Notes on the European Union and Privatization — Richard Seymour

An earlier version of this post was first published on Richard Seymour’s Patreon page on 19 June 2017, and is republished here with permission. For the original post, see here. We at Legal Form prefer not to post previously published material. However, we made an exception in the case of the present post due to its thoughtful analysis of questions concerning “Brexit”, the law and political economy of the European Union, and, above all, the strategies and tactics capable of being pursued by a prospective Corbyn government. Needless to say, these questions are even more vital now than in June 2017.

There is a default assumption on the centre-left that the European Union is, if not an outright progressive institution, not fundamentally problematic either.

Obviously, I think this is wrong. Given the reactionary nature of the Brexit campaign, and the ensuing fall-out, it was hardly the most pressing error. Nor was the enthusiasm of “Lexiters” any better grounded. In the immediate aftermath of the Brexit vote, the Left’s position was mostly a defensive one, of trying to limit the damage and prevent it from sinking the first ever left-wing leadership of the Labour Party.

Clearly, we’re no longer on a purely defensive footing. There is a lot that can go wrong, and Britain feels like it’s on a knife-edge, but for the moment the Left has the advantage. There is now a chance to fight more aggressively for a left-wing interpretation of Brexit, rather than just limiting the damage of a reactionary Brexit. The difficulty is, what would that mean?

Corbyn has indicated that he means to fight for “tariff-free access” to the single market. Does this mean membership? Or does it mean, almost tariff-free access, as near as can be arranged with a bit of give-and-take? And how likely is the EU negotiating team to offer anything like this?

Given that approximately half of UK trade is with the EU, solving this problem is not only important in itself, but also vital to Corbyn’s ability to collect enough taxes to pay for his manifesto commitments. Yet at the same time, the single market represents another type of problem for some of his manifesto commitments.

I hope it’s not too controversial to agree with Nick Clegg on one thing. The single market is a Thatcherite achievement. That’s right: as the old, forgotten campaign slogan goes, “I Agree With Nick”. The terrible reality of the Brexit campaign is that it attacked the only really attractive aspect of this institution, which is the free movement of people.

But just as the EU is more concerned with the organization of investors’ rights than “trade” narrowly speaking, the “four freedoms” institutionalized by the single market are chiefly concerned with property rights, not human rights.

What I want to do is spell out the possible implications of single market membership for Corbyn’s manifesto, focusing on his commitments to nationalization of mail, rail, energy, and water.

The trend in EU law is to liberalize across economic sectors, and to harmonize whatever provisions facilitate that. The core EU institution, stipulated by Article 26 of the Treaty on the Functioning of the European Union (TFEU), is the single market. The single market entails the free movement of goods, capital, and services, which are investors rights, further strengthened by the EU’s Services Directive in 2006.

What does that mean in practice? As in all jurisprudence, there is sufficient indeterminacy in the law to potentially allow a variety of outcomes. For example, Article 345 of TFEU states that nothing in the law shall prejudice the right of member states to manage their own system of property ownership.

This could be taken to mean that member states have a right to nationalize or privatize whatever they want. But that can only be determined by seeing how the European Court of Justice (ECJ), which applies the law, has determined its scope in specific cases. Most recently, the Essent case has been an important test case, although one with an ambiguous result.

The Essent case involved energy companies taking the Dutch government to court over laws absolutely prohibiting energy privatization. The Dutch Supreme Court referred the case to the ECJ. The government’s position was that it shouldn’t be a matter for the ECJ, because of Article 345. The ECJ agreed to the extent that the government had a right to manage its own system of property ownership. But it said that this right was not unrestricted, and that it therefore fell within the Court’s scope.

In particular, the ECJ insisted, the fundamental provision in the TFEU of free movement of capital had to be taken into account. Restricting the rights of private investors to acquire shares in an undertaking was an abridgement of free movement. This could be tolerated only in a narrow range of exceptional situations. Specifically, the member state in question would have to demonstrate that there was an overriding reason of public interest, and that it must accord with the proportionality principle.

The ECJ, having laid out this reasoning, referred the case back to the Dutch Supreme Court. So what constitutes “proportionality”? In what circumstances is it permissible for a member state to abridge the free movement of capital? That has to be inferred from other rulings.

For example, take Société nationale Elf-Aquitaine, the French oil company. The French government used a “golden share” in the privatized company to ensure that the state had decisive influence. The minister for economy had to approve the acquisition of shares and voting rights by any individual above a certain threshold. The European Commission objected that these regulations were anti-competitive, and the ECJ agreed.

On the other hand, in the case of the Belgian Société de distribution du gaz SA, the government invoked a principle of public security as a justification for holding a strategic stake in the energy industry. The principle in question involved the state’s ability to maintain a continuity of energy supply in the case of attack.

The ECJ has cleaved to a restrictive definition of proportionality, permitting exceptions where a concern is implicated in the exercise of authority. In the French case, it was deemed that no satisfactory principle had been offered to justify curtailing free movement of capital and goods, and that state intervention was in excess of what would be required to secure energy in the case of emergency.

The decisions of the ECJ, which have primacy over the national law of member states, have generally supported the preferences of the European Commission and the extension of liberalization–meaning market competition and privatization–in a range of domains, from energy to telecommunications.

In the run up to the Brexit campaign, a lot of “Lexit” polemic focused on desiderata such as the renationalization of the railways. Kate Hoey probably doesn’t count as a Lexiter, because she’s not particularly left-wing, but her argument was typical in claiming that EU membership made renationalization impossible. That overstatement ruined a perfectly good argument.

The “fourth railway package” seeks to extend the logic of the internal market to rail. As per Article 345, it does not specify a public or private property regime. It would be quite compatible with either a Railtrack or a Network Rail running the rail network. It does not specify that specific service providers must be private operators.

It does specify markets and competition. It does mandate separating infrastructure and service operators. It does mandate the opening up of domestic public rail contracts to competition by 2019.

In principle, the government could take all the existing rail networks into public ownership as their contracts expire. A publicly owned firm, separate from Network Rail, could take over all the service operators. However, should the government try to prevent a private investor from acquiring shares in a service operator, or should it prevent private investors for bidding for the franchise, that would fall under ECJ remit. The Commission could make a complaint, and it probably would, and the government would then have to answer to the “proportionality principle”, which, as we have seen, is applied quite narrowly. It would be unable to maintain a state monopoly.

Being a member of the single market would entail accepting the “four freedoms” and the jurisdiction of the ECJ. Now, what if the ECJ ruled against a Corbyn government? What if it instructed Corbyn to open up publicly owned carriage provision immediately to competition from private providers, say to Virgin or Southern Rail? Could Corbyn simply refuse to comply? If he was prepared to accept steep fines for every day of non-compliance, yes. If he was prepared to be at the epicentre of a barrage of condemnation and vilification, yes. On the other hand, could he just forget about renationalizing these goods, in the interests of trying to keep the economy growing? If he was prepared to accept a major defeat on a major plank of his platform, at the risk of demoralizing his supporters and strengthening the reactionary Right, yes. If he was prepared to forget about any left-wing challenge to the established growth formula, yes.

There is, of course, no guarantee that the Commission or a private provider would take Corbyn to court, or that the ECJ would find against him. In part, it depends on the political climate. And it may not be necessary to negotiate full membership of the single market in order to get its benefits (although, frankly, economic logic aside, I don’t know why EU negotiators would concede that). This is just an example of something that applies more generally, in terms of the relationship between an elected left-wing government and powerful, non-democratic institutions.

The last time there was a Labour government, it worked immediately and enthusiastically with the grain of global, post-democratic institutions, from the EU to the World Trade Organization. It produced reports describing its progress with privatization, private finance initiatives, and public-private partnerships. It recapitulated orthodox “free market” arguments for proceeding in this direction, above all the efficiency of competition and private provision. That “efficiency” was pure ideology, but it was an ideology congruent with the smooth circulation of power. Labour at that time could stride the world stage as a major player in the construction of a liberal world system, while also putting the iron fist of war behind the velvet glove of trade.

A Corbyn government would immediately have to wrestle with these institutions. And they include the EU, with which it would have to negotiate. Corbyn is quite rational in stating that “full, tariff-free access” to the single market is a basis for negotiating. But whatever he can get from Guy Verhofstadt and colleagues won’t come cheap.

Richard Seymour is the author of numerous books, most recently Corbyn: The Strange Rebirth of Radical Politics (London: Verso, 2016), and the founding editor of Salvage magazine. He can be followed @leninology.