Abstract
This article, prepared for an issue devoted to the work of Judge Richard A. Posner, considers the implications of law and economics for the structure of supranational organizations, with particular attention to the application of collective action theory to the relationships among states in the EU. After discussing the connections between this approach and Judge Posner’s work, the article describes collective action theory and its implications for our understanding of the state and of relationships among states. From this perspective, supranational organizations such as the EU can be understood as institutional structures that facilitate collective action among states by reducing the transactions and enforcement costs of making and implementing collective decisions. At the same time, the delegation of authority to supranational institutions creates agency costs for states and their peoples because the interests of the state and its people diverge from the interests of the collective in some instances. Viewed in this perspective, the institutional structure of the EU—like that of other supranational organizations or federal nation states—reflects an effort to strike a balance between collective decision making and local control so as to maximize the collective gains and minimize the resulting agency costs. Understood in these terms, various features of the EU’s institutional design make sense. The ordinary legislative process permits the EU to act without the unanimous consent of member states, thus reducing transactions costs in those areas where collective action is necessary, particularly in relation to the creation and regulation of the internal market. The EU reduces enforcement costs through principles of direct applicability or effects and the supremacy of EU law, which are effective legal restraints in states governed by the rule of law. The institutional structure of the EU also incorporates a representative and deliberative process for collective action that helps control the resulting agency costs for member states and their peoples through supermajority and co-decisional requirements. The collective action perspective also illuminates the function of the subsidiarity principle and the enhanced role of national parliaments in its enforcement.
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Notes
Posner (1987a).
Judge Posner’s canonical textbook, Economic Analysis of Law, is in its ninth edition. See Posner (2014).
See generally, e.g., Posner (1998).
See generally Emmett (2010).
One important strand of Judge Posner’s scholarship explains how the private law rules developed in the common law create economic incentives that encourage efficient behavior. See generally Posner ( 2014 ).
Stout (1992, p. 1787) (“Just as neoclassical microeconomics revolutionized analysis of the common law doctrines of property, tort, and contract, social choice promises to transform modern thought on constitutional law.”).
Posner (1997, p. 958).
See generally Farber and Frickey (1991) (providing a general introduction to public choice theory and criticisms of it). For Judge Posner’s unique variation of this approach, see Posner (2003). In a reply to Richard Epstein’s review of this book, Judge Posner described the difference between his approach and traditional public choice theory as follows: “[C]entral to my analysis is the claim that politicians should be viewed as principals in the political process, not just, as in public-choice theory, agents of interest groups.” Posner (2004, p. 683).
See generally Wilson (1980).
See, e.g., Barrett (2007) (discussing the forces that facilitate and impede cooperation in the provision of global public goods); Sandler (2004), Dunoff and Trachtman (1999), see also Lee (2010) (arguing that global collective action problems necessitate some form of world government operating under a subsidiarity principle). Although the focus of this paper is the EU, a similar analysis might be applied to other supranational arrangements. See, e.g., Yoshimatsu (2006).
This article’s use of the term “collective action” should not be confused with the use of the same term in reference to labor unions. See Case C-341/05, Laval un Partneri Ltd v Svenska Byggnadsarbetarefrbundet and Others, ECJ (2007); Case C-438/05, International Transport Workers’ Federation and Finnish Seamen's Union v Viking Line ABP and Oü Viking Line Eesti, ECJ (2007). Labor unions are, of course, a form of collective action that facilitates the cartelization of labor so as to negotiate better wages and working conditions. In that sense, collective action theory may help to explain the dynamics of organized labor. See Posner (1984) (discussing cartelization of labor). Nonetheless, the focus here is collective action by the member states of the EU, not the EU’s policy towards collective action by labor unions.
Huq (2014) (reviewing and critiquing the literature before concluding that no singular theory of collective action explains federalism but that “granular” applications of particular theories to particular issues may be useful).
For an example of such a comparison, see, e.g., Faure and Johnston (2009).
Throughout the article, unless otherwise indicated, references to treaty provisions are to the English language version of the consolidated Treaty of the European Union and Treaty on the Functioning of the European Union (hereinafter TEU and TFEU, respectively) posted on the EU’s website, http://europa.eu/eu-law/decision-making/treaties/index_en.htm#10.
See Case C-376/98 Germany v Parliament and Council (Tobacco Advertising) [2000] ECR I-8419 (ECJ 2000). This result is not surprising insofar as the Court—like its US counterpart, the Supreme Court—is an institution of the collective authority with a tendency (and incentives) to construe the collective’s authority broadly. See generally Johnson (2000). For further discussion, see infra notes 116–121 and accompanying text.
See generally Olson (1965).
See, e.g., Barrett (2015, p. 13) (“Public goods have two key features: first, no party within the jurisdiction in which the public good is supplied can be excluded from benefiting from its provision; second, each party’s consumption of a public good does not diminish the amount of the good available to other parties.”).
This is not to say that everything the state does is a public good in the strict economic sense, but rather that the essential function of the state is to secure certain core public goods. Even as to government services that are not public goods in the strictest sense, there are economies of scale from providing them at the collective level—i.e., the cost of providing them is less, on a per capita basis, than the cost of providing them as individuals would be. These economies of scale are themselves a collective benefit.
See generally Baird et al. (1994). The game postulates a two by two matrix of options as follows:
Prisoner A↓
Prisoner B→
Remain silent
Make deal implicating A
Remain silent
Prisoner A: 1 year
Prisoner A: 5 years
Prisoner B: 1 year
Prisoner B: 6 months
Make deal implicating B
Prisoner A: 6 months
Prisoner A: 2 years
Prisoner B: 5 years
Prisoner B: 2 years
Given these options, Prisoner A gets a better result by making a deal regardless of whether Prisoner B makes a deal (2 years instead of 5 years) or remains silent (6 months instead of 1 year), and the same is true for B. Thus, if both prisoners act in accord with their individual incentives, the collective result will be 4 years (2 each), even though the best result for them collectively, 2 years (1 year each) would be achieved if both remained silent. Although most authors refer to it as the “prisoner’s dilemma,” which implies that the dilemma belongs to one prisoner, I agree with Professor Wayne Eastman’s observation that the “‘prisoners’ dilemma’… better evokes what makes the Dilemma a dilemma, which is the shared nature of the situation facing the two prisoners.” Eastman (1997, p. 754 n. 52).
Transactions costs rise exponentially as the number of parties who must consent to an agreement increases. Anyone who has tried to schedule meeting times that all members of a group can attend will attest that it becomes increasingly difficult to do so as the size of the group increases. Even when the number of members is relatively small, it may not be possible to reach unanimous agreement (or find a time when everyone can meet). When the size of the collective rises into the thousands or millions of members, transaction costs become insurmountable if unanimous agreement is required.
The members of the EU are representative democracies in which a written (or in the case of the United Kingdom, unwritten) constitution is part of the social contract. These constitutions are accepted as legitimate and binding statements of fundamental law even though not every member of the society has affirmatively consented to them.
When the incentives of a principal and an agent do not perfectly align, then the agent may take actions that are not in the best interest of the principal (e.g., an employee may have incentives to slack off). To prevent such actions, the principal must monitor the conduct of the agent and take corrective action as needed. See Posner ( 2014, p. 534–535, 884).
Not all states are representative in character and many that are did not start out that way. In totalitarian regimes, the social contract metaphor would appear to be inapt and the analysis offered here is inapplicable.
See Levy (2008). As discussed further below, respect for the rule of law is also a critical precondition for the EU’s success. See infra notes 57–60 and accompanying text.
See, e.g., Stout (1992, p. 1794–1795):
Given an uncertain future, it is impossible for the social contract to provide for all social choices in advance, at the constitutional drafting stage. A society that hopes to maximize its citizens’ well-being must adopt some procedure for making social decisions in response to changing circumstances. Because direct democracy and unanimity voting are impracticable in any but the smallest of societies, a representative legislature governed by some form of less-than-unanimous voting seems an obvious and attractive solution.
The state’s objectives at the international level may favor particular interests within the state rather than the “best” interest of the society as a whole, but (aside from extreme cases) that is a matter for the internal operations of the state rather than international law. In much the same way, the rational choice model of human behavior that underlies economics takes individual utility preferences as a given and assumes that people act in their own self-interest. See supra note 3 and accompanying text. Although public choice theory has much to say about whether there is such a thing as the “public interest” of a state and whether political processes are likely to produce outcomes in the public interest, that is not the focus of this analysis.
The political, legal, and economic integration of the EU means that the thick sovereignty premises of traditional international law no longer apply to the EU’s members in any practical sense. Nonetheless, the member states retain a greater degree of sovereignty than do the member states in a federal system such as the US.
Except as otherwise indicated, the discussion is not concerned with the internal processes through which the state determines its interests and does not distinguish between the government of the state and the people of the state.
The premise that free trade regimes produce an optimal allocation of resources has long been an accepted principle of economics. See, e.g., McGinnis and Movsesian (2000) (discussing the benefits of free trade). Nonetheless, this premise has been questioned on both economic and noneconomic grounds. See, e.g., Benson (1994) (advancing various criticisms of free trade); Garcia (2001) (arguing that free trade should be conceived of in moral as well as economic terms and therefore linked to development and human rights); Moffa and Safdi (2014) (discussing environmental and public health externalities from the movement of goods); Nichols (1996, p. 714–718) (acknowledging the benefits of free trade but noting the conflict between free trade and other social values relating to the environment, labor, and cultural identity). For purposes of this article, it is not necessary to take sides in the debate—so long as the governments of states believe that free trade regimes are beneficial, they will act accordingly.
The public choice literature would suggest that special interests that benefit from protectionist measures are likely to have organizational advantages over the more diffuse public interest in lower prices for goods. See supra notes 10–12 and accompanying text. For purposes of this analysis, however, that outcome is taken as reflecting the self-interest of the state.
Although each state need not explicitly consent to customary international law or general principles of law, the (nearly) universal acceptance of custom and general principles implies consent in much the same way that consent to the social contract is implied. See, e.g., Posner and Sykes (2013, p. 8) (“A rule of international law is one that has been accepted as such by the international community of states (a) in the form of customary international law; (b) by international agreement; or (c) by derivation from general principles common to the major legal systems of the world.”); Goldsmith and Levinson (2009, p. 1861) (“[T]he justification provided by Hobbes and other social contract theorists for the authority of the state over the individual is the same as the standard justification for the authority of international and constitutional law: namely, consent.”).
Supranational organizations may become sufficiently centralized and integrated to become a larger “federal” state, as in the case of the United States, which abandoned a relatively weak supranational organization under the Articles of Confederation to become a federal nation-state under the Constitution. See generally Levy (1997, p. 1247–1267) (discussing collective action problems under the Articles of Confederation and constitutional responses to them).
See supra notes 27–28 and accompanying text.
In Albert O. Hirschman’s analysis, when members of a collective disapprove of collective decisions, they have two options, “exit” (i.e., leave the collective) or “voice” (i.e., seek to alter the collective decision internally). See Hirschman (1970). Because the number of member states in a supranational organization is typically several orders of magnitude smaller than the number of citizens in a state, the voice of member states in a supranational organization is typically much more powerful than that of individual voters in a national election.
For discussion of the democracy deficit in the EU, see infra notes 108–110. Although the creation of and increasing role for the European Parliament provided a measure of direct accountability like the direct accountability of federal representatives in the US, the EU is larger and farther removed from the individuals it represents than the governments of the member states, so political accountability is reduced and agency costs are increased.
This concern is one justification for preferring resolution of issues at the member state level under the subsidiarity principle. See infra notes 113–123 and accompanying text.
This is the flip side of the dual agency problem encountered by the people of a state that is part of a supranational organization.
In the US, of course, the Civil War involved the use of force to prevent the secession (i.e., “exit”) of the southern states.
As Louis Henkin famously observed, “Almost all nations observe almost all principles of international law and almost all of their obligations almost all the time.” Henkin (1979, p. 47).
See generally Guzman (2002). Because international sanctions require collective action to impose, they are more difficult to implement than sanctions imposed domestically by governmental authorities. In practice, then, compliance with international law reflects the value of reciprocity as an effective strategy in a repeat prisoners’ dilemma game. Under this strategy, players cooperate with other players who follow through on their agreements but not with other players who cheat. See generally Kahan (2003).
See generally Posner (2006).
Although the Treaty of Rome was an intergovernmental accord, with increasing integration (and the resulting inroads on sovereignty), the approval by the peoples of the member state became increasingly central to the acceptance of the European order. The point was driven home dramatically in the famous Maastricht Decision of the German Constitutional Court and the approval of major treaty revisions through constitutional referenda in the member states (rather than ordinary processes for making treaties). BVerfGE 89, 155 (1993) (indicating that the validity of ratification of the TEU depended on its compatibility with the German Basic Law, but concluding that ratification was not incompatible with the Basic Law) (translated and reprinted in 33 I.L.M. 388 (1994)). The ill-fated Treaty to Establishing a Constitution for Europe, for example, failed when it was rejected by referendum in France and the Netherlands.
The Luxembourg Compromise 1966 Bulletin of the European Economic Community 8 (No. 3) (issued on Jan. 29, 1966).
In contrast, the intergovernmental method requires the unanimous consent of all member states. Under the Treaty of Maastricht, the community method applied under the first pillar (common market), while the intergovernmental method applied under the second (common foreign and security policy) and third (cooperation in matters of police and criminal justice) pillars. The use of three pillars to describe the institutional structure of the EU was eliminated under the Treaty of Lisbon, but the distinction between the community method and the intergovernmental method remains. See TEU Art. 24, ¶ 1 (providing that the common foreign security policy is to be “defined and implemented by the European Council and the Council acting unanimously, except where the Treaties provide otherwise”); see generally Sieberson (2010).
In this respect, the process resembles the bicameralism requirements of the United States Constitution, especially insofar as the original Senate (like the Council) consisted of members appointed by the state legislatures and the House of Representatives (like the European Parliament) was directly elected. See US Const. Article 1, §2, cl. (House of Representatives) & § 3, cl. (Senate). The Seventeenth Amendment, adopted in 1913, provided for the direct election of Senators.
As discussed more fully below, the qualified majority requirement is one of a number of features of the community method that give member states an enhanced voice against collective action that they oppose. See infra notes 104–110 and accompanying text.
The EU retains this model—the “intergovernmental method”—for the some matters. See supra note 51.
See infra notes 63–96 (discussing the expanding scope of EU competences).
Under Article 238, ¶ 3(a) “[a] blocking minority must include at least the minimum number of Council members representing more than 35 % of the population of the participating Member States, plus one member, failing which the qualified majority shall be deemed attained….”.
Although some states that follow the “monist” tradition treat international legal obligations as directly applicable (provided they are self-executing), that is a matter of the internal legal system of the state and not a requirement of international law.
In this context, the rule of law serves as a bonding mechanism that provides other states with assurances that a state will comply with its international obligations. See Levy (2001, p. 284–288).
See supra note 47.
See Case 6/64, Flaminio Costa v E.N.E.L., 1964 E.C.R. 585 (establishing the primacy or supremacy of union law); Case 26/62, NV Algemene Transport- en Expeditie Onderneming van Gend & Loos v. Netherlands Inland Revenue Administration, 1963 E.C.R. 1 (establishing principle of direct effects of treaty provisions).
Of particular importance here is that EU institutions, rather than the individual member states, determine the scope of the EU’s authority. See infra notes 117–119 and accompanying text.
See Case 26/62, NV Algemene Transport- en Expeditie Onderneming van Gend & Loos v. Netherlands Inland Revenue Administration, 1963 E.C.R. 1 (emphasizing the ECJ’s role of securing uniform interpretation of the Treaty and concluding that the Community constitutes a new legal order in international law); see also Opinion 2/13: Accession by the Union to the European Convention for the Protection of Human Rights and Fundamental Freedoms, ECLI: EU:C:2014:2454 (concluding that the draft Accession Agreement mandated by Article 6(2) of the TEU was incompatible with the Treaties because it compromised the autonomy of the EU legal order).
TFEU Art. 3, ¶ 1, provides for exclusive EU competence in respect to the customs union, competition rules, monetary policy for the Euro, common fisheries, and commercial policy.
See generally TFEU Part Three.
As noted above, however, not everyone accepts the benefits of free trade or the assumption that markets should trump other values. See supra note 36. The point here, however, is that the states participating in the EU act on the view that free trade produces net benefits.
Because the benefits of free trade are a form of public good, there is a prisoners’ dilemma scenario and individual states often have incentives to enact protectionist measures. See supra notes 36–37 and accompanying text.
“[T]he activities of the Community shall include… (h) the approximation of the laws of Member States to the extent required for the proper functioning of the common market….”.
Thus, for example, the United States has yet to convert to the metric system of weights and measures, largely because the conversion costs are so high.
The establishment of a common currency has other functions as well. For example, by committing the member states to a common monetary policy, it combats potential negative externalities when individual states pursue monetary policies that risk financial collapse. Negative externalities are discussed infra note 75–76 and accompanying text. The financial recent financial crisis in Greece illustrates that such matters can be a significant source of conflict among member states.
See Case 41/74, Van Duyn v. Home Office, 1974 E.C.R. 1338, ¶¶ 12, 13.
Thus, for example, the Council of Europe was established in 1949 to promote democracy, human rights, and the rule of law.
See Levy (2001, p. 286) (“Das Rechtstaatsprinzip ist der Bindungsmechanismus, durch den jeder Mitgliedstaat sich auf die Einhaltung der europaeischen Rechtsordnung… verpflichetet….”).
Critics of free trade often point to such problems, see supra note 36, which are especially severe when there is no collective authority to address them. Thus, for example, in the absence of effective international environmental or labor standards, globalization may create a “race to the bottom” that exacerbates pollution and promotes the exploitation of workers in developing countries.
Part III of the TEU now lists a broad array of competencies that extend far beyond the creation of a free trade zone and has resulted in a body of EU law that now regulates a broad swath of everyday activities for individuals and businesses of the member states. The United States has had a very similar experience. The power to regulate commerce among the states was a limited one at the time of the founding, but now encompasses virtually any economic activity. See Gonzales v. Raich, 545 US 1 (2005) (upholding federal authority to regulate cultivation of marijuana for personal use).
One of the core insights of the law and economics movement is that the tort system is designed to require the internalization of expected costs in a manner that leads to economically efficient decisions. See generally Posner (2014, p. 191–196).
See supra note 71 and accompanying text.
See Hardin (1968, p. 1243). Although the tragedy of the commons is often used to justify private ownership, collective control is also an effective response if collective action problems can be overcome. See Ostrom et al. (1999, p. 278) (citing examples of successful community management of local commons and arguing that international cooperation is needed to overcome threat of globalization to successful community management).
This term caught on in the context of states’ corporation laws in the United States. When many large corporations reincorporated in the State of Delaware to take advantage of its relaxed corporations laws, other states quickly relaxed their corporation laws so as to compete for corporations, prompting critics to claim that there was a race to the bottom. See Cary (1974) (arguing that federal regulation was needed to overcome the race to attract corporations through the adoption of laws that diluted shareholder rights initiated by Delaware).
The Supreme Court recognized this phenomenon long ago as a legitimate basis for federal action. See Hodel v. Virginia Surface Mining and Reclamation Ass'n, 452 US 264, 282 (1981) (“The prevention of this sort of destructive interstate competition is a traditional role for congressional action under the Commerce Clause.”); Steward Mach. Co. v. Davis; 301 US 548, 288 (1937) (“But if states had been holding back before the passage of the federal law, inaction was not owing, for the most part, to the lack of sympathetic interest. Many held back through alarm lest in laying such a toll upon their industries, they would place themselves in a position of economic disadvantage as compared with neighbors or competitors.”); see also Louis K. Liggett Co. v. Lee, 288 US 517, 559 (1933) (Brandeis, J. dissenting) (describing the competition for corporations as a race “not of diligence but of laxity”).
See infra notes 99–100 and accompanying text.
If the collective benefits truly outweigh the local costs, under the Coase theorem it would in theory be possible for the collective to buy out the local citizenry. See Coase (1960). In practice, however, this solution is often unworkable, in part because of the endowment effect, through which people’s offer price is lower than their asking price. See, e.g., Kahneman et al. (2000). The endowment effect is often particularly powerful in relation to one’s home. On the other hand, however, one community’s NIMBY problem may be another community’s industry to be attracted, particularly in difficult economic times.
The United States has undergone a similar experience, although the expansion of federal authority has been primarily the result of judicial decision rather than constitutional amendment. Nonetheless, constitutional amendments did extend federal power to protect against individual rights violations by states.
Available at http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:C:1992:224:FULL&from=EN, For illustrative discussions of the second pillar, see Koutrakos (2003), McLaren (2005), Ward (2005).
See generally Koutrakos ( 2013).
See TEU Art. 24, ¶ 1 (providing that the common foreign security policy is to be “defined and implemented by the European Council and the Council acting unanimously, except where the Treaties provide otherwise”).
Under TEU Art. 24, para. 1, the ECJ lacks jurisdiction to enforce the common foreign and security policy (with some limited exceptions), and under Art. 24, para. 3, the policy imposes duties on member states, but does not appear to have direct effects.
This benefit is, in effect, the equivalent of forming a cartel. The most powerful example is providing a common defense, because the benefits of collective action in response to an external threat are especially dramatic. But collective action may also provide benefits in other types of external relations as well, such as negotiating treaties, international trade, and international development. A familiar analog would be the formation of labor unions to improve the bargaining position of workers. See Posner (1984).
See Levy (1997).
Nonetheless, even the original Treaty of Rome gave the EEC authority to establish a common external tariff, which was necessary in view of the removal of any customs or tariffs on goods shipped between states.
See Bonfield (2011, p. 142–143) (“While the Union has impinged upon Member State sovereignty in a variety of critical areas, there may be some aspects of the exercise of foreign relations powers that cut more deeply into closely held notions of appropriate national dominion.”).
TEU Art 3, ¶ 2.
See TFEU Arts. 75, 77, 78 and 79.
See TFEU Arts. 81, 82, 83, and 87.
Thus, for example, as reflected in the Council’s decision establishing Europol, https://www.europol.europa.eu/sites/default/files/council_decision.pdf, its primary function is to coordinate the efforts of national police forces. Similarly, the creation of a European Public Prosecutor’s Office requires a special legislative procedure that requires the Council to act unanimously with the consent of the European Parliament, but allows nine or more member states to move forward under provisions for enhanced cooperation. See TFEU Art. 86. The Commission’s proposed regulation is currently pending. See http://ec.europa.eu/justice/criminal/judicial-cooperation/public-prosecutor/index_en.htm,.
See TFEU Arts. 69–71, 81 ¶ 2, 85 ¶ 1, 88 ¶ 2. For discussion of the role of national parliaments in the enforcement of the subsidiarity principle, see infra notes 122–123 and accompanying text.
This is not to suggest that states are the inevitable or only way for a society to organize itself so as to gain the benefits of collective action, and states operate alongside a variety of nongovernmental collectives, such as religions, corporations, and public interest groups. For the time being, however, nation states are the dominant means of organizing polities and structuring governance.
See generally Hesse and Wright (1996). Although the EU has gone a long way down the road to the creation of a federal system and bears many similarities to the structure of the United States, it remains a supranational organization rather than a federal nation state. The next steps toward the creation of a federal nation state would require a further sacrifice of sovereignty and independence for which popular support appears, at present, to be lacking, as reflected in the failure of the Treaty Establishing a Constitution for Europe.
See New State Ice Co. v. Liebmann, 285 US 262, 311 (1932) (Brandeis, J., dissenting) (“It is one of the happy incidents of the federal system that a single courageous state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.”).
In other words, if an individual’s voice in the political process is insufficient to control agency costs, he or she (or it, in the case of a company), has the option of exit. See infra note 102. Of course, not all members of a society are equally capable of using exit as an option, and individuals often have significant attachments to their homes. Nonetheless, waves of immigration to the United States attest to the fact that individuals are often willing to make great sacrifices in order to seek a better life for themselves and their families. Movement within the EU or the United States requires much less of a sacrifice.
Consider, for example, the debate over whether environmental regulation presents a race to the bottom problem. Compare, e.g., Adler (2005, p. 139) (“[C]laims that federal regulation is necessary to prevent a ‘race to the bottom’ are questionable on both theoretical and empirical grounds.”); Revesz (1992) (disputing race to the bottom argument); and Revesz (1997) (same), with, e.g., Engel (1997) (advancing race to the bottom hypothesis); Esty (1996) (same); and Swire (1996) (same).
Insofar as member states may be bound without their consent, they cannot opt out of particular community actions (with a few exceptions). Thus, although Article 50 of the TFEU establishes and exit procedure, it is an all or nothing strategy whose costs are generally prohibitive. The recent conflict over the imposition of austerity measures as a condition of debt relief for Greece is a useful example. Notwithstanding strong local opposition to austerity measures, the possibility of a “Grexit” from the Euro is seen as a last resort. See, e.g., Down but not yet out, The Economist, June 20, 2015, available on line at http://www.economist.com/news/business-and-finance/21654555-costs-grexit-still-outweigh-benefits-both-greece-and-euro-area-down-not-yet-out.
See TFEU Art. 294.
See TEU Aer. 17, ¶ 3 (“The members of the Commission shall be chosen on the ground of their general competence and European commitment from persons whose independence is beyond doubt.”). Under TEU Art. 17 ¶ 7, the Council nominates the President of the Commission, the President-elect and the Council establish a slate of other commissioners based on suggestion from the member states, subject to the consent of parliament. and the approved by the Parliament, the President names the remaining members from candidates suggested by the member states.
This gives the member states of the EU greater control over their legislative representatives than in the United States, where the members of Congress are directly elected by the populations of the states (in the case of Senators) or districts (in the case of the House of Representatives). See US Const. Art. I, §2, cl. 1 and Am. XXVII. In the original Constitution, senators were chosen by the legislatures of the respective states, which gave the governments of the states some measure of control (even if the states had no power to recall their representatives). See US Const. Art. I, §3, cl. 1; see generally Wechsler (1954).
See TFEU Art. 238. This enhanced voice, of course, increases the transactions costs of collective action (intentionally so) and so might prevent the EU from acting in some cases when it would be in the collective interest to do so. Nonetheless, it represents the judgment of the member states that, on balance, this process would prevent more undesirable than desirable collective action.
See supra notes 42–43 and accompanying text.
See generally Corbett et al. (2011).
See, e.g., Schleicher (2011).
TEU Art. 4, ¶ 1; Art. 5, ¶¶ 1 and 2. This principle is the functional equivalent to the principle of enumerated federal powers under the United States Constitution, which is confirmed by the Tenth Amendment. See McCulloch v. Maryland, 17 US (4Wheat.) 316, 418 (1819).
TEU Art. 5, ¶ 3 (subsudiariy); TEU Art. 5, ¶ 4 (proportionality); Protocol (No. 2) on the Application of the Principles of Subsidiarity and Proportionality. For a concise overview, see Craig and de Búrca (2011, p. 94–101); for more detailed (albeit somewhat dated) analysis, see Estella de Noriega (2002).
The proportionality principle has a similar function and most of the analysis that follows would apply, mutatis mutandi, to that principle as well.
TEU Art. 5, ¶ 3 (“[I]n areas which do not fall within its exclusive competence, the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States, either at central level or at regional and local level, but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level.”); see also TEU Art. 5, ¶ 4 (Under the principle of proportionality, the content and form of Union action shall not exceed what is necessary to achieve the objectives of the Treaties). The United States Constitution does not incorporate any subsidiarity principle. See generally Bermann (1994).
See Craig and de Búrca (2011, p. 94) (“Subsidiarity was… intended to curb the ‘federalist’ leanings of the Community). In the United States, for example, the enumerated powers principle has done little to constrain the expansion of the federal government or preserve the autonomy of the states. As a federal institution, the Supreme Court has done little to constrain the scope of federal power, notwithstanding occasional decisions invalidating federal action as beyond the scope of its authority or as violations of state sovereignty. There are today few, if any, activities in the United States that are not subject to federal law. In a similar way, the scope of EU authority has also expanded over time (albeit as much by means of treaty amendment as by means of broad assertions of authority by European institutions).
See Estella de Noriega (2002, p. 113–114 (“The truth of the matter is that attempting to define ex ante criteria of a general and abstract character for the purpose of limiting central intervention stands little hope of success…. Even in those areas in which there seem to be reasons in favour of national, or even regional or local, regulation… it will always be possible to argue that due to the close relationship between these and the development of the single market, some community intervention will always be necessary.”).
Thus, for example, the final say on the interpretation of EU law, including the scope of EU authority, rests with the ECJ, not the courts of the member states, even if those states may determine whether their government’s delegation of authority to the EU was consistent with the domestic constitution, as in the Maastrict Decision of the German Constitutional Court. 89 BVerfGE 155 (Oct. 12, 1993).
See, e.g., National Federation of Independent Business v. Sebelius, 132 S. Ct. 2566 (2012) (upholding “Obamacare” as within the scope of federal power).
See, e.g., Lenaerts and Gutiérrez-Fonsaa (2014, p. 34) (observing that critics of the ECJ’s judicial activism argue that it “will not hesitate to depart from the wording of the EU law provision in question where such departure is necessary to increase the competences of the EU”).
Protocol on the Application of the Principles of Subsidiarity and Proportionality, Article 8.
Providing a role for national parliaments was part of a broader response to criticisms of the Treaty Establishing a Constitution for Europe through which the Treaty of Lisbon gave member states an increased role in checking unnecessary expansion of EU authority. See TEU Art. 12 (general provisions on role of national partliaments) Art. 48 (role of national parliaments in treaty revisions). In addition to giving member states a greater voice, establishing this role for national parliaments also responded to the democracy deficit because national parliaments are more directly accountable to the people.
See generally McCubbins and Schwartz (1984) (distinguishing between these two methods of Congressional oversight). Fire alarms rely on those adversely affected by a problem to call it to the attention of an enforcement authority (rather than rely on monitoring by the authority). The fire alarm model works when the adversely affected parties have the information and incentives to raise the alarm. National parliaments have the incentives to raise the alarm, and the Protocol is intended to ensure they have the necessary information. See also TEU Art. 12; Protocol (No. 1) On the Role of National Parliaments in the European Union (establishing procedures to provide national parliaments with information on proposed EU actions).
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Acknowledgments
It was my good fortune to serve as a law clerk for Judge Posner from September, 1984, through the end of August, 1985. I am grateful to the editors for the opportunity to contribute to this edition of the European Journal of Law and Economics honoring his work. I thank Lindsey Collins and Justine Koehle for helpful research assistance. I am also grateful to Flavio Guella, John Head, Steve Ware, and the journal’s reviewers for helpful comments on earlier drafts.
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Levy, R.E. The law and economics of supranationalism: the European Union and the subsidiarity principle in collective action perspective. Eur J Law Econ 43, 441–473 (2017). https://doi.org/10.1007/s10657-015-9508-x
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DOI: https://doi.org/10.1007/s10657-015-9508-x