Coding for the 99 per cent? Principles and the preconditions of capital minting

Abstract

Martijn Hesselink proposes a ‘Progressive code of European Private Law’, which would seek to tame the ‘legal steroids’ that private law modules and savvy crafting by well-paid lawyers currently offer to to global capitalism. The present comment engages with one of the core characters of the proposed code, namely that it should ‘consist of fundamental principles (not detailed rules)’. Rather than taking up the impossible task of suggesting (or speculating) what the principles should be, the paper aims to further operationalise certain aspects of what they should – or should not – do. To this aim, the role of principles is assessed in relation to attempts to ‘code for the 99 per cent’. Hence, the paper revisits certain mechanisms of so-called weaker party protection or social law through Katharina Pistor’s coding analytics (priority, durability, universality, convertibility). Private law principles and their legacy are part of the resistance, or backlash, against social coding. The paper concludes that a code of principles that aims to be progressive in the sense Hesselink highlights should consider at least two requirements: first, principles should be expressly formulated in such a way that they do not stand in the way of progressive detailed rules; second, they need to broaden the private legal imagination. It is on this account that ‘any amount of regulatory private law could not achieve what a (constitutionalised) code of private law principles could accomplish’.

1. Introduction

Martijn Hesselink proposes a ‘Progressive code of European Private Law’ (PEPL), which would seek to tame the ‘legal steroids’ offered to global capitalism by private law modules and savvy crafting by well-paid lawyers. This code would ‘be European (not national), be mandatory (not optional), have “constitutional” ie primary European Union (EU) law status (not merely secondary), consist of fundamental principles (not detailed rules), prioritise justice (not economic growth) and be radically democratic (not technocratic)’.¹

The proposal can be perhaps labelled a ‘utopia for realists’, which, in contrast to other ambitious visions,² underwrites the priority of distribution over redistribution, while focusing – with Pistor³ – on the specific allocative role of private law. Of course, realists and idealists alike may question the broad contours of the proposal – and several contributions in this Symposium do exactly this, from different perspectives. I must, however, acknowledge here to being so partial to the proposal that I could not honestly engage in such challenges if I tried. In a less-than-realist utopian spirit, then, I will just wish many issues away and take most PEPL requirements at face value.⁴ What I will mostly concentrate on in this short contribution is the relationship between fundamental principles and detailed rules postulated by Hesselink’s idea of a ‘short code’, or, even, a charter of private law justice.

Hesselink, as we saw, claims that the PEPL charter should be made of ‘principles (not detailed rules)’. He further speculates that ‘a few dozen would probably suffice’.⁵ An important reason for this choice, he explains, is that principles are better able to play the progressive game as they are harder for corporate lawyers to get around – an observation that resonates with Pistor’s intuition, in her response, that ‘less legal certainty’ would be of help.⁶ I tend to agree with this characterisation. However, what is principle and what is detail is not immediately obvious, including because it connects with what we consider – or not – private law. Most crucially, this is the case because – again, with Pistor – the devil is in the detail.⁷ In other words, while principles are almost by definition open-ended, principles that are put in place to be ‘progressive’ should not too easily lend themselves to regressive interpretation – a risk that some of the examples below will illustrate.

I will, therefore, look at the relation between certain core principles and detailed rules, not in abstracto but by considering how selected rules outside of the traditional ‘core’ of private law have acted or sought to act in a way not dissimilar to the way classical doctrines have been mobilised to mint capital for the 1 per cent. At the same time, I will trace failures to code and the backlash against interventions and their significance for the PEPL charter project.

The paper’s central section is structured along four themes, based on Pistor’s analysis. While setting out the code of capital, she claims in particular that the core rules of private law – a core that is, however, broad enough to include insolvency, intellectual property and the law of trusts – bestow four crucial attributes on assets (be they material, like land, or immaterial, like credit), which turn such assets into capital. The four attributes are, in Pistor’s words:

Priority, which ranks competing claims to the same assets; durability, which extends priority claims in time; universality, which extends them in space; and convertibility, which operates as an insurance device that allows holders to convert their private credit claims into state money on demand.⁸

While Pistor concentrates on coding by private lawyers (the ‘masters of the code’ that The Code of Capital’s chapter 7 is devoted to), the mechanisms considered in section 2 are the result of direct regulatory intervention. The difference is not further explored in the paper. However, there is no reason to think that the attributes of priority, durability, universality and convertibility would hold analytical value (and ‘capital-making’ qualities) only when deployed by private parties.⁹

2. Coding for the 99 per cent – service and service(s)

Coding of assets partly presupposes some pre-existing endowment; it is, however, just as much about being able – and brazen enough – to call the stakes and rally enough support around the idea that something should be considered an item suitable for trading and legal protection.¹⁰ Shareholders, for instance, have had such good advocates that in day-to-day discourse we consider them as owners both of their shares – which they can trade separately from the company – and, collectively, of the company, which is to ignore the separability on which free share-selling rests.¹¹

Pistor’s reconstruction allows us to separate ‘capital’ from assets, making it possible to also re-read materialised private law¹² (or at least significant parts of it) as attempts to ‘code for the 99 per cent’ – that is, to graft some of the key attributes of priority, durability, universality and convertibility on to the ‘assets’ – be it the ability to work, credit-holding or other relevant positions – held by the counterparts of those traditionally considered as capital-holders. The examples below, thus, are in a way a thought experiment that re-reads prominent and less prominent measures of worker and consumer protection through Pistor’s categories (priority, durability, universality, convertibility). While one could plausibly object that we should not now try to recast all interventions as ‘coding’ for fashion’s sake, I think the resonance and peculiarity of the interventions highlighted here is such that the exercise is meaningful and offers actual (h)in(d)sight into specific types of intervention and their justification.

We know, for one thing, that labour’s share of income has gone down over the past few decades in advanced economies, so there are reasons to believe that these attempts have not – or not all – been particularly successful.¹³ We can, however, learn from their successes and failures in order to focus on whether a PEPL charter could or should do anything in particular in order to make space for – or, in other words, not stand in the way of – coding for the have-nots. While staying somewhat true to Hesselink’s objections to experts trying to figure out the contents of a PEPL charter, this paper tries to set out some conditions at the margin – which are actually at the core (within the core principles) that represent conditions of possibility for giving progressive rules a chance.

For each sub-section, I select two core examples – one from employment, the other from consumer services. From a contract law perspective, the selection is relatively homogenous, employment being ultimately born out of the notions of service contract and contract for services.¹⁴ This move is bound to raise some questions and will also simply make some frown. Reasons for this unhappiness include: neither consumer nor employment law are actually private law; consumer contract law may still be private law, but labour law is an autonomous discipline; the whole idea of labour law is to emancipate the employment contract from the idea of service and services; finally, putting – as I do – work and housing in the same overview as ‘consumption’ may further elevate consumerism. While granting some (or much) merit to some (or most) of these propositions, I take here a different stance, comparable to that of ‘life time contracts’¹⁵ – both assuming and asserting the kinship between (some) consumer and employment relations.¹⁶ The strategy should hopefully not be too controversial in the context of this short contribution: in particular the idea of a progressive European private law charter should learn all it can from experiences with ‘progressive’ legislation.¹⁷

Before delving into a short overview, one last word of caution is in order. If we are to recode with a progressive agenda, it is important to keep in mind that some differential coding is inevitable – law will always privilege some claims over others. These include the mechanisms we will be discussing below. In fact, the viciously selective operation of coding in employment law has led not only to successful (if instrumental) critiques of insider–outsider dynamics at the start of the century:¹⁸ only recently, several groundbreaking cases have started to undermine the exclusion of domestic workers from the core part of employment protection on grounds of sex discrimination, reminding us how deeply embedded mechanisms of exclusion, oppression and marginalisation hide in the folds of supposedly protective regimes.¹⁹ It would take at least a full paper to investigate the normative promises and pitfalls of progressive coding (as an alternative or complement to de-coding) with this critique in mind. In this contribution, coding is taken as a fact – something which is in essence inherent to contemporary as well as plausibly foreseeable globalised legal systems.²⁰

A. Priority: consumer data and wages in insolvency

While insolvency is what contemporary lawyers may be drawn to think of when priority is mentioned, one can say that the whole system of (intellectual) property is connected to priority – lending legal weight to the claim that they have been the first to appropriate or create something.²¹ The two aspects of priority are intimately connected; to give a contemporary example, the claim that cryptocurrencies are becoming a mainstream asset would be considerably boosted if they were to be covered by the netting schemes that secure other financial transactions against insolvency-connected uncertainties.²²

To observe selective coding at play in the recognition or attribution of priority-qua-ownership in our scope of analysis, I will consider only one example, that of consumer (personal) data in the European Union (EU).^23,24 We all know by now the classic saying about free products on the internet: if you are not paying, then you are the product. Despite its uncanny fit to online business models, the statement was first made about commercial television channels and advertisements before big data and thus pertains to a time when advertisement was, by contemporary standards, hardly to be defined as targeted.²⁵ Over the past few years, however, an idea has started to make its way into policy circles, namely that consumers might not be just products, but also the suppliers of much sought-after raw materials – data, of course.

This idea is known in the European context as ‘data as consideration’, hinting that data is a large part of the way consumers pay for making use of online services.²⁶ The idea ultimately made its way into one – otherwise somewhat underwhelming – recent Directive,²⁷ raising considerable debate within the Member States required to implement it. In order to pass, the idea had to be dressed in neutral language that stays as far as possible from suggesting that consumer data is made object of an exchange.²⁸ Much of the opposition to ‘data as consideration’ is of a principled nature: it sees data as the object of a fundamental right that should not be commodified.²⁹ However, from the same perspective it is easy to see that the principled opposition was also short-sighted: only half a decade later, for instance, the European Data Protection authorities managed to issue a comparably principled rebuke of the core source of consumer data commodification – targeted advertising, and not on grounds of commodification in fact.³⁰ We are, thus, living with a cognitive dissonance according to which consumer protection should not commodify consumer data, but priority qua protection of various data rights, trade secrets and even intellectual property is granted to those who harvest and manipulate consumer data for commercial purposes.

As concerns insolvency, in contrast, an easy example can be drawn from the sphere of employment: wage credits have been warranted enhanced protection in insolvency since as early as the second part of the 20^th century.³¹ Indeed, priority is a manifold concern in situations of company distress, just like in the examples mentioned by Pistor, where it is assumed that at least some of the claims against a debtor will have to go unfulfilled. Another example from the same context would be that of collective dismissals, where priority in rehiring is often granted to (sub-sections of) dismissed employees and social criteria are also not uncommon in deciding whose jobs should not be cut.³² While priority for wage credits is mainly undermined by securitisation and over-leveraging,³³ priority in rehiring or job security can be considered problematic from the perspective of EU non-discrimination rules.³⁴ In section D we will see how insolvency protection is also an issue in consumer contracts, but one that is remarkably addressed via different routes.

B. Durability: limits to at-will termination and disconnections

Durability – that is, the ability to rely on the advantages of an entitlement for a prolonged period of time – is an important goal in so-called life time contracts. This is most obvious when one thinks of employment or tenancy contracts, but holds some truth also when one considers financial contracts – ranging from insurance to mortgage credit – and utilities. Next to the obvious need for guarantees against sudden termination, consumers of financial services need to be able to rely on predictable conditions and are advantaged when they can lock in favourable prices and terms that they have at some point managed to obtain. This is why an important task of in-house lawyers drafting credit, insurance or even utilities terms and conditions is to make sure that the service provider has as much freedom as possible to adapt the offer – we saw this at play only a few months ago, when ill-backed energy providers went bankrupt once they could not immediately increase their tariffs in reaction to the 2021 gas price spike.

For employees and tenants, it goes without saying that durability is of the utmost importance: not only are income and shelter the basis for life planning (including financial as well as personal decisions), good quality employment and housing are a source of additional disposable income: a nine–five job makes it possible not to rely on expensive pre-cooked meals or after-hours childcare; stable income means most consumption does not need to be financed with high-interest credit and so on; convenient housing will often entail either reduced commuting costs and/or the availability of a sufficient variety of suppliers servicing or delivering to one’s neighbourhood.³⁵ Unstable housing, in contrast, leads to many extra costs – from those incurred by having to move frequently to laundry expenses and anything in between.

In employment law, the main instrument to guarantee durability is limits to at-will termination of open-ended contracts – something which most European legal systems embraced during the 20^th century and which has been only partly rolled back in recent decades. Even relatively mild limitations, in fact, allow employees to ‘capitalise’ on their about-to-terminate employment, by extracting severance pay or other favourable conditions. The proliferation of short-term contracts is, then, the real way in which this capital has been un-coded, with the concerning effects we are now seeing, on productivity and the social compact.

In consumer law, efforts to limit the unilateral modification of contract terms are paired with limited guarantees against termination;³⁶ on occasion, certain particularly egregious terms in consumer credit contracts have been invalidated through – or in the shadow of – European consumer protection rules.³⁷ Acknowledging the crucial role of certain contracts in building fundamental socio-economic capital, however, would entail a very different approach. For instance, it could lead to conceptualising the disconnection from energy or internet supply as a form of expropriation, given the loss it entails for the users of the ability to generate wealth in the form of savings, the ability to look for occasions to invest one’s work abilities and so on. In this respect, it is remarkable that the 2019 Energy Directive only provides that ‘each Member State shall define the concept of vulnerable customers which may refer to energy poverty and, inter alia, to the prohibition of disconnection of electricity to such customers in critical times’ (emphasis added).³⁸

C. Universality

The beauty of property and the corporate form, of course, is that they are not bound to the privity limitations that come with contract. So, can one think of universality in any meaningful ways outside these forms? I think we can.

First, EU private international law rules have tried to make consumer and employment rights applicable beyond national borders, tying them to the worker’s place of work and the consumer’s place of habitual residence.³⁹ Scholars of EU law know how contentious this operation has been, in particular as concerns securing the territoriality of labour law via private international law in the context of free movement. Interestingly, after the havoc caused by the CJEU’s famous decisions in the ‘Laval quartet’,⁴⁰ the political reaction has been to reinforce the equal pay/equal protection principle included in the original Directives, in a move which can be regarded as a new constitutional moment for European labour law or as an entrenchment of benefits for workers at the core with unclear consequences for those in the periphery.⁴¹

More specifically, however, we can think here of two interesting examples – first, I will briefly discuss the preservation of employee rights in transfers of enterprises; second, I will borrow from Tereszkiewicz to depict the ‘package travel’ model and draw a comparison with the paradoxical failure to apply the same model to platforms.⁴² Neither case can be considered an example of universality in the way ownership makes us think of it, but both expand the range of the protected party’s claim beyond their original counterparty – in this representing clear deviations from privity of contract.

The fate of employment contracts in transfer of enterprise is a fraught issue. Since the early liberalisations and market integration in the EU brought about the first waves of collective dismissals and transfers of undertakings – and up to today’s controversies around the specific boundaries between transfers and insolvency – the tension between employment protection and evolving business practices has been obvious. In order to create a level playing field, the EU has adopted a Directive requiring Member States to ensure that employment contracts are transferred with the enterprise and that, in principle, dismissals as a result of the transfer alone are unlawful.⁴³ An expansive interpretation of the Directive, however, has been essentially pre-empted by the CJEU in a notorious decision based on a presumed infringement of freedom of contract.⁴⁴ The assertive language used in this specific case – ‘the transferee must be able to assert its interests effectively in a contractual process to which it is party and to negotiate the aspects determining changes in the working conditions of its employees with a view to its future economic activity’⁴⁵ – has not been relied upon too often in later case-law, but nevertheless represents a bold statement of what freedom of contract requires on behalf of someone who, after all, could simply have chosen not to acquire a company in the first place. It is worth mentioning, in passing, that in order to achieve this result it was enough for freedom of contract to be hinted at in non-binding documents as a component of the freedom to conduct a business protected by the European Charter of Fundamental Rights article 16. At the same time, the Directive in itself remains an item of contention, whose application businesses are keen to avoid whenever possible – most recently, with reference to ‘pre-pack’ business restructuring in the Netherlands.⁴⁶ So far, the CJEU has resisted pressures by providing a relatively expansive reading of transfer of undertaking in situations bordering insolvency.⁴⁷

Our second example concerns relations between consumers and intermediaries. As is well known to consumer lawyers, an early piece of European consumer protection legislation harmonised the responsibility of travel brokers in the context of package travel. According to the so-called Package Travel Directive,⁴⁸ the organiser is liable to the consumer for defective performance by any of the service providers involved in the realisation of the holiday package. Obviously, the broker or agency has no direct influence on the performance, but they are, in this context, expected to take responsibility vis à vis the consumer, for whom they are the most trusted point of reference. This stands in stark contrast, as aptly observed by Tereszkiewicz, to the deference shown to platforms’ claims of being entirely external to the contracts between consumers and professionals that they facilitate. The maturation of platform markets means the paradoxical results of such policy are now being certified by court adjudication: most recently, in a case concerning Booking.com’s confirmation buttons – a case which the company was, however, simply not part of.⁴⁹ Selective non-coding here has allowed platforms to capture the benefits of network effects without bearing, essentially, any significant risk or responsibility.

D. Convertibility

Convertibility secures the ability to translate one’s claims into state money on demand. Pistor identifies this feature mainly with reference to the financial system and shadow banking, which ultimately rest on the fluidity between private and public debt.⁵⁰ Convertibility can, however, also take much less subtle forms – as we will see in the next two examples. As has been mentioned above (‘priority’), consumer protection in insolvency does not prominently take the form of priority rules.⁵¹

In the EU, a relatively established playbook in fact socialises consumer losses through industry- or taxpayer-backed schemes: while the Package Travel scheme in place for disappointed travellers may be most familiar to EU private lawyers,⁵² for more than a decade a harmonised system of deposit guarantee schemes has been in place that protects private deposits up to 100 000 euros.⁵³ This directly secures the conversion of claims against providers and companies into state-backed guarantees.

To an extent, unemployment benefits in some countries – where these are linked to one’s previous employment status, income, etc. – can be considered a similar tool. Having had a job once meant, in these schemes, maintaining a relatively durable claim to state support once unemployment happened, quite separate from general benefit schemes. This was, for instance, the case of the Italian mobilità, which allowed for two years of unemployment benefits without any significant conditionality for employees.⁵⁴ Modern systems, however, such as the Italian NASpI⁵⁵ (up to two years after four years of active work) and Dutch unemployment benefits⁵⁶ (capped at a shorter duration) tend to make access to benefits conditional on job-seeking; the Italian rules even require beneficiaries to take any ‘adequate’ offer or forsake their benefits – with the definition of what constitutes an adequate job getting ever more encompassing as the months go by. When unemployment benefits take the form of workfare contracts,⁵⁷ all evidence suggests that their role and significance change significantly and they lose much of their asset-minting ability.

3. Where does this leave us?

We have now seen a few examples of coding and non-coding in employment and consumer (service) contracts. Very few, if any, of the rules/interventions considered would, as such, be likely to feature in a PELP charter like the one Hesselink proposes.⁵⁸ However, the reasons why many of them failed or were scaled back often come from the core of private law – private law principles, in other words – that the charter would need to redraw, be the core black-letter or ideological. The next few paragraphs will be devoted to outlining some ideas as to what these examples have to say to principles and the conditions of existence of progressive rules.

Some of the interventions, in fact, are in remarkably good shape at the time of writing: this is the case for claims by both consumers and employee creditors in case of insolvency – at least for the latter to the extent that they are not pre-empted by various financial workarounds. We have seen, however, some crucial challenges, some perhaps more expected than others.

It comes as no surprise that freedom of contract would need to be tackled in a progressive recodification. In particular the idea that freedom of contract would guarantee not only access but specific outcomes – that freedom of contract, in other words, would entail a right to profit – stands in the way not only of specific rules on employee protection in transfer of enterprise. The principle also provides a core ideological justification for the hugely expensive state support for speculative finance.⁵⁹

Less intuitively, the examples suggest that we – the citizens and representatives who would be called to deliberate on the charter – should have an adult conversation on non-discrimination: while the contrast between this principle and freedom of contract has been the most explored and occasionally decried, the accommodations non-discrimination and (social) solidarity require of each other should not be left out of private law discourse. While price discrimination is an emerging topic in consumer law,⁶⁰ EU labour law seems to be strict on a formal approach to age discrimination and rather permissive on discriminating against Muslim women. An approach building on the one recently used to condemn Spanish rules excluding domestic workers from social benefits⁶¹ seems more promising in order to prevent non-discrimination from becoming a mechanism of arbitrary (if somewhat predictably so) selective coding.

This is no trivial task for principles: even though detailed legislation will always be both necessary and a potential challenge to the principles’ ‘constitutional’ intents, well-crafted principles offer both stability and the normative anchorage that enables day-to-day critique and incremental developments.⁶² Coding-aware principle deliberations, furthermore, could help ask some difficult questions – for instance, why do we use public resources to grant convertibility to disappointed travellers but deny a strong protection of durability to users of fundamental services? However, the main role of the PEPL charter would arguably play out at a higher level of abstraction.

While it is hardly in question that some of the downturns tracked in the examples are mainly a result of non-legal factors (which some would call ‘the economy’ or ‘markets’, others ideology or neo-liberalism), I want to highlight here a different emphasis – our limited legal imagination. Consumer data commodification is a case in point: if we think that outright capitalising of consumer data is an unappealing solution for the producers of those data,⁶³ this need not mean going along with data enclosure.⁶⁴ Rather, we need more ways of owning,⁶⁵ or perhaps new forms of collective self-determination (but the connection property–sovereignty is not new).⁶⁶

This is also shown by one last example, drawn from recent developments in European financial/consumer law: non-performing loans (NPLs).

The financial crisis left the balance sheets of many European banks littered with NPLs. A decade later, these were still hampering bank profitability. After several years of negotiations, in 2021 the EU approved a new Directive on Credit Purchasers and Credit Servicers,⁶⁷ which is meant to foster secondary markets for NPLs: supposedly banks do not have the expertise to take care of NPLs and that is, among others, a reason why they should be able to easily discharge them.⁶⁸ Consumer associations were not enthusiastic about the original proposal, arguing (in essence) that consumers have little to gain from professionalised foreclosures.⁶⁹ The text finally approved includes several guarantees for consumers – from forbearance to assistance duties – but essentially keeps in place the idea that NPLs are best coded as a specific type of asset so that supposedly ‘market’ mechanisms will bring about efficiency and turn problems into opportunities.⁷⁰

The resulting Directive tries to patch up new and old vulnerabilities but ultimately reproduces known paths: using public money to create assets that are unlikely to yield evenly distributed wealth, based on ideas of freedom of contract and the usual unilateral coding of credit as capital. Alternative legal and institutional constructions, however, are conceivable – consumer mutualisation funds, properly public buyers with the competence to screen cases, not to mention different loan schemes would all be different ways of helping banks get rid of toxic assets on a short- or long-term basis. These are currently hindered among other things by path dependence and, once again, tunnel vision and limited imagination.

It is especially in this sense that a PELP charter could be a game changer: besides taming some self-reinforcing mechanisms of wealth accumulation and clearing the way for progressive intervention,⁷¹ the charter’s main contribution would be to broaden the private legal imagination. Climate change, digitalisation and changing societies require private law to provide a better vocabulary to address prerogative, care and obligation.⁷² If nothing else, it is on this account that ‘any amount of regulatory private law could not achieve what a (constitutionalised) code of private law principles could accomplish’.⁷³