The State’s ability to redistribute resources.

Professor Sean Coyle.

Liberal societies have in fact been quite successful in raising the prospects and general standard of living for most people. The deregulation of the markets in land, capital and labour has not fulfilled the promise of social mobility for the many, but it has allowed the majority of working-class families to establish for themselves a middle-class lifestyle. In this sense, liberal societies are victims of their own success. Significant redistribution has come to depend upon a vast middle class being willing to vote taxation upon itself in unprecedented amounts. For many, for whom a middle-class lifestyle is increasingly expensive and only just affordable, higher taxation is unthinkable. The very freedom of contract that makes such a lifestyle possible also unequalizes bargaining power, tilting the balance in favour of private corporations. The manifest advantages of deregulation are qualified by its effect in simultaneously compounding disadvantage, placing people at the mercy of market forces over which they have no real control. In consequence, the state is limited in what it can achieve. Restricted in its ability to effect a direct redistribution of resources, straitened in what it can afford, the state has increasingly to rely on private corporations to respond to basic social needs. But if this is the case, to what extent can the state regulate private operators in the name of the public good?

Governments are absolutely tied to the economy, to specific economic outcomes. And the success of the economy is nothing other than the success of its largest corporations, often multinational in institutional form and in reach, as well as its small businesses. Thus, where the state has been forced to mortgage or privatize public services, it becomes reliant upon those same corporations, which become in turn not mere subjects of the law, but partners in the pursuit of a public good which they will always relegate to the interests of private profit. It is not at all clear, in my view, that the state in such circumstances is in a ‘superior’ position to act for public values. Contracts are indeed creatures of law, but they are no less creatures of a market that is a responsibility, rather than a creature, of the state.

In the absence of the kind of political consensus that would permit the state to respond to vulnerability in a systematic way, can contract and private ordering itself provide a solution?

The undeniable prosperity and social mobility that capitalism produces comes at the cost of poverty and social stasis for some. It cannot therefore be supposed that all voluntary transactions in a capitalist system relate to chosen ends in the sense assumed by autonomy-based theories. The free market is very good at rewarding and encouraging individual resourcefulness and entrepreneurial spirit, which it decouples from any formal or social constraint. But it is much less successful in interpreting the situation of those who, in one way or another, are left behind through their poverty, lack of opportunity, dispossession or lack of skill mobility, whom it sees as suffering the deserved results of their own shortcomings or lack of industry.

Liberalist capitalism insists that individuals are made responsible for their own situation. Failure to engage successfully with the market equals the failure to take advantage of equally available opportunities for enrichment that the market provides. This understanding of (what might be called) the ‘equality of individual responsibility’ is beguiling, because it seems to find an equivalent in the absoluteness of personal moral responsibility. We do not see, for example, the personal fault (or ‘wrongness’) of murder, of rape or of theft as varying with the personal circumstances of the perpetrator. Neither poverty nor lack of education is a moral defence against rape. But the analogy we are employing here is not straightforward. The free market is a domain of controlled disorder which, although applying to everyone equally, does not affect everyone equally or in the same way. Why should the primary transactional instrument of this system, contract, also work in different ways? Some are contracts of assistance (or of need). These might be defined as contracts in which (but for the assumption of assistance) one party treats the other purely as a means to profit, with no reason to suppose that the contract furthers that party’s real interests. This understanding could be deployed in two ways: either by implying a fiduciary element to the lender’s obligations under loan contracts, or in the crafting of remedies (both those of the lender and the borrower).

Increasingly handled as little more than a specialized branch of commercial law, the law of contract was historically regarded as injecting a framework of morality into the market which is otherwise absorbed in self-regarding transactional behaviour. It offered not only stability and certainty to transactions, but also fairness. Not only legal enforceability, but also justice. The jurisprudence of contract, through rules on frustration and other doctrines, left the door firmly open to the idea that the question of enforceability is linked, or linkable, to that of fairness. One would not, therefore, need to see the regulation of loan agreements as awaiting the imposition upon an otherwise unfettered transactional arrangement of a set of legislated rules governing responsible lending, still less the voluntary subscription of corporations to forms of CSR. One could see responsible lending practices as being imported into loan agreements via the idea of fiduciary responsibility, or the determination of remedies.


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