institutional issues. In fact, according to Article 106(2) TFEU «undertakings entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly shall be subject to the rules contained in the Treaties, in particular to the rules on competition, in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them». This provision is supplemented by Article 36 CFREU, which states: «the Union recognises and respects access to services of general economic interest as provided for in national laws and practices, in accordance with the Treaty establishing the European Community, in order to promote the social and territorial cohesion of the Union».

Such provisions are part of the foundations upon which I have tried elsewhere to contribute to show how and to what extent – far beyond the questionable divide between economic and non-economic services – the mutual implication of contract, welfare, and democracy could have been (and could still be) central to the EU project. Simply put, once conceived in its relational and organisational dimension, contract could have been (and could still be) viewed as the legal institution dedicated to sustaining an organisation of SGI that is “radically democratic” in at least two senses: (i) operating beyond the often bureaucratic hierarchy of the State and the competition-based logic of the market, and (ii) capable of providing all involved stakeholders – primarily end-users and workers – with a legally effective voice in the design of these societal activities.

This institutional and legal possibility was barely noticed during the State-driven golden years of the welfare state (1945-1975). Since then, things have evolved significantly, and renewed awareness of the aforementioned mutual implication has emerged solely as a reaction to the rise of neoliberal and ordoliberal policies at the core of European integration.

Today, as some strategic EU policies initiated twenty years ago can be adequately contextualised, it is not an exaggeration to describe the 2003 Green Paper on Services of General Interest as a “manifesto” of both neoliberal radicalism and regulatory private law. On one hand, this major policy document was based on a naturalisation of the market and its rationality. This narrative used to present privatisations and the market as an institutional framework inherently desirable for any service involving (not only general interest, but also) actual or potential “economic nature.” On the other hand, the core objective of the Green Paper (the opening of SGI to competition and the subsequent creation of a common internal market for these activities) was supplemented with various correctives, such as monetary thresholds relevant to EU regulation and obligations (e.g., universality, continuity, quality, and affordability) aimed at protecting end-users – notably considered more as consumers than as citizens.

In such a context, it is no coincidence that the 2004 Manifesto on Social Justice in European Contract Law – the inspiration behind our gathering in Amsterdam to explore new connections between social justice and EPL – was built on a clear recognition of the political role of contract in contemporary Europe. The authors linked their focus on social justice in European contract law to the observation that «as far as direct public provision of goods and services through the agencies of the Welfare State is dismantled and replaced by contractual relations (…) contract law supplies the rules that govern how citizens obtain the satisfaction of their basic needs. The content of those rules becomes of even greater political significance, because they express the central principles of contemporary ideals of social justice» (p. 655).

Representing a courageous cultural plea during a time of strong hegemony of market-oriented legal thought, the Manifesto helped pave the way for many significant contributions provided over the past twenty years by scholars seeking to challenge dominant views and set a progressive agenda in the realm of European contract law. With respect to the interplay between contract and welfare, this seems especially true regarding the focus on social and environmental aspects of public procurement, and even more so with the efforts to enhance the institutional significance of universal service obligations as well as for the researches on constitutionalisation of EPL, both championed by H.-W. Micklitz.

The pivotal role of this interplay has also been evident in innovative theories of contract that engage with the transformations and hybridisations of welfare. This is particularly true for the updated version of relational contract theory concerning welfare, as proposed by P. Vincent Jones. The attention paid by P. Zumbansen to the dialectic between reflexive contract, welfare and governance is also noteworthy. Finally, organisational contract theories are certainly relevant to an adequate understanding of contemporary welfare systems.

Thanks to the influential legitimacy of such scholarly contributions – and of course in light of the shift in political discourse spurred by the “discovery” of the tremendous social injustice caused by the era of privatisations and austerity measures following the 2007/2008 financial crisis – in recent years dominant EU strategies appear to have (at least partially, and at least for a while) moved away from competition-based radicalism. Once again, the interplay between contract and welfare offers valuable insights. On the one hand, the implementation of the 2014 Directives on public procurement has demonstrated a shift from market-oriented narratives to an increasing focus on socially and environmentally embedded organisational (and contractual) patterns. On the other hand, the action plan for the social economy launched in 2021 by the European Commission goes even further, affirming that a socially responsible and facilitated public procurement is a key tool for supporting societal and economic entities whose action is based on «the primacy of people as well as social and/or environmental purpose over profit, the reinvestment of most of the profits and surpluses to carry out activities in the interest of members/users (“collective interest”) or society at large (“general interest”) and democratic and/or participatory governance».

These trends paved the way for a growing dissemination of contractual relations based on collaborative arrangements which lack consideration for being out of an adversarial paradigm. Co-production and co-management, primarily tested in the welfare domain (namely in the operation of social services), had been expected to give all involved stakeholders – primarily end-users and workers – an unprecedented voice in the organisation of the activities at stake. This process has been especially evident in the Italian system, which I am currently investigating with the RE.S.O.U.R.C.E. research project. In this legal framework, public bodies and private actors – namely NGOs and third-sector entities – are becoming familiar with new types of relational and solidarity-based public contracts, known as co-design (co-progettazione). In line with Recital 4 of the 2014/24/EU Directive (which specifies that «rules on public procurement are not intended to cover all forms of disbursement of public funds, but only those aimed at the acquisition of works, supplies or services for consideration by means of a public contract»), such relations are regulated outside the scope of public procurement.

This summarised framework presents both opportunities and questions for scholars interested in a Transformative EPL. Collaborative and solidarity-based contractual relations in the welfare sector seem capable of enhancing the “many autonomies of private law”, creating an institutional pattern distinct from the market-oriented legacy of privatisations. In this regard, taking seriously the way in which end-users and workers are supposed to be entitled to participate in the organisation of core societal activities – a process I have linked to a commons-based view of the new property, shifting from a traditional zone of privacy to an innovative zone of agency – enables to conceptualise a renewed interplay between contract and welfare as a viable promise (and potential experimentation) of radical democracy.

However, the divide between theoretical and operational dimensions is, to some extent, inescapable. From a transformative perspective, one must put aside overly simplistic optimism and adopt a more nuanced view.

In fact, the effective implementation of this new paradigm faces numerous challenges, a couple of which are worth mentioning. Firstly, legal constraints imposed by statutory law can undermine the reasonable design and effective execution of collaborative and solidarity-based contractual relations (e.g., in Italy, co-design can be used almost exclusively for non-economic, i.e. social, SGI, and only for a limited duration). Secondly, the origin and amount of resources employed in such contracts should be considered in order to assess potential asymmetries of power (e.g., despite claims of participation, should a philantropic entity assure the entire funding it could exert excessive decision-making power over the other parties to the contract). Thirdly, and perhaps most importantly, there may be a reluctance among the involved actors to experiment with innovative contractual and organisational patterns. Negotiations may be seen as disproportionate transaction costs, rather than a forward-looking investment in a (democratic and) cooperative game. Civil servants may be affected by more traditional administrative mindsets (either bureaucratic or market-oriented) when interacting with private actors. Special attention should be given to working conditions to ensure meaningful involvement of workers and avoid any form of precarisation. The aim to foster civic participation should be pursued with a context-sensitive approach, addressing the specific vulnerabilities that hinder the involvement of end-users and the characteristics of each SGI.

While these issues are familiar to scholars working on public management and co-production, addressing them from the standpoint of Transformative EPL – with a focus on a transformative theory of contract – is essential to prevent the supposedly positive interplay between contract and welfare from becoming mere wishful thinking. Further research (both theoretical and empirical) is required to assess whether (and to what extent) the relational, participatory, and solidarity-based paradigm is being implemented, or whether it is being caught in an institutional framework of neo-corporatism and neo-feudalism. In the latter case, contract law could once again become a tool for transferring and concentrating (strategic, operational, contractual, and informational) power from the public and collective sector to private actors in the welfare domain.

Conversely, understanding and shaping the potential of contract law is a strategic issue for a Transformative EPL that seeks to reinvent the universalism of European welfare and foster democracy. 

Art by Tomoko Nagao
Il quarto stato with motta, campari, pirelli, armani, prada, chicco, alitalia and visa at piazza duomo
2016 Digital contents
© 2024 TOMOKO NAGAO

Funded by the European Union – Next Generation EU, Mission no. 4 Component no. 2 – CUP C53D23009960001