Recharacterizing Restructuring:Law, Distribution, and Gender in Market Reform (The Erik Castren Institute Monographs on International Law and Human Rights, ... on International Law and Human Rights, V. 3)

RECHARACTERIZING RESTRUCTURING

The Erik Castrén Institute Monographs on International Law and Human Rights Volume 3 General Editor Martti Koskenniemi

The titles published in this series are listed at the end of this volume.

RECHARACTERIZING RESTRUCTURING Law, Distribution and Gender in Market Reform

by

Kerry Rittich University of Toronto, Canada

KLUWER LAW INTERNATIONAL THE HAGUE / LONDON / NEW YORK

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THE MONOGRAPH SERIES

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he Series of International Law Monographs by the Erik Castrén Institute of International Law and Human Rights seeks to bring to the reader highquality research in international law with particular emphasis on the theoretical and historical aspects of the topics dealt with. The Series encourages doctrinal and practical criticism, a multidisciplinary approach and broad syntheses. Manuscripts that seek to renew the field's intellectual energy and political commitment are welcome. The Series is based on a conviction that theoretical ambition and practical relevance cannot be dissociated from each other and that even as it looks for a rejuvenation of the field it insists on speaking to both academic and practising lawyers.

Martti Koskenniemi General Editor

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PREFACE BY THE SERIES EDITOR

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he distinction between economics and politics is one of the structuring principles of much prevailing institutional thinking - especially "neoliberal" thought - about the role of law in furthering social development at the international and domestic levels. On the one hand, there are the "natural" legal forms of the economic market - basically encapsulating property, contract and private rights. On the other hand, there are the "artificial" interventions produced by decision-making at the level of the State that reflect different equitable and distributional priorities. Economics is neutral and comes first, politics is partial, and secondary. In this view, the post-1989 transition in Eastern and Central Europe is about moving from an excessively State-centred, and thus "politicised" form of economic regulation towards the establishment of the structures of the market as the natural and non-political basis that provides the economic resources on the basis of which the State may then carry out structural adjustments so as to effect its political priorities. In this study, Kerry Rittich effectively demonstrates that this is a profoundly ideological view of the relationship of economics, politics and law. One of the principal arguments here is that there is no neutral realm of economic efficiency, for instance, in the form of a set of best practices, that could be implemented by a determined set of legal rules. Using both Realist and Post-Realist legal critiques, the author demonstrates that every notion of the market, and every assessment of its efficiency, is always akeady infected by

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Martti Koskenniemi political choices. There is no predetermined set of legal arrangements or institutions that would correspond to an original or authentic notion of the economic market. Every market is a historical creation and reflects political priorities and distributional choices. The ways in which property rights are grounded and delimited, contracts are enforced or balance is struck between conflicting private rights reflect broad equitable principles and developmental priorities. Even non-intervention by the State is intervention in favour of the stronger actors and there is nothing in the intensity or content of the normative framework supporting either the latter or the former that would suggest one to be more natural (i.e. non-political) than the other. But moreover, any legal framework that purports merely to regulate economic activity will bear wideranging social consequences outside the market itself, by empowering and disempowering particular social actors and realising some priorities at the cost of other priorities. In this study, the focus is on the effects of economic policies on the position of women in Eastern and Central European States in the course of the years of a "transition", often characterised by participant institutions, such as the World Bank, as a movement from the artificial and • politically loaded interventionism by the State towards the natural conditions of the market. The points made in this work by Dr Rittich are extremely important and timely: neoliberal reforms have been expanding in the non-Western world as well. When the World Bank or other international institutions engage in supporting "best practices" in Africa or the creation of a "level playing field" in Asian economies, they are making choices and setting priorities that may be accepted or contested but which cannot be reduced to the application of economic or legal techniques. It is a particular merit of the present study that the author has combined her analysis of the de facto distributive consequences of the transition "From Plan to Market" with the tools of critical legal analysis. For if the boundaries between economics, politics and law are not fixed, it follows that the reach of legal study is not limited to the interpretation of normative frameworks but may extend to elucidating the way particular legal regimes bring about particular social and distributive consequences. This is a highly welcome extension of the orientations of international law as well especially since the traditional boundary between "international" and "national" is vulnerable precisely to the kinds of critiques that this book makes of the economic and conceptual constructs. If VIII

Preface developments in domestic societies hinge upon policies carried out within international financial institutions, and those policies refer back to contestable assumptions about the force and meaning of legal institutions, then surely insisting on traditional textbook divisions of legal disciplines is part of the very problem that it often seems so difficult to get a grasp of why it is that orthodox policies seem to have adverse consequences. This book produces impressive evidence for the claim that the transition "from plan to market" in the states of Central and Eastern Europe affected the position of women in significantly adverse ways. As a result of the privatization and restructuring of enterprises, large numbers of women became unemployed and the wage gap between men and women widened. The reduction of childcare and other social benefits and services that were previously integrated into the production process resulted in the forced withdrawal of women from the labour market, accompanied sometimes with massive impoverishment. Overall, restructuring in the workplace as well as in the economy at large (reduction of subsidies, privatization of education and health etc.) produced a long-term gender disadvantage. Particularly important has been the externalisation of the costs of women's reproductive labour to private economies: child care elder care, food preparation and other social tasks are allocated to women on an unpaid basis. As the present study shows, such results would often be unacceptable in the older, developed mixed economies. They are thus not a natural consequence of the transition but a result of the preferences embedded in the particular neo-liberal theory that has been predominant in the process. Applying critical insights of post-Realist legal analysis, this book is a brilliant reminder that the fluidity and open-endedness of legal institutions is not a defect or a problem to overcome. It is, rather, an indissociable aspect of the possibility of democratic social transformation - a reminder that in economics, too, everything is open for political choice and critique and that legal analysis is a good ground for preparing both. It is also a welcome invitation for lawyers to leave the prison-house of conceptualism and grasp the link between legal analysis and political commitment. Consciousness of this link has always been at the heart of international law's emancipatory potential. Martti Koskenniemi Helsinki, 10 December 2001

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ACKNOWLEDGEMENTS

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his book was begun when much about its subject matter, the legal character of contemporary economic reform and restructuring, was still an open question. During this time, I benefited enormously from conversations and workshops with a remarkably vibrant and provocative community of scholars at the Graduate Program at Harvard Law School; this book is marked in countless ways by their presence. Among those from whom and with whom I learned much are Tony Anghie, Bojan Bugaric, James Gatthi, Aeyal Gross, Mala Htun, Outi Korhonen, Vasuki Nesiah, Celestine Nyamu, Balakrishnan Rajagopal and Robert Wai. I am indebted to David Kennedy for his vision of international scholarship, and for an environment which allowed so much collective learning and encouraged so much innovative work. Special thanks also to Seyla Benhabib for her involvement at the earliest stages. My greatest intellectual debt, however, remains to Duncan Kennedy who oversaw the endeavor from its most embryonic stage with characteristic acuity and engagement. His contribution in terms of time, support and knowledge is simply incalculable. Parts of this work were presented at workshops and conferences at the University of Cape Town, the University of Connecticut, the European Law Research Center at Harvard Law School, the Human Rights Program at Harvard Law School, the Institute des Haute Etude in Geneva, and the University of Michigan. I am grateful to Jean Marc Coicaud, Joanne Conaghan, Michael

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Kerry Rittich Fischl, Veijo Heiskanen, Robert Howse, David Kennedy, Karl Klare, Joel Paul, Balakrishnan Rajagopal and Henry Steiner for their kindness and support in providing the opportunity to do so, and to the participants at these events for their responses. For comments at various points on earlier drafts and sections of the manuscript, I would like to especially thank Gregory Alexander, Bill Bratton, Karen Engle, Gunter Frankenberg, Jan Klabbers, Outi Korhonen, Marti Koskenniemi, Robert Wai and Bruce Ziff. Although they will surely find much still to amend, it is immensely better for the time and care which they took. A number of students at the Faculty of Law at the University of Toronto provided valuable research assistance in the preparation of the manuscript: for this I thank Lea Waldorf, Joe Cheng, and Erin Stoik. I also relied t at crucial moments on my assistant at the Faculty of Law, Allyn Chudy, and on Shikha Sharma at the Bora Laskin Law Library. I am very grateful for the generous financial support received at various points during this project from the Social Sciences and Humanities Research Council of Canada, and the Connaught Research Fund at the University of Toronto. Finally, to Robert Wai, for all the things that made it possible. Kerry Rittich

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TABLE OF CONTENTS

INTRODUCTION

1

PARTI

27

1. ECONOMIC DEVELOPMENT IN THE NEOLIBERAL STYLE: THE CASE OF TRANSITION 1.1 An Outline of Neoliberal Theory and Practice 1.2 The Agenda for Transition 1.2.1 Compensation and social welfare in plan economies 1.2.2 Critique of the enterprise benefit model 1.2.2.1 Enterprise benefit provision 1.2.2.2 Employment regulation and entitlements 1.2.2.3 Subsidies and cash compensation 1.2.3 Strategies for change 1.2.3.1 Wage compensation and the elimination of benefits 1.2.3.2 Reductions in public provisioning

29 30 34 35 39 40 41 42 43 43 45

2. NEOLIBERAL IMAGES OF LEGAL REGULATION AND THE STATE 2.1 Positioning the State 2.1.1 Naturalization, neutralization and normalization of the market 2.1.2 The role of anti-state rhetoric 2.2 legal and Economic Integration

49 50 55 59 62

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Kerry Rittich

2.3 The Ro/e of Law 2.3.1 The use of rights 2.3.2 Law versus regulation

65 68 70

2.3.3 Market failure and state intervention 2.4 Best Practices

73 85

3. THEORETICAL ANTECEDENTS OF NEOLIBERALISM 3.1 Libertarian Concepts of Property, Regulation and the State: Hayek andRoepke 3.2 Public Choice Theory

99 101 115

4. LAW AND DISTRIBUTION IN THE MARKET: A POST-REALIST VIEW 127 4.1 Neo liberal Legalism 131 4.2 A Post-realist View of Law and the State 132 43 Institutional Economics 143 5. RECHARACTERIZING RESTRUCTURING 5.1 Rethinking Distribution 5.2 Re-evaluating the Role of the State 5.3 The Rise of the Private 5.4 The Elimination of Subsidies 5.5 Restructuring and Regulation

153 156 158 160 161 163

PART II

171

6. THE GENDER OF RESTRUCTURING 6.1 Restructuring the Enterprise and the State 6.2 Production and Reproduction 6.2.1 Analyzing the productive and reproductive economies 6.2.2 Restructuring and reproduction 63 The Gendered Effects of Enterprise Restructuring 6.3.1 Loss of reproductive benefits 6.3.2 Cash vs. in-kind compensation 6.3.3 Employer as an efficient commodity provider

173 178 182 182 196 200 204 205 206

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Table of Contents 6.3.4 Loss of cross-subsidies 6.3.5 Increasing wage differentials 6.3.6 Control of household resources 6.4 Gender and the Transformed Ro/e of the State 6.4.1 Loss of subsidies 6.4.2 Budget reductions 6.4.3 Reductions in social provision and transfer payments 6.4.4 Reductions in the size of the state sector 6.5 Wage Suppression in Transition 6.6 Gender Disadvantage Through the Lens of Post-realism

207 208 211 213 213 215 217 220 221 227

7. GENDER EQUITY IN THE WORLD BANK: THE CASE OF RESTRUCTURING 7.1 Gender Equity and Restructuring from Plan to Market 7.2 Gender Equity and Human Capital

235 249 257

8. POVERTY VERSUS EQUALITY

263

CONCLUSION

283

BIBLIOGRAPHY

293

INDEX.

311

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INTRODUCTION

I

n its 1996 World Development Report, From Plan to Market,1 the

World Bank set out its view of the route which the so-called "transitional" states, those moving from administrative or plan to market

allocation of goods and services, must follow in order to successfully transform themselves into market economies, move toward integration into the world economy and achieve economic growth. Although the analyses and recommendations contained in From Plan to Market are specifically directed at the process of transition, they did not simply emerge in that context and on that occasion. Nor were they unconnected to other projects and debates elsewhere on development and market reform. Rather, the policies were part and parcel of an emerging orthodoxy among development and financial institutions concerning proper economic policy among both developing and developed states. Indeed, the path of reform and the policies advocated in the report can be understood as an expression of dominant ideas about the appropriate structure of market societies and the institutional and legal requirements of participation in the global economy. From Plan to Market attempts to explain the demands of transition in a way that is compatible with the central tenets of the reigning economy orthodoxy.

1

World Bank, World Development Report 1996: From Plan to Market (New York: Oxford University Press, 1996). 1

Kerry Rittich Yet many of these institutional, policy and regulatory details of this orthodoxy did not exist in a well-elaborated form before the dilemma of transition arose. Rather, transition itself proved to be a crucial moment in the consolidation of a consensus around the demands of markets-centered growth and the site of a particularly intense effort to establish its institutional form. This is a study of the relationship between the ideology which animates this restructuring project and the legal rules and institutions through which it is carried out. It seeks to explore the role of the legal reforms and policy changes advocated in the name of growth and greater efficiency and the creation of advantage and disadvantage among different social groups. The focus of the distributional analysis is a set of reforms that might be expected to generate adverse effects for women in the emerging markets. In exploring the role of law in the allocation of economic power and resources, it examines the relationship between development and market design, matters conventionally placed within the domain of economics, and considerations of equity and social justice, concerns which are thought to be quintessentially political. The intuition that is pursued is that claims and ideas about legal rules and institutions now play a key role in mediating the domains of economics and politics and establishing the boundary between them. Originally identified as the "neoliberal agenda" or the "Washington consensus",2 current development orthodoxy places the pursuit of greater efficiency, an enhanced role for markets, and integration into the global economy at the center of efforts to secure economic growth. It rests on the view that the benefits of liberal trade and open markets are beyond dispute, and that alternatives to market-driven growth and participation in the global economy no longer represent viable routes to development. According to this view, the state's role in promoting growth has been conclusively trumped by that of the market. Indeed, the state must now be cabined and controlled if it is not to subvert the project of economic growth. The new commitments to market ordering, global economic integration and minimizing the role of the state have generated a profound and important

2

John Williamson, "What Washington Means by Policy Reform", John Williamson, ed, Latin American Adjustment: How Much Has Happened (Washington: Institute for International Economics, 1990), 5.

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Introduction transformation in the manner in which economic development is imagined. Development is no longer simply a matter of particular economic objectives, such as combating poverty or ensuring adequate infrastructure investment. Instead, the successful pursuit of economic development is now explicitly conceived as a matter of law, institutions and "good governance". A wide range of state practices, rules and institutions have come under the gaze of financial and development institutions and are now implicated in the success or failure of development. Comprehensive reforms to economic policies and state institutions are routinely prescribed to ensure growth. Indeed, it seems safe to say that the management of the economy has become the focal point of development policy, as the fate of development is increasingly attributed to the characteristics of domestic institutions, rules and practices.3 In this recasting of the development dilemma, development institutions have focused their efforts on articulating and normalizing a set of legal rules and institutions, a particular set of state practices, and a distinct culture concerning the responsibilities of different actors and institutions within market societies. Indeed, the entire enterprise of development has been legalized, and many of the central activities of the international institutions should be understood as law reform projects. There is a new importance placed on the relationship between the state and the market and the appropriate allocation of functions between them. Proper economic governance turns out to be proximity to an idealized set of practices and institutions that are thought to further efficiency, facilitate investments and ease transactions. These model rules and institutions derived from the "normal" markets of the industrialized world provide a template with which to design markets that will generate improved economic growth in a range of different contexts.4 Law and institutions have not always been central to the development efforts of the international financial institutions. It is only since the 1990s that the absence of adequate legal and regulatory institutions has been systematically identified as a barrier to the achievement of development targets. Transition 3

A classic example would be the attribution of failed growth to corruption on the part of ruling elites, particularly in Sub-Saharan Africa. See World Bank, World Development Report 1997: The State in a Changing World (New York: Oxford University Press, 1997). 4 James D. Wolfensohn, A Proposal for a Comprehensive Development Framework (A Discussion Draft) (Washington, D.C.: World Bank, 1999).

3

Kerry Rittich was one of the contexts in which this first occurred.5 Although the original view appeared to be that markets would spring up as if from nature once impediments to their operation were removed, it soon became clear the transition also involved the self-conscious construction of the infrastructure of market economies. The result was an intense focus on law and institutions; what emerged from the process was a greatly consolidated theory of governance and the role of the state in market societies. As a result, the successful pursuit of development is increasingly represented as a question of finding and adopting appropriate legal rules and regulations and legal institutions. Development literature is now replete with claims about the role of law and the place of the state in market societies. States are continually exhorted to respect the rule of law, as investment and hence growth can only be expected in law-based societies that protect private rights, resist special interests, and prevent the arbitrary interference of the state in the economy. The Bank's policy proposals emphasize the importance of a stable institutional environment for business and investment, "good laws", and the withdrawal of the state from administrative control.6 The presence of canonical legal rights such as property and contract rights is said to define the very existence of market societies. A multitude of law reform and legal education projects is now funded by the Bank. However, the discourse about law in development policy ranges far beyond the need to promote law-based market societies. There are myriad claims about the effects of particular legal rules and their compatibility with markets embedded in the discussions about market reform. A wide range of laws is evaluated in terms of their contribution to growth or their capacity to impair it. In the shift toward development as good governance, claims about law have taken on heightened significance, so much so that development in general can be usefully approached through the optic of legal analysis. In light of this

5

Joseph Stiglitz, "Whither Reform? Ten Years of Transition", World Bank, Keynote Address, Annual Bank Conference on Development Economics, Washington, D.C., April 2830, 1999. http: / / nmv.worldbank.org/research a/ abcde/wasbington_11/pdfs / stiglitz.pdf (last visited 11/08/2001). 6 See World Bank, From Plan to Market, supra note 1, at 87.

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Introduction turn, this study seeks to investigate how legal and institutional reforms function as vehicles for the management and legitimation of development. It is motivated by the intuition that, as law is now among the principal mechanisms of contemporary development and market reform efforts, legal analysis might be central to understanding its effects. The study engages in a number of linked tasks. First, it attempts to make explicit the image of law and the relationship between the state and economic activity that prevails among the international institutions. Second, it traces the manner in which abstract principles and commitments to concepts such as the rule of law, markets, freedom and private property become translated into prescriptions for specific legal rules, institutional arrangements and state and enterprise policies in the context of transition. Third, it attempts to discern the distributive dimension of these reform efforts, as well as the role of legal discourse in normalizing such effects. One of the collateral effects of the turn toward law is a new normalization and a new internationalization of development. Market reform and development have become internationalized in the following senses. First, conscious efforts to engage in market reform to spur economic growth are now ubiquitous across the so-called developed and developing worlds. Second, such efforts are increasingly transnational in their aspirations. Not only are market reforms to be found everywhere, they are designed to enable greater economic activity across jurisdictional boundaries and to render those boundaries less significant. Third, there is now what approaches a universal template for market reform and development. Rather than a series of discrete initiatives and projects tailored to the needs of particular states in specific contexts, market reform projects have increasingly taken the form of common or general prescriptions. Moreover, key decisions on the structure and pacing of reforms are influenced or determined by decision-makers outside national borders who will themselves typically not experience the effects of their recommendations. Finally, economic development has become increasingly the province of the international institutions. While reforms must still be implemented largely at the national level, the international economic institutions are among the principal proponents of neoliberal reforms. The International Monetary Fund and the World Bank in particular have played an important role in the development and legitimation of this market model. At the same time, market reform has given these institutions new visibility and heightened importance in the international 5

Kerry Rittich order. Developing the architecture for global economic integration and diffusing this vision of optimal market ordering have become central to their activities, while engagement in such projects has vastly extended the scope of their concerns. No longer obscure agencies and institutions of concern only to specialists and particular departments and ministries in developing countries, they are increasingly central players in the debates around global economic transformation. A reconceptualization of the role of the state in development is fundamental to this vision. Market reformers have actively promoted the view that the principal choice is between the market and the state as an instrument of development; furthermore, it is a battle that has now been won by the market. The role of the state has long been present, central to debates over development via liberalized trade versus development through import substitution, as well as to discussions about the possibilities of industrial policy. However, the collapse of the plan economies seemed to decisively shift the balance in favor of the market, at the same time leaving neoliberalism as the residual intellectual claimant in economic and development policy debates.7 The result is that the discussion has largely been organized around the merits of markets as contrasted to the defects of the state. In the wake of the mounting evidence of the problems caused by inadequate regulatory infrastructure, market reformers are increasingly likely to concede a role for the state.8 Yet because the state/market polarity is fundamental rather than marginal to neoliberal claims about the institutional requirements of market societies, there are deep challenges and perils to the neoliberal project in acknowledging a central role for the state. As a result, the central struggles of neoliberalism - the relationship of the state and the market and the role of politics in development - are displaced to the field of law, to be played out in debates over the proper role of law in a market society and the demands, limits and logic of regulation.

7 Ute Pieper and Lance Taylor, "The Revival of the Liberal Creed: the IMF, the World Bank, and inequality in a globalized economy", Dean Baker, et al, Globalization and Progressive Economic Policy (Cambridge, U.K.: Cambridge University Press, 1998). 8

For a discussion, see Joseph Stiglitz, "More Instruments and Broader Goals: Moving Toward the Post-Washington Consensus", WIDER Annual Lectures 2, Helsinki, January 7, 1998 http://mm.wider.uuu.edu/ (last visited 11/08/2001).

6

Introduction Ideas about law and regulation consequently play a number of important roles. Throughout neoliberal discourse, a series of operative distinctions is invoked which is intended to provide the conceptual scaffolding to reforms as well as a mechanism by which the market can be distinguished from the state. Among the most important are the distinctions between public and private spheres of activity, regulation and non-regulation of the market, and intervention and non-intervention in economic affairs on the part of the state. These distinctions also provide a mode of determining good policy from bad, as the first refers to what is to be contained, discouraged or avoided, while the second of each pair is associated with a desirable state of affairs. Law also emerges as one of the fields in which the border between economics and politics is established, a matter of constant tension in neoliberal policy given the pervasiveness of reforms. Claims about law turn out to be central to managing this boundary, as distinctions between rights and regulation are some of the key ways in which neoliberal policies and institutional structures are defended yet politics is held in abeyance. For example, in neoliberal discourse, the rule of law and the protection of rights are positioned on the side of economics and efficiency, while many forms of regulation are characterized as political. Market design itself is approached as an exercise in comparative law, and the dominance and desirability of particular rules and institutions are explained through their functional superiority in generating economic growth. For a variety of reasons, the transition from plan to market has proved to be a particularly fruitful and illuminating context in which to examine the emerging role of law in global market reform and development projects. It provided an opportunity, which was unprecedented and is unlikely to be repeated, that was seized upon by market reformers to advance a general theory about the optimal structure of a market society in a globalized economy. As market societies had to be built as it were "from the ground up", transition provided the context for an explicit debate about the nature of normal markets. In addition, it provoked unusually radical and thoroughgoing proposals for institutional reform and an unprecedented effort to specify the economic and regulatory structure of a market economy. Indeed, it was an article of faith among market reformers that virtually all traces of pre-existing practices and institutions had to be eliminated in order for a successful transition to the market to be achieved. The project of wholesale regulatory and institutional 7

Kerry Rittich reform also provided the point of entry for far-reaching interventions by external experts and international institutions. The institutional dilemmas they encountered and the decisions they reached about how to respond to them in turn generated a significant amount of theorization about development and market economies in general. Thus, transition provided both the occasion and the terrain not simply to apply market principles but to articulate, contest and construct the attributes, structure and character of the "normal" market society and the appropriate roles and powers of the actors and institutions within it. Coming as it did in the wake of the abandonment of alternative economic strategies, the debate over transition also occurred in a political and ideological context that was highly receptive to arguments about the merits of markets. For these reasons, an analysis of the rationale and logic of transition helps explain not only the debates in those economies but many of the arguments surrounding ongoing policy and regulatory controversies in established market economies as well. A number of events have served to place distributive concerns at the forefront of debates over development. Development efforts, market reforms and global integration all provoke increasing anxiety, an important source of which is the evidence that the implementation of economic reforms often results in considerable social pain and dislocation. Among the results, at least in the short term, are greater poverty and rising inequality. Often the costs of greater efficiency and fiscal discipline appear to be disproportionately visited on groups that are already disadvantaged. In both developed and industrialized states there are marked disparities in the benefits and rewards of neoliberal reforms. Moreover, it now seems evident that economic growth is not necessarily co-extensive with greater human welfare. Attempts to induce greater economic growth through restructuring, even if they produce material progress for society in the aggregate, are not experienced as a single, homogeneous event nor do their benefits accrue evenly to different sectors of the population. Rather, they tend to produce different, often dramatically different, effects on different groups, gains and losses which cannot simply be described as transitional phenomena but appear to be structural features of the transformed economies. Transition is also an illuminating context in which to examine these phenomena, as the process has been marked by pronounced declines in social welfare and dramatic increases in poverty and inequality. Even on the most 8

Introduction generous reading, transition cannot be characterized as an unqualified success, and the associated human costs have been immense. The experience of economic restructuring in Central and Eastern Europe and the Commonwealth of Independent States (CIS) has been marked by high unemployment, sharp rises in prices and often even sharper declines in real wages. All of the states in the region experienced dramatic declines in productive output.9 Per capita incomes in the region as a whole have fallen on average by a third from their peaks in the mid-80s.10 By 1996, the region's average GDP had declined to about $2000, a decline of about $1000 from levels of about $3000 in 1989. While growth has resumed in most countries, in many states the losses suffered during transition have not yet been recouped.11 The decline in production has been accompanied by a sharp increase in poverty. While the number of people living on less than $4 per day was about 14 million out of a population of 360 million in the region in 1989, estimates are that more than 140 million people now live below the poverty line,12 a startling and disturbing increase by any measure. Income inequality, formerly quite low by world standards, is also markedly higher.13 The average Gini coefficient in the region has risen from 24 to 33, placing the region on par with the high income inequality OECD countries; in some countries, inequality is even higher. Moreover, the increase in the Gini coefficient was itself very rapid; over a period of only 6 years, it rose by 9 points.14 In short, high and growing inequality seems to be a well-entrenched feature of the region in its post-communist state.

9

World Bank, From Plan to Market, supra note 1, at 173.

10

United Nations Development Programme, Human Development Report 1996 (New York: Oxford University Press, 1996), 2. 11

A. Amsden, J. Kochanowicz and L Taylor, The Market Meets its Match: Restructuring the Economies of Eastern Europe (Cambridge, MA: Harvard University Press, 1994); L. Sklair, Sociology of the Global System, 2d. ed., (Baltimore: Johns Hopkins, 1995); UNDP, Human Development Report 1996, supra note 10; Branko Milanovic, Income, Inequality, and Poverty during the Transition from Planned to Market Economy (Washington, D.C.: World Bank, 1998). 12

Milanovic, Income, Inequality, and Poverty during the Transition, supra note 11.

13

Id. See also World Bank, From Plan to Market, supra note 1, at 67-70; UNDP, Human Development Report 1996, supra note 10. 14

Milanovic, Income, Inequality, and Poverty during the Transition, supra note 11, at 40.

9

Kerry Rittich All of these changes have been accompanied by dramatic declines in health and mortality indicators, especially in Eastern Europe and the former CIS.15 Apart from declines in human welfare which they indicate, they suggest significant peril to productivity and hence to resumed growth.16 Yet despite the evidence of "winners" and "losers" in the restructuring process,17 as well as a history of declines in social indicators following the introduction of neoliberal policies in other contexts at earlier moments,18 there has been relatively little attention on the part of the proponents of neoliberal restructuring as to why this should be so. How such people were situated in the old economy, how they might be positioned in the new, and the degree to which disproportionate disadvantage to particular groups might be not only foreseeable but actually produced by restructuring itself has been a subject of much less analysis. Instead, hardships are typically characterized as inevitable but temporary, the "natural" effects of submitting to the discipline of the market, the costs of past errors and the necessary price that must be paid for long-term economic health in the future.

UNICEF, Central and Eastern Europe in Transition: Public Policy and Soda/ Conditions, Regional Monitoring Report no. 1 (Florence, Italy: UNICEF International Child Development Centre, 1993); UNICEF, Central and Eastern Europe in transition: Crisis in Mortality, Health and Nutrition, Regional Monitoring Report no. 2 (Florence, Italy: UNICEF International Child Development Centre, 1994); UNICEF, Children at Risk in Central and Eastern Europe: Perils and Promises, Regional Monitoring Report no. 4 (Florence, Italy: UNICEF International Child Development Centre, 1997). 16 A number of analysts suggest that many of these consequences, particularly high unemployment and the fall in real wages, were quite foreseeable and can be attributed to restructuring strategies such as the failure to protect and restructure even the most promising and productive industrial sectors prior to privatization and the dismantling of existing markets and trade networks. See P. Gowan, "Neo-liberal theory and Practice for Eastern Europe", 213 New Left Review (1995); A. Amsden, et al, The Market Meets its Match, supra note 11; UNICEF, Public Policy and Social Conditions, supra note 15. 17

See for example E. Brainerd, "Winners and Losers in Russia's Economic Transition", Harvard University, Department of Economics, 1996, paper on file with the author; Peter F. Orazem and Milan Vodopivec, "Winners and Losers in Transition: Returns to Education, experience, and Gender in Slovenia", Working Paper, World Bank, Policy Research Department, Transition Economics Division, August 1994; Bertram Silverman and Murray Yanowitch, New Rich, New Poor, New Russia: Winners and Losers on the Russian Road to Capitalism (Armonk, N.Y.: Sharpe, 1997). 18

G. Cornia, R. Jolly and F. Stewart, eds., Adjustment with a Human Face (Oxford [Oxfordshire]: Clarendon Press, 1987).

10

Introduction Equality and distributive concerns have held a distinctly subordinated place in the neoliberal world. Indeed, there is a powerful strand of thinking within the development institutions holding that inequality is necessary to economic growth.19 Whatever the status of the debate at the theoretical level, until recently market reformers have done little to allay concerns that policies and regulations promoted in the name of growth and efficiency might adversely affect or significantly undermine the pursuit of objectives such as equality or social solidarity. Instead, they have largely pre-empted debate over the wisdom of market centered reforms, neutralizing concerns with mantra-like assurances that the rising tide of economic growth will lift all boats, claims that conformity to the demands of the market is now the sine qua non to all other goals, and prophecies that the alternatives are either worse or unavailable. Arguments about the automatic benefits of neoliberal reforms are increasingly less persuasive, in part due to stalled reform and restructuring efforts in Eastern Europe and the CIS20 and disastrous results following classic neoliberal interventions in Asia during the financial crisis.21 However, it remains difficult to integrate the concerns over inequality into discussions about economic growth. There remain large chasms at both the conceptual and institutional levels in comprehending the links between market-centred policies and differential outcomes for particular groups. This analysis attempts to explore and evaluate the assumptions that permit the ongoing bifurcation of efficiency and distributive concerns. It suggests that the difficulty in integrating equality into the analysis and discussion of market reforms, and the displacement of the distributive that results, is not accidental. Instead, it is part of the structure of neoliberal reforms, something that can be traced to its most basic features and commitments. Part of the problem can be located in the separation of the economic and the political dimensions of reform, and a division of labor which places equality and justice issues beyond the concerns of economists in the domain of the social, cultural or political. Within the Bank, restructuring is characterized as an 19 G. Cornia, "Liberalization, Globalization and Income Distribution", United Nations University, World Institute for Development Economics Research, Working Paper no. 157, (March 1999), available at. www.wider.unu.eduI'publications'/'tvp157.pdf. 20 Stiglitz, "Whither Reform?", supra note 5. 21 Stiglitz, "More Instruments and Broader Goals", supra note 8.

11

Kerry Rittich economic project that is focused simply on the objectives of increasing efficiency and maximizing growth, one that, for reasons of institutional competence and legitimacy,22 leaves the political priorities and sovereignty of nation states untouched. To this end, institutional and policy reforms are routinely described and defended as simply intrinsic to promoting economic growth. Distributive concerns, on the other hand, are regarded as the province of politics. While questions about market design and efficiency are figured as technical or management concerns to be resolved with professional expertise, distributive concerns are relegated to the legislature and treated as second order issues to be dealt with after the path of economic growth has been secured. This division has served both to absolve economists of responsibility for distributive concerns, and to obscure the intimate connection between the pursuit of efficiency and the generation of distributive outcomes through basic decisions about market design. However, whether the drive for efficiency and the resulting distributive outcomes can be so separated is deeply contested. It is part of this project to demonstrate, through attention to the properties of neoliberal policies in the context of transition and analysis of the assumptions underlying neoliberal development ideology in general, how and why it has become untenable to imagine and unwise to treat efficiency and distribution as discrete issues. This analysis will argue that no separation of the economic and the political is possible. Rather, the transformation in legal and institutional forms that is envisioned in the states in transition has profound distributive implications, in effect if not by design. However, the result is not simply the displacement but also the demotion of equality vis-a-vis efficiency, as the separation of efficiency and equality has diverted attention from the distributive effects of the policies and mechanisms through which reform and restructuring are accomplished. What is most obscured through this division are the explicit political and distributional tradeoffs that are routinely involved in designing markets, as well as the alternative rules that might be available. A central goal of transition is to construct a zone of economic activity that is insulated from "political" considerations. Good economic policy, in the view 22

The articles of the World Bank Charter prohibit interference in the political affairs of any member. International Bank for Reconstruction and Development, Articles of Agreement, as am. February 16, 1989, Article IV, Section 10 http:/ / ww.worldbank.org/html/extdr/ backgrd/ibrdlart4.htm#I11 (last visited 11/08/2001).

12

Introduction of neoliberals, requires that states desist from engaging in broad-based redistributive projects that require extensive taxation and contributions from those who are economically productive. Rather, to avoid subverting the project of economic growth, states should provide enterprises with an environment largely free of regulatory impediments and other policies that impair the flexible and efficient deployment of resources. This analysis argues against the understanding that policy and regulatory choices driven by such beliefs result in neutral market institutions of uncontroversial economic benefit. Rather, the desire to insulate market rules and institutions from competing social and political demands results in markets that are replete with submerged political and distributional choices. While the legitimacy of promoting neoliberal policies as the universal route to development rests implicitly on the premise that no contentious political or distributional decisions are involved in doing so, such policies in fact rest on contestable norms and assumptions about the proper organization of social and economic life. In large part, this is because the rules and policies which structure the market function to allocate resources and income among the different parties involved. For this reason, considerations of relative advantage for some groups and disadvantage and disparate impact for others are embedded in the heart of the neoliberal project. While this does not, in itself, discredit the pursuit of neoliberal policies, it does suggest that the claim that we all stand to benefit from the commitment to global economic integration organized along the proposed regulatory and institutional lines is an argument to be interrogated, rather than a fact that can be simply asserted. As the analysis will describe, the legal rules and institutions which are the vehicle of market design and reform themselves not only further particular conceptions of efficiency but also entail distributive choices. Despite the attempt to preserve a boundary between economic and political matters, restructuring inevitably trenches on matters of social ordering and values, and engages questions of distribution and equity along with efficiency and growth. Thus, even if overt consideration of distribution and inequality are left to one side, restructuring is of necessity also a political project. Important aspects of the relationship between market reform and issues of equity and distribution can be usefully explored by looking at restructuring

13

Kerry Rittich explicitly as a legal reform project. Market reform occurs through a transformation in the legal structure in which economic activity takes place, through a series of quite specific institutional, rule and policy choices. By altering the existing configuration of rights and entitlements, reform and restructuring will reconfigure the allocation of resources and power among different groups, and create a changed set of conditions and incentives structuring economic activity. This transformation in turn can be expected to affect the resulting distribution of income along a number of axes, and reform is likely to have a differential impact upon particular social groups, classes, productive sectors or types of relationship. While this process may play out in a variety of ways, some of which are systemic and others quite localized, the thesis at its most general level is that the production of a particular configuration of advantages and disadvantages for different groups and individuals is internal and intrinsic to the process of restructuring. Rather than an external, accidental or contingent outcome, redistribution can be thought of as a necessary and inevitable consequence of changing the regulatory structure that governs economic activity. Neoliberals argue that reforms must be organized around the protection of private rights. They propose that in order to spur economic growth, states should recognize property and contract rights and adopt a canonical list of laws that enhance efficiency. The result, it is claimed, is a set of neutral rules that provides a level playing field in which the free market can best operate. States must be vigilant, however, not to intervene in the market and adopt other rules and regulations which are likely to impede growth. In the neoliberal account, good and bad laws can be evaluated in terms of their economic effects and are either justified or not in terms of their propensity to promote efficient economic transactions. These propositions rest on assumptions about law's neutrality and determinacy. They depend on distinctions such as the difference between protecting private rights and intervening in the market. They are justified by claims that such legal rights entail no controversial political or normative choices, indeed that they are distinct from politics. They reflect the view that market rules are both settled in their content and certain in their effects. Finally, they are focused primarily on the efficiency effects of rules.

14

Introduction However, this set of claims is highly contested. The controversial nature of neoliberal arguments can be illustrated by contrasting the legal claims contained in the policies of the international financial institutions with the analysis of market rules in the realist and post-realist tradition in American legal scholarship. Closely related analyses can be found within heterodox economic scholarship as well. There is a long history of work in American legal thought, beginning with the realists and continuing throughout the twentieth century in the work of various critical scholars, much of which is devoted to the relationship between legal rules and the exercise of economic power in the market place. This analysis both relies upon and extends these insights in order to analyze distinctions such as productive versus non-productive activities and expenditures and subsidized versus non-subsidized labor and services that are key to reforms and also central to the emerging disadvantage of women in the new market regimes. Realist and post-realist scholarship provides an unparalleled framework in which to critically examine the concept of law upon which neoliberal reforms are based for two reasons. First, it makes clear the connection between different configurations of rules and the allocation of resources and power among different groups. Thus, it allows an appreciation of the role of law in constituting social and economic relations, rather than in merely 'regulating' them. Second, it provides a way to explore and to deconstruct the arguments advanced to justify and naturalize reforms. Central to much realist and post-realist scholarship is an analysis of the concepts which structure the analysis of legal rights. These include: public versus private, intervention versus non-intervention, coercion versus freedom and rights versus regulation. As post-realist scholarship demonstrates, these constructs do not provide a coherent way of organizing or distinguishing among legal rules. Nor does a preference for one half of the binary over the other indicate which legal rule to promote in a given context. As constructs, they function not as opposites, but as polarities that on examination often collapse into each other. These concepts provide the terrain upon which battles over particular interests and values are fought. However, their use to justify and explain legal rules also serves to obscure the manner in which legal rule-making involves choices among competing interests and values and decisions over the structure of social power.

15

Kerry Rittich

Many of these same distinctions also organize current development and market reform discourse and are deployed by reformers to justify particular rule and policy proposals. Yet they also block inquiry into those reforms and normalize and naturalize their effects. Post-realist analysis opens up what is occluded by the neoliberal paradigm, which is that the turn to the market does not represent merely the promotion of the market over the state, but the promotion of a particular kind of market. Slogans such as the "rule of law" and the "protection of rights" turn out only to be starting point of the real debate, which is what forms of rights to recognize and for whom. Although the legal entitlements that form the bedrock of market reforms are proffered as a neutral baseline for economic activity, post-realist analysis provides important clues as to why this neutral baseline does not, indeed cannot, exist. Thus, it demonstrates the ways in which legal regulation is of deep significance for the issue of distribution. Counter to many neoliberal claims, legal rules and regulations, rather than mere enabling devices which facilitate economic transactions and structure incentives, delegate power to private actors in the market and function to allocate resources to various parties in market transactions. Because they help determine the resulting distribution of wealth and income, the enormous questions of distribution and equity that economic restructuring raises are directly linked to the regulatory framework in which economic activity takes place. This suggests why anyone concerned with the equity of neoliberal reforms needs to become engaged at the level of market design and structure, rather than merely immersed in the politics of redistribution after the fact. A realist and post-realist analysis of the operation of legal rules and the choices available under market regimes suggests that, ultimately, many of the arguments advanced by market reformers do not provide uncontroversial support for the specific legal or institutional reforms that they characteristically promote. What is missing from neoliberal legal discourse is a frank acknowledgement that markets are constructed through a series of choices regarding institutions and rules, and that many different choices can be housed within market regimes. Nor is the state a minor player in market societies. Rather, market design is a process in which the state is heavily implicated, something which is particularly evident in the context of transition. Because the choices concerning the rules that govern market transactions affect groups differently, the state, as well 16

Introduction

as those international institutions with leverage over state actions, are necessarily engaged in a process of constructing economic power and allocating resources among economic actors. This seriously compromises the effort to establish the distinction between public and private power; it also erodes any meaningful distinction between intervention and non-intervention in the economy on the part of the state. Perhaps most important is that this framework provides a means of bringing the properties of the "normal" market into view. From this vantage point, rather than merely an uncontroversial part of the foundation of markets, it is apparent that the rule choices involved in constructing such markets entail fundamental decisions about the promotion of different values and the resources and power to be allocated to different groups. Post-realist analysis thus provides a framework within which to assess the shifts and dislocations that attend development and market reform. If market rules do not operate in a neutral way with respect to different parties, then it might be important to trace how resources might be reallocated in the course of market reforms when new rules are implemented or existing ones modified. If they are not certain or determinate in their effects, then we should expect the effects of market reforms to be quite varied rather than uniform across different contexts. It is clear that law does more in this economic reform program than merely provide the background structure for market transactions. Law performs an intensely political function, justifying the economic reform project as a whole. Claims about law and the protection of private rights are pivotal both to the appeal of the reform proposals, particularly in the context of transition, and to the legitimacy and the universal applicability of the neoliberal economic paradigm. Where, as in reform projects, freedom and democracy are linked to the presence of markets,23 the invocation of the rule of law and the deployment of the language of rights helps cement the connection. At the same time, the operation also works in reverse: neoliberal policies and institutional proposals then become embedded in dominant ideas about the rule of law simplititer,

23

See for example, Janos Kornai, "What the Change of System From Socialism to Capitalism Does and Does Not Mean", 14:1 Journal of Economic Perspectives 27 (2000).

17

Kerry Rittich associated with the legal requirements of a market economy and thereby strengthened and normalized. This analysis provides the backdrop to explain a quite concrete issue, the production of disadvantage for women through neoliberal reforms in the context of transition. The second part of the book analyzes in a more detailed way the distributive consequences of reforms, focusing on the likely effects of proposals to change the role of the enterprise and the state in distributing resources and the ensuring the provision of goods and services. The discussion centers around the proposals that seem most salient to the group that is the subject of this distributive analysis, women with obligations of care to others who find themselves now largely reliant on the market to secure their fortunes. By looking at the reform model, the policies that are advanced in its name and the justifications that underpin them, the hope is to unveil the way that disadvantageous outcomes for women, unless compensated for in some way, can plausibly and predictably be attributed to it. The ideal neoliberal market is structured in a way that allocates significant resources and power to investors, entrepreneurs and other capital holders, while other parties, workers and consumers among them, enjoy considerably fewer rights and benefits. As a result, enterprises are permitted to externalize certain productive costs that they might otherwise absorb. Among the most visible of these costs in the context of transition, and indeed in global economic integration in general, are those connected to the support and maintenance of the labor force. The neoliberal model shifts more of the costs of productive activity, including human capital costs, to other parties, namely the state, communities, or households and individuals. In addition, neoliberal restructuring seeks to limit or eliminate many of the redistributive functions that states have characteristically performed or might potentially perform. For a variety of reasons, the burden of such strategies tends to fall disproportionately on women, not least because they increase the degree of unpaid work and reliance on the "reproductive" or non-market sphere.24 In consequence, the market society promoted as the norm to which states should aspire in the interests of economic development is rife with potential disadvantage for women.

24

This is discussed in the United Nations Development Programme, Human Development Report 1999 (New York: Oxford University Press, 1999).

18

Introduction All economies, both plan and market, rely exclusively on the unpaid work of women. However, transition is a particularly illuminating context in which to observe this reliance, because it provides an opportunity to observe the way that the burdens of unpaid work can be both ameliorated and increased through policy and regulatory decisions. However the intent is not merely to tell a story about how women have been neglected or exploited, although that is certainly a conclusion some might draw. Nor is it addressed solely to those interested in the status of women, although how the effects of reform and restructuring could be evaluated to the exclusion of their effects on women seems mysterious in the extreme. Nor is it to advance the position that markets are "bad" for women, while the state is "good". As the legal analysis in the first part suggests, reliance upon the statemarket dichotomy creates a discursive and analytic impasse that tends to obscure rather than illuminate the effects of specific reforms. Instead, the general aim is to begin to explore in a more structured way the connections between dominant economic development strategies, the specific political and institutional choices to which they are connected, and distributive outcomes. The objectives are to examine how the proposed economic changes might operate to advantage or disadvantage women, given the pre-existing structures of resources and entitlements, and to foresee how these policies might intersect with other pre-existing or relatively continuous social and cultural formations. The hope is to imagine ways of fusing and infusing the debates on the status of women and inequality with those on the subject of economic transformation, discussions that too often go on in discontinuous spheres and in different languages. Much of the systematic disadvantage to women arises from the way that different productive activities, both paid and unpaid, are organized and because of the ways that women are characteristically located within the productive and reproductive spheres. Of all of the transformations, one that poses perhaps the greatest threat to women is the collapse of arrangements enabling the performance of labor market work and childcare duties by the same person. Whether such arrangements were formally available to both parents or restricted to the mother, as is common in industrialized economies, they were almost invariably taken by women. This disadvantage is then exacerbated by "efficiency-enhancing" strategies that intensify the degree of self-reliance required of individuals and house19

Kerry Rittich holds and tend to increase the amount of unpaid labor, and often the paid labor, of women. Such gendered outcomes are a common feature of neoliberal reforms, as numerous feminist policy analysts have noted.25 However, in the process of transition, they are also exacerbated by a transformed legal and institutional environment that re-allocates resources and entitlements, effectively reducing the amount of cross-subsidization for reproductive labor. The analysis does not rest on any assumption that obligations of care are simply natural. Nor does it presuppose that they are inherently gendered or feminine, or that all women do, should or will continue to perform unpaid labor. Rather, the argument is that the spheres of production and reproduction are constructed, malleable and amenable to change. Furthermore, they may be deeply influenced by policy decisions, legal entitlements and regulatory structures, and can be directly and substantially altered by changes to the regulatory environment in which economic activity takes place, whether through the policy, legislative or adjudicative process. As a result, law plays an important role in the process of gendering economic activity, and in the distribution of benefits and burdens that results. Reforms will inevitably bear more heavily on some groups of women than others; moreover, men might be subject to at least some of the disadvantages that the women experience were they to have similar obligations or engage in similar activities. However, obligations of care and the performance of unpaid work remain so strongly gendered in the economies in transition, as they do in all others, that how they are managed and organized is an important signal of the relative advantage and disadvantage of women under different institutional regimes. Focusing on the position of women and non-market obligations of care is, in addition, a particularly efficient way to get at some important distributive aspects of current strategies of market reform. For it allows an exploration of two often neglected aspects of the phenomenon: first, the relationship between markets and other social institutions such as the family; and second, the inter25 See for example Isabella Bakker, "Introduction: Engendering Macro-economic Policy Reform in the Era of Global Restructuring and Adjustment", I. Bakker, ed., The Strategic Silence: Gender and Economic Polity (London: Zed Books in association with the North-South Institute, 1994).

20

Introduction dependence between so called "productive" activity in the market and uncompensated, "reproductive" or "non-productive" forms of labor outside it. The articulation of unpaid labor and the "productive economy" tends to have widespread ramifications for women, including women's labor market prospects. While such an exploration is useful in many contexts, it is particularly important in the context of neoliberal reforms. Given the centrality of efficiency-enhancement through such strategies as privatization and "deregulation", important aspects of the redistribution that occurs in the process simply cannot be explained without looking at the general impact of reforms outside the market and considering who performs unpaid work. Focusing on women in the context of the transition to markets modelled along neoliberal ideals thus allows an angle on two key aspects of the emerging labor market picture: 1) the distributive properties of particular market rules and institutions and 2) the disadvantage which arises from the performance of unpaid work instead of, or in addition to, work in the market. The proposals which have been advanced to effect the transition from the plan to the market economy also provide a concrete illustration of the shifting, malleable nature of the boundaries between the market and other social space. Even though they are designed to separate the provision of social services from the domain of production, the state from the market, and the public from the private sphere, neoliberal policies serve to demonstrate something quite different. Instead, they illustrate the dependence of market-based economic activity on activities and inputs provided by other institutions such as the family, the imbrication of the market in the state, and the varied ways in which market and non-market productive activities are inter-connected. The ineluctable contingency, variability, fragility, porousness and flexibility of all of these boundaries becomes highly visible in the context of transition, paradoxically through the very efforts to solidify and stabilize them. These shifting boundaries also disclose myriad possibilities for organizing productive spaces and activities in different ways. Finally, because individuals and groups are not simply randomly positioned in the different domains of production, the public and the private spheres, and the state and the market, debate about the location and nature of these boundaries often functions as a proxy for debate on other social and political questions. Tracing the likely effects of these policy shifts thus helps

21

Kerry Rittich establish the connection between large questions of market design and the fortunes of particular groups. This book is in two parts. The first part is devoted to an analysis of market reform and restructuring in the context of transition, the image and concept of law that informs it, and the distributional decisions that are implicit in these legal reforms yet masked in the project as a whole. The second part is a distributional analysis of some of those reforms in terms of their foreseeable impact on women. However, it is actually the subject matter of the second part - the reports of gender disparities in the context of transition and the desire to trace how they might be structurally linked to reforms - that came first and motivated the analysis of neoliberal legalism as a general project. The subject matter of the first part is deeply informed by the issues explored in detail the second. If it reads as an analysis "in the air", a theoretical inquiry rather than one rooted in a concrete set of political and economic shifts, it may be useful to keep those issues and concerns in mind. However, at the end of the day, it seemed important to have an inquiry into the general ideas which animated the reform project as a whole from the outset. Moreover, it has become more and more evident that the set of ideas and policy prescriptions that were articulated in the context of transition and that form the subject matter of the distributional analysis were not isolated events. Instead, they have recurred in other contexts, coalescing into something that approaches a general theory of law and institutional reform in development. It has also become clear that the very enterprise of promoting thoroughgoing market reforms such as occurred during transition has had a transformative effect on the international institutions themselves. The structure of the analysis is as follows. Part I traces the legal and political underpinnings of the restructuring model, both as a way of unearthing some of the analytic assumptions in neoliberal thought and as a way of understanding how economic and political ideals become connected to specific positions on law and regulation. Chapter 1 outlines the basic neoliberal program for market reform and key programmatic and policy recommendations for the states in transition. Chapter 2 attempts to identify the ideas about legal regulation and the state, including the role of property and "best practice", that organize neoliberal thought. Chapter 3 draws out some of the submerged antecedents and influences in neoliberal policy rationales. First, it considers the writings of Hayek and Roepke, two libertarian theorists to whom the neoliberal position on market 22

Introduction regulation seems deeply indebted. Second, it examines public choice theory and the interest-based, economic analysis of the state on which it rests. Both sources shed light on the alternating yet interconnected political and economic rationales in the discourse of market reform, and suggest how different normative and ideological elements of the neoliberal agenda might operate to support each other. Chapter 4 draws on post-realist analysis in American legal thought in order to tell a counter-narrative about the role of law in economic reform. Focusing on the coercive and distributive properties of legal rules, it illustrates how and why a reallocation of resources and power and alterations to the distribution of income and wealth should be expected to occur in the course of the institutional reform of economic restructuring. The second part of the chapter describes the realist insights about the distributive effects of legal rules that are replicated and supported in the work of institutional economists. Chapter 5 attempts to recharacteriaaze neoliberal restructuring in light of this analysis. Part II explores the distributive impact of some of the key transition reforms for women and the concept of gender equality that inform such proposals. Chapter 6 identifies a number of policies and strategies for transition that are particularly relevant to women. These include: enterprise disinvestment in reproductive services, the elimination of mandated benefits and income support, and the removal of consumer subsidies and cross-subsidies for reproductive work. It then explores the interconnection between the productive and reproductive economies, an aspect of economic organization that is almost totally neglected in the Bank's restructuring plan. The analysis then considers the likely distributional effects of the restructuring plan for women, given such factors as the performance of unpaid work by women and intra-household disparities in decision-making and resource allocation. It then briefly reviews the implications of income policies such as wage control in exacerbating the negative effects of restructuring for both women and workers in general. Moving both backward and outward from these quite concrete policy discussions, chapter 7 considers the concepts of gender equality that can be discerned in the Bank's gender research and its reforms policies, focusing in particular on the contradictory ideological and programmatic positions that the simultaneous pursuit of gender equality and market-centered development entails. Chapter 8 considers the effects of the displacement of equality by a concern for poverty in the neoliberal approach to redistribution and social welfare. The conclusion 23

Kerry Rittich ventures some comments about the points of tension in neoliberal theory and practice and the possibilities for future shifts in development orthodoxy. The eventual outcome of economic restructuring in the states in transition remains unclear. Indeed, even the term transition is problematic, as it suggests passage from one fixed and predetermined state to another. It is akeady clear that this does not describe the process, and that a diversity of outcomes is to be expected. How and when to measure the effects of reform are contested; whether and in what ways different strategies might have produced different results are tantalizing yet unanswerable questions. Yet, while the outcomes are akeady quite varied in different states, current indicators suggest significant problems and adverse effects that extend well beyond what can be explained simply in terms of the short-term costs of transition. In light of these contingencies, this analysis attempts to look at the likely effects of a highly idealized market model through the operation of its constitutive rules, regulations and policies. The hope is that it will both add to sociological and empirical analyses of transition and shed light on the potential impact of the defining features and commitments of neoliberalism in other contexts as well. The analysis focuses on the content of the reform model and the nature of the prescriptions for economic growth, rather than particular case studies of economic restructuring. The claim is not that the model has been or could be implemented in any pure form, or that specific economic and social outcomes could be attributed to it in any simple way even if it were. To reiterate, there are myriad forces at work. Restructuring strategies may well generate unexpected as well as intended effects. Many forms of resistance to drastic change are to be expected; they will surely affect the course of reform. Other institutions are now involved in the dialogue over market restructuring; their analyses and prescriptions may provide countervailing forces to the neoliberal model in the future.26 The varied histories and contexts into which any reforms are introduced are sure to cast a long shadow on the outcomes in every case. Yet notwithstanding all such contingencies, it seems important to investigate the structure and to try to foresee some of the possible effects of a model

26

Bob Deacon with Michelle Hulse and Paul Stubbs, Global Soda/ Policy: international organi^ations and thefuture of welfare (London and Thousand Oaks, CA: Sage, 1997).

24

Introduction for economic development for which claims of universal applicability have been made, one which now functions as the baseline or standard against which all other strategies, in the states in transition and elsewhere, are measured. Despite vigorous critique,27 it shows few signs of being displaced by another paradigm, and so can be expected to exercise a significant degree of influence on economic reform and development, at least in the immediate future.

27

Critiques of this development paradigm have come from a number of sources. The so-called "East Asian" economic development trajectory stands as a powerful challenge if not direct counterexample, despite attempts to assimilate it to the World Bank model. See: World Bank, The East Asian Miracle: Economic Growth and Public Pokey (New York, NY: Oxford University Press, 1993); R. Wade, "Japan, the World Bank, and the Art of Paradigm maintenance: The East Asian Miracle in Political Perspective", 217 New Left Review (1996). "New trade" and "new growth" theories as well as analyses of production, the institutional requirements of lateindustrializing economies, and the role of information deficiencies all cast various aspects of these reform proposals into question. See for example: A. Amsden, et al, The Market Meets its Match, supra note 11; Stiglitz, "Whither Reform?", supra note 5; P. Krugman, Rethinking International Trade (Cambridge, MA: MIT Press, 1990).

25

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PARTI

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1. ECONOMIC DEVELOPMENT IN THE NEOLIBERAL STYLE: THE CASE OF TRANSITION

I

n order to effect the transition from plan to market, the World Bank helped devise and endorse an agenda for institutional, policy and regulatory reform in the states in Central and Eastern Europe and the former

Soviet Union, the Commonwealth of Independent States (CIS). Not only were these reforms necessary to constitute market economies, in the view of the Bank they were also consonant with prevailing wisdom concerning the promotion of economic growth in a globally integrated economy. While this reform agenda is strongly marked by policy and regulatory proposals that had been developed and implemented in other contexts, transition was unprecedented and threw up new challenges. Inevitably, transition became an occasion not simply for the implementation of a well-developed reform model, but also an occasion in which neoliberal reformers gave substance and institutional form to a variety of abstract concepts and commitments. What follows is an outline of the basic neoliberal tenets concerning markets and economic reform as they stood at the time of transition. This is followed by a description of one important part of the reform agenda for the countries in transition, the effort to separate economic life and production from the provision of

29

Kerry Rittich social services, the fulfilment of social welfare goals and the achievement of distributive equality. As this chapter describes, productive activity in the states in transition was organized so as to serve a variety of social and political as well as economic objectives. The agenda for transition calls for the dismantling of this system and its replacement with a set of institutions and practices that, in the view of reformers, is more consonant with the demands of market economies. Those reforms touch on the manner in which benefits are provided by enterprises, subsidies to goods and services, employment regulations and entitlements and the shift to wage compensation.

1.1 An Outline ofNeoliberal Theory and Practice At the center of neoliberal development theory stands an identifiable set of "best practices," consisting of laws, institutions, policies and strategies. In the view of market reformers, the adoption of these laws, institutions, policies and strategies constitutes the optimal route to economic development and prosperity. There is a variety of inherited circumstances that might affect reforms; history and culture, for example, may shape the way that legal systems function.1 States may also encounter political difficulties in their implementation. However, these variables pertain more to the expected outcomes than to the desirability of the reforms themselves. The implementation of optimal market institutions, along with the sustained application of "sound" economic policies, remains the overarching prescription for economic growth. "Best practices" and "good laws" are those which provide an enabling environment for private entrepreneurial activity and investment. They rest on the assumption that private activity is the engine of economic growth and that state intervention and interference in this process must be sharply contained if growth is not to be impeded. For transition economies, in addition to macroeconomic stabilization, the objectives consist in "getting prices right" and eliminating policies and institutions which are likely to cause distortions in the operation of the market. The funda-

1

World Bank, World Development Report 1996: FromPlan to Market (Oxford; New York: Oxford University Press, 1996), 87. 30

Economic Development in the Neoliberal Style mental if not definitional aspect of the transformation from plan to market economy is the move to market determination of all prices and factors of production. Key elements in this process include: the privatization of state enterprises, the liberalization of prices through the elimination of all forms of price controls and the administrative setting of wages, the removal of state subsidies to both consumption and production goods and services, and the structuring of an open, "deregulated" economy to foster the entry of foreign goods, services and investment Transition in addition requires the adoption of a set of "market-friendly" rules, policies and institutions. Market-friendly reforms are those that encourage foreign investment, empower owners, entrepreneurs and managers and limit the constraints such actors face in the deployment of resources and assets, including the use of labor.2 The laws and regulations thought to be fundamental, to literally define a market economy, are those which secure property rights and investments, limit investor risk, facilitate commercial transactions both within and across national or other jurisdictional boundaries, and render costs predictable.3 However, other rules, policies and institutions may be impediments to the efficient market allocation of factors of production. To the extent that they impose additional costs on employers, they are likely to impair competitiveness and growth; they may also restrain needed enterprise restructuring and interfere with privatization. Examples include various forms of labor laws and employment regulations, environmental standards which are too rigid or stringent,4 or required employer payroll contributions to fund social benefits.5 In sum, regulations which threaten to impose an excessive financial burden on enterprises and the emerging private sector are suspect and must be removed or altered.6 2

The World Bank, World Development Report 1991: The Challenge of Development (New York: Oxford University Press, 1991), 1. 3 See for example, the discussion in Prom Plan to Market, supra note 1, at 88-93. See also The Challenge of Development, id., at 70; Ibrahim Shihata, Complementary Reform: Essays on Legal, Judicial and Other Institutional Reforms Supported by the World Bank (The Hague: Kluwer Law International, 1997). 4 From Plan to Market, supra note 1, at 54. 5 World Bank, Poland: Income Support and the Social Safety Net During Transition, (Washington, D.C.: World Bank, 1993), 60. 6 See The World Bank, World Development Report 1995: Workers in an Integrating World (New York: Oxford University Press, 1995), 109-110. 31

Kerry Rittich The major role of the state is to support and complement private economic activity. In neoliberalism, there is a presumption against state "intervention" in the market; for this reason, the burden of proof lies on those proposing the intervention.7 Beyond the provision of infrastructure and basic health and education, the presumption is that public spending is non-productive and likely to impair economic performance, as it tends to be both inefficient and inflationary.8 The agenda for transition as a whole reflects a deep preoccupation with the proper role and limits of the state in a market economy9 and the normalization of a particular set of rules and structures governing economic transactions. It is a recurring theme that there are distinct functions for different institutions and actors in market societies. A major focus of activity throughout is to define the institutional structure and configuration of roles and powers among market actors that conforms to this idea of functional differentiation.10 One major objective is the definition and protection of a domain of economic activity, organized around the pursuit of efficiency and the maximization of profits, that remains largely independent of competing social and political values and interests. Above all, the regulatory structure of the market is to be determined by what maximizes economic growth. According to neoliberal theory, concerns such as alleviating poverty or inequality are to be dealt with not by altering these preferred market structures, as such efforts have proven both ineffective and inefficient where they have not lead to complete economic disaster. Instead, the proper solution is to provide limited forms of redistribution by the state that are targeted and carefully confined to the most needy. In the main, personal welfare and income security are to be ensured through personal efforts and by the assumption of individual responsibility. Market societies can promote these goals by implementing the appropriate structure of

7

From Plan to Market, supra note 1, at 111.

8

Wat 113-115. This issue is explored at length both in The Challenge of Development, supra note 2 and World Bank, World Development Report 1997: The State in a Changing World (New York: Oxford University Press, 1997). 9

10

A clear statement of this is found in World Bank, Poland: Income Support and the Social Safety Net during the Transition, supra note 6, at xiii: "Possibly the most fundamental aspect of the move towards a market economy is the change in the division of responsibilities it implies [between enterprises, the individual and the state]."

32

Economic Development in the Neoliberal Style incentives to individual initiative and productivity. Dependence on the state is pathologized and largely foreclosed. The re-organization of the state and restructuring of the market to maximize wealth rests on the premise that the quality of life is dependent on economic growth,11 and that the primary objective of states therefore lies in improving the conditions for material progress. Economic growth in turn is now thought to be linked to successful integration into the global economy and the ability to attract capital and foreign investment. Consequently, the general interest has become in important ways co-extensive with the needs of entrepreneurs and international capital and states are encouraged to pursue policies which harmonize conflicting interests and objectives among different groups to promote growth and productiv-

ity. On the one hand, the argument goes, everyone stands to benefit from economic growth, as increased economic growth is both the panacea and only solution to poverty. On the other, all stand to be seriously harmed from the lack of it. But in any event, all states are in the grip of a process of global economic integration which has a logic of its own and which will continue with or without the participation or acquiescence of particular states. The result is a fusion of the desirable and the inevitable, which is expressed clearly in the statement that "sound economic policies" are "richly rewarded," while "unsound" policies are "punished harshly" by international capital.12 While one objective is the creation of barriers around the economic domain, another is the application of market logic to other social institutions. This is particularly evident in the analysis of the role of the state and the operation of the public sector. The state is directed to provide a positive, supportive role for the market, and consequently to shrink in the areas in which it might be regarded as its competitor. The public sector is encouraged to emulate the behavior of the market and to govern and structure itself according to market-like incentives. In neoliberal theory, the behavior of the state itself is analyzed in terms of economic logic. Legislators, bureaucrats, constituents and other actors engaged with state agencies are all subject to the presumption that they are

This is explicitly set out in The Challenge of Development, supra note 2, at 4. See Workers in an Integrating World, supra note 4, at 5.

33

Kerry Rittich likely to engage in interest or rent-seeking in ways that undercut the efficient and effective operation of the state. 1.2 The Agenda for Transition "Greater disparity of wages, income and wealth is - up to a point - a necessary part of transition, because allowing wages to be determined by the market creates incentives for efficiency that are essential for successful reform. More efficient workers must be rewarded for their contribution to growth."13 "Market-determined wages and employment are vital to achieving deep restructuring, but initial conditions in transition economies make increased income inequality an inevitable consequence of reform. Until this impact is offset by renewed growth — the indispensable element in any antipoverty policy - an increase in poverty is unavoidable."14 "The aim is to make the composition of expenditures consistent with the tasks of government in a market economy and conducive to long-run growth...[R]obust empirical evidence supports the view that government spending tends to be productive and to promote economic growth where it corrects proven market failures and truly complements private activity - as do some infrastructure investments, preventive health care, and basic education - but rarely otherwise.15 From Plan to Market contains several distinct and severable recommendations which, though linked to this economic logic and theory of growth, do not follow inevitably from them; nor are they explicable simply in terms of commitments to the merits of privatization or the superior allocative efficiency of a market economy. Rather, they are attempts at the translation of a particular mode of economic analysis and development theory into state policy, legal regulation and enterprise strategies. As such, they can be regarded as a set of mid-level policy decisions about such questions as the proper concerns and optimal structuring of enterprises and the preferred degree of state redistribution.

13 14 15

34

From Plan to Market, supra note 1, at 66. Id., at 144 W, at 11 5.

Economic Development in the Neoliberal Style There are a number of key policies at this level. One is that enterprises divest themselves of "non-productive" activities and cease to compensate employees in the form of benefits and services, particularly in-kind services. A second is that particular forms of regulation, many of which govern terms, conditions and entitlements in the employment context or mandate employer contributions for benefits, be dismantled. A third is that states desist from providing subsidies or engaging in broad-based programs of redistribution and limit transfer payments to those most disadvantaged by the transition process. The end goal is a market society in which there is a distinct sphere of economic activity which remains separate from entitlements to welfare and social services, minimal public funding and provision of benefits and services, a confined redistributional role for the state, heightened personal responsibility for welfare and the provision and allocation of goods and services largely through the market. The proposed transition represents a profound transformation in the conduct of economic affairs. In order to comprehend the impact of the transformation envisioned in the course of the transition to markets, it is necessary to look at how production was organized under the plan economies. While there was significant inter-country variation within the region, the broad contours of the system remain intelligible as a particular mode of economic organization.

1.2.1 COMPENSATION AND SOCIAL WELFARE IN PLAN ECONOMIES One of the most distinctive aspects of the organization of production in the plan economies was the integration of production with the provision of a range of social and economic goals and services. In much of Central and Eastern Europe and the Soviet Union, under the regime of state ownership of enterprises, the state and the enterprise formed part of an interlocking structure for allocating resources to and ensuring the material needs of workers and other citizens. Enterprises were the major conduit for the provision of social services and carried out many of the redistributive and welfare functions commonly associated with the state in market economies.16 Enterprises often performed local administrative functions as well, 16

General description and discussion of the characteristic features of social provision and enterprise structure in centralized economies can be found in the following sources: J. Kornai, The Socialist System: The Political Economy of Communism (Princeton, N.J.: Princeton University Press, 1992); M. Boycko and A. Shleifer, "Russian Restructuring and Social Benefits," in A. Aslund, ed., Russian Economic Reform at Risk (London: Pinter, 1995); L. Specht, "The Politics of

35

Kerry Rittich maintaining schools and hospitals and even engaging in street cleaning and refuse collection.17 Unlike in market economies, the fulfilment of these reproductive functions ranked along with production targets as an important enterprise objective, as it was important that the system reproduce itself as well. The property of enterprises allocated by the planning authorities of the state included goods and capital designed for spending on the reproductive needs of labor.18 Such assets were allocated to separate social funds and were intended to be used for those purposes alone.19 For example, the principle of "operative management" which governed the use and disposition of property in the Soviet Union placed limits on the use of property allocated by the state to enterprises. Workers were entitled to access to the social fund, although access might be linked to fulfilment of the productive objectives of the enterprise.20 In toto, these entitlements and benefits represented an elaborate structure of administrative and regulatory provision.21 Although this system is commonly characterized as one in which citizens received free or subsidized goods and services, it is important to emphasize that lowor no-cost provision of goods and services was an integral part of the employment bargain.22 Wages in general were extremely low and employment compensation took the form of a mixture of wages and benefits. Benefit entitlements as well as the receipt of specific goods were in general conditional upon employment, although beneficiaries often included "outsiders" in the surrounding community as well.23

Property: Soviet Property as a Bundle of Rights", S.J.D. dissertation, Harvard Law School, April, 1994, on file with the author; G. Standing, Russian Unemployment and Enterprise Restructuring: Reviving Dead Souls (Geneva: ILO, 1996). 17 L. Specht, "The Politics of Property", supra note 16, at 105. 18 J. Kornai, The Socialist System, supra note 16, at 132; L. Specht, supra note 16, at 103. 19 J. Kornai, id. 20 L. Specht, "The Politics of Property", supra note 16, at 103; J. Kornai, id. 21 Id. 22 International Monetary Fund, World Bank, Organisation for Economic CoOperation and Development and European Bank for Reconstruction and Development, A Study of the Soviet Economy, vol. 2, (Paris: OECD, 1991). 23 See L. Specht, "The Politics of Property", supra note 16, at 108; M. Boycko and A. Schleifer, "Russian Restructuring and Social Benefits", supra note 16, at 110. 36

Economic Development in the Neoliberal Style The structure of benefit and service provision in the plan economies might be typologized in the following way. First, in-kind goods and services were provided as part of employment compensation instead of wages; these came either as benefits attached to employment or were directly integrated into the activities of enterprises. Second, benefits such as pensions and entitlements to paid leave on various grounds were provided, some of which were centrally mandated or regulated by the state and others of which were specific to particular sectors or negotiated at the enterprise level. Third, the state subsidized a variety of consumer goods, thus enabling their purchase on low wages.24 A large number of goods and services, ranging from subsidized food, housing, vacations, medical, health and childcare to sports and cultural facilities and consumer goods were provided free or at low cost as part of employment compensation. Specific benefits were typically controlled and allocated by trade unions. They varied from sector to sector and country to country, sometimes depending on the privileges extended to different sectors by the state. For example, in the Soviet Union, housing and childcare ranked among the most important benefits. In general, compensation was tilted toward benefits and services and wages were relatively low, as the wage levels set by the state or negotiated at the enterprise level reflected the fact that compensation included these goods and services.25 Among the benefits provided were those expressly designed to compensate women for reproductive labor. A characteristic feature of these economies was the high labor force participation by women relative to other economies.26 However, there was nothing natural about this state of affairs, nor was it an automatic consequence of the presence of a plan economy. Instead, various market-like incentives were implemented to induce women to engage in paid work and to enable women

24

There is considerable ambiguity as to what "subsidy" might mean in the context of the plan system in which prices and wages are administratively determined and prices expressly set to influence demand and redistribute income (see J. Kornai, The Socialist System, supra note 16, at 153). Subsidies to enterprises might refer to the absence of hard budget constraints (see J. Kornai, supra note 16, at chapter 8, "Money and Price") and continual bargaining even within the established wage and price levels, or to the ability of enterprises to sell their products at below the actual costs of their production. 25 J. Kornai, The Socialist System, supra note 16, at 225. 26 International Labour Office, Yearbook of Labour Statistics (Geneva: International Labour Office, various years).

37

Kerry Rittich to shoulder both work and family responsibilities.27 While the structure and extent of the services and benefits varied significantly from country to country,28 common benefits were extensive maternity and childcare leave provisions, days off to fulfil household or domestic obligations, and earlier retirement for women.29 Moreover, despite bureaucratic rigidities and control, actual wage and compensation levels were a combined result of administrative wage setting and market pressures arising from variations in the supply and demand of workers and the relative bargaining positions of the parties.30 For a variety of systemic reasons, labor shortages were chronic in such economies.31 Workers were strongly influenced by the attractions of various workplaces and, as a consequence, bargaining over wages between workers and immediate employers took place, sometimes on a "massive scale."32 There was considerable inter-enterprise job-hopping in pursuit 27

However, it was not neither the intent nor apparently a consequence of such regulations and entitlements to alter the gender composition of domestic or reproductive responsibilities. Hence, the oft-noted double or triple workload of women which appears to have been a general feature of these economies, as it is of others. See for example, B. Einhorn, Cinderella Goes to Market: Citizenship, Gender and Women's Movements in East Central Europe (London; New York: Verso, 1993); A. Posadskaya, ed., Women in 'Russia: A New Era in Russian Feminism, Kate Clark trans. (London; New York: Verso, 1994); Marilyn Rueschemeyer, ed., Women in the Politics of Postcommunist Eastern Europe (Armonk, N.Y.: M.E. Sharpe, Inc., 1994). 28 There were and remain significant differences among the various states as to the extent of benefit and service provision. In the German Democratic Republic, for example, childcare services were widely available; in Poland, by contrast, there were never enough services to meet even a fraction of the demand. See B. Einhorn, Cinderella Goes to Market, supra note 27, at 12-13. Hungary had the most extensive maternity leave provisions, entitling women to years at a time while still remaining employed; this often functioned in lieu of childcare services. In the republics of the CIS, even privatized firms now still provide extensive benefits to their workers, both to retain skilled workers and because it has not proved feasible in many cases to either privatize the services or transfer the administration of crucial services to municipalities without a resulting collapse of the supply. See M. Boycko and A. Shleifer, "Russian Restructuring and Social Benefits", supra note 16, at 112. 29 Monica S. Fong, "Gender Barriers in the Transition to a Market Economy", PSP Discussion Paper Series (World Bank, January, 1996), 10; Sandor Sipos, "Income Transfers: Family Support and Poverty Relief, N. Barr, ed., Labor Markets and Soda/ Policy in Central and Eastern Europe: The Transition and Beyond, World Bank (New York: Oxford, 1994), 226. 30 J. Kornai, The Socialist System, supra note 16, at 226. 31 J. Kornai, id., at 221. Guy Standing observes that such shortages were contrived, a consequence of the financial incentives to enterprises to employ large numbers of workers, whether they were needed or not, in order to expand the wage fund. See G. Standing, Russian Unemployment and Enterprise Restructuring, supra note 16, at 3. 32 J. Kornai, The Socialist System, supra note 16, at 226. 38

Economic Development in the Neoliberal Style of higher fringe benefits.33 At the same time, managers tended to lobby their superiors for larger wage funds with which to satisfy, and hence retain, desired workers. And despite the presence of administrative tariffs for wages and benefits, the bureaucracies were obliged to react to these signals by workers to some degree.34 In other words, market co-ordination had at least a minor role within the system, governing the relative wages and influencing the occupational, workplace and regional distribution of the labor supply.35 As in a market economy, this system contained a structure of incentives around which expectations developed and through which both enterprise managers and workers pursued particular objectives and attempted to maximize their respective interests.

1.2.2 CRITIQUE OF THE ENTERPRISE BENEFIT MODEL "|T]he labor markets inherited from central planning, at least for movement between different skills, effectively sacrificed labor mobility for greater individual security.... In a market system employees move between employers, between types of work, and between places - and they may experience unemployment. Income transfers ... need reform, not only to reduce poverty and contain costs but also to assist mobility. This means, in particular, supporting the unemployed and getting enterprises out of the business of delivering social benefits. Otherwise labor will remain immobile, raising the costs of transition by creating pockets of poverty in declining regions, and by pressuring enterprises and governments to defer necessary restructuring."36 "Decoupling delivery of a wide range of services from enterprises - housing and day care are particular problems - will be vital to allow workers to move readily.... In the short run... municipalities have an important role in ensuring continued provision of key services, perhaps through underwriting part of enterprises' cost of provision. A longer-term approach has three steps. First, require enterprises to separate their general accounts from those for social services. Second, for tax purposes allow enterprises to offset the costs of social services against the income those services generate, but not against income earned from the enterprises' main activities. This gives enterprises strong incentives to charge for services and might encourage the spinoff of 33 34 35

36

G. Standing, Russian Unemployment and Enterprise Restructuring, supra note 16, at 3. J. Kornai, The Socialist System, supra note 16, at 226. Id. World Bank, From Plan to Market, supra note 1, at 66.

39

Kerry Rittich new services firms. Third, help families meet those charges through higher wages and through targeted income transfers such as family allowances."37 "[P]ayroll contributions that finance income transfers (including unemployment benefits) are high, hindering new employment, encouraging workers and employers to collude in fraud, and creating incentives for unofficial employment."38

1.2.2.1 Enterprise benefit provision A number of interlocking concerns and beliefs drive the reform model with respect to enterprise restructuring and alterations to the role and size of the state. Foremost is the belief that the operation of the market should be kept separate from distributive or other political concerns. In particular, production should be separated from entitlements to welfare and social services, as these are essentially non-productive expenditures and activities. There are various rationales advanced: one is that the move to the market itself makes it necessary to reduce the degree of economic security provided to workers and to increase self-reliance for individual welfare. Another concern is that the extensive provision of benefits creates work disincentives. A third is that benefits and services are "too expensive", both for firms, because it makes them uncompetitive, and for the state, because it places a heavy tax burden on the emerging private sector. Finally, enterprise provision of benefits is thought to impair the reallocation necessary of labor from the public to the emerging private sector and from less to more productive enterprises. A host of deleterious effects are said to be associated with enterprise provision of benefits and in-kind services.39 One is that enterprise involvement in the provision of social benefits is a barrier to the process of economic restructuring in general; for example, enterprise provision of the social safety net

37

Id, at 76. Id, at 75-76. 39 These are set out in detail in M. Boycko and A. Schleifer, "Russian Restructuring and Social Benefits", supra note 16, at 108-115. 38

40

Economic Development in the Neoliberal Style has been identified as "perhaps the single most important deterrent to effective enterprise restructuring" in Russia.40 The argument is that the provision of benefits and services through enterprises operates as a source of pressure on both states and management, restraining necessary enterprise closures and bankruptcies, and making enterprises unattractive to prospective investors, particularly foreign investors. Social commitments give enterprises continued leverage over the central government for cheap credits and subsidies, generating inflation and leading to the "politicization" of even privatized firms.41 The provision of benefits also exacts financial costs which are detrimental to the primary functions of the enterprise. Benefits take up valuable resources, including management time, which could be better devoted to productive tasks,42 are extended to outsiders to the firms, and place burdens unrelated to productivity on enterprises. Enterprise financing of benefits is also inefficient because only some of the funds intended for them actually go to provide the services; some funds inevitably get diverted to the production of goods or to managers' pockets. Finally, there is serious concern that enterprise provision of services inhibits labor mobility, hindering the formation of the private sector. As discussed below, severing the ties which bind workers to particular enterprises is regarded as necessary in order to free labor for more productive uses. 1.2.2.2 Employment regulation and entitlements "Adaptable labor markets are essential if workers are to benefit quickly from economic recovery. Increasing labor market flexibility - despite the bad name it has acquired as a euphemism for pushing wages down and workers out - is essential in all regions of the world undergoing major reforms."43 Labor market regulations should in the first instance be designed to encourage positive contributions to growth.44 It is a recurring theme that, however apparently desirable or beneficial, many labor and employment regulations do more harm than good, even to those they are intended to benefit, because they reduce 40 41

42 43 44

World Bank, From Plan to Market, supra note 1, at 108. Id. Id.,at61. World Bank, Workers in an Integrating World, supra note 4, at 109-110. World Bank, From Plan to Market, supra note 1, at 77.

41

Kerry Rittich investment, wages or the number of jobs.45 Consequently, it is important to avoid over-regulating.46 For example, high payroll contributions on the part of employers are said to hinder employment creation and interfere with the competitiveness of enterprises.47 Moreover, labor market policies often create favored sectors resulting in differential benefits for protected groups at the expense of the less well off.48 For example, unions can have negative economic effects by protecting minority groups of workers at the expense of the unemployed and those in rural and informal markets, as well as consumers and capital holders;49 they also sometimes use their political power to resist structural adjustment efforts.50 Because of the importance placed on the role of the market in determining prices and re-allocating labor, labor market regulations such as job security provisions or minimum wage rates are regarded as particularly problematic for transition economies.51 Extensive maternity and other leave provisions are characterized as "generous" and identified as factors which render women more expensive to employ and generate relatively high levels of unemployment among women.52 1.2.2.3 Subsidies and cash compensation "[S]ubsidies are inefficient and should be replaced with direct income transfers, which can provide targeted, more effective transitional relief to vulnerable workers and households and do not delay necessary enterprise restructuring....Where subsidies have already come down, the main challenges are to reduce any remaining subsidies... and recover a greater share of the costs of some education, health and local transport services.53

45 46 47

World Bank, Workers in an Integrating World, supra note 4. World Bank, From Plan to Market, supra note 1, at 43, 63. World Bank, Poland: Income Support and the Social Safety Net During Transition, supra note

6, at 60. 48

World Bank, from Plan to Market, supra note 1, at 77; World Bank, Workers in an Integrating World, supra note 4, at 34-35. 49 World Bank, Workers in an Integrating World, supra note 4, at 80-81. 50 Id,at81. 51 World Bank, From Plan to Market, supra note 1, at 77. 52 Id, at 73. 53 Id, at 115.

42

Economic Development in the Neoliberal Style "There is a strong presumption that, where transfers are paid, they should be in cash wherever possible: cash payments leave buying decisions to the recipient, they are more transparent in budgeting, and they do not interfere with market prices."54 Apart from the role of enterprise benefit and service provision in obstructing the course of reform and impeding labor mobility, there is a strong preference in favor of cash compensation and income transfers, as subsidies and inkind payments are thought to "distort" prices and consumption choices and obscure the true costs of goods and services. Compensation through services and benefits imposes a cost on those who might have other spending priorities, at the same time subsidizing those who would have independently chosen to pay for the services and benefits. Cash compensation removes such distortions, ensuring that the "true costs" of all goods and services become visible and that resources are allocated to their best uses. Benefits and in-kind services also "distort" incentives for employee performance by reducing the connection between pay and effort. Cash compensation, by contrast, particularly flexible and merit-based compensation, functions as an incentive to increase productivity55 and is for that reason preferred.

1.2.3 STRA TEGIES FOR CHANGE 1.2.3.1 Wage compensation and the elimination of benefits A crucial element of the restructuring process is the move to "market patterns" of compensation, defined as "a shift from basic wages plus benefits (often in-kind) to wages plus bonuses related to productivity or profitability."56 Increased wage differentials are explicitly encouraged to reward and encourage the most productive workers. In the main, individuals and households are expected to meet needs through higher wages and, for the least well off where this proves to be inadequate, through targeted benefits. However, it is clear that a reduction in total employer expenditures and downward pressure on benefit demands, rather than a mere change in the mode

54 55 56

Id., at 80. Id., at 113. Id., at 73.

43

Kerry Rittich of compensation for reasons of efficiency and productivity, is also contemplated. For example, it is suggested that: "The employer contribution can be reduced in three ways: by reducing benefits, by financing through general taxation benefits that do not relate to any insurable risk (such as benefits for children), and by dividing the contribution between worker and employer (under the old system the employer paid the entire contribution, a fact regarded as one of the victories of socialism). "Sharing" contributions between worker and employer may make little difference to who actually ends up paying it. But it has the great advantage that workers immediately see a larger deduction on their pay slip if benefits increase; this helps reduce pressure for higher benefits."57

Hence, a number of strategies other than wage replacement of benefits, goods and services are suggested, including: simple divestment or elimination of benefits and services; user fees and increased or complete "cost recovery" for services; dividing contributions between employer and employee to suppress the demand for services; shifting either the administration or the funding of benefits and services such as housing and childcare on a temporary basis to local authorities;58 state or municipal funding of severance pay for redundant workers59 and financing, in cash rather than in-kind, benefits that do not relate to an "insurable risk" of the enterprise, such as those for children, through general taxation.60 It is central to the appeal of efficiency arguments that these changes are not intended, at least ultimately, to result in a net reduction in available services or a decline in general welfare. Instead, allowing for a period of transition, the claim is that wages will rise to enable people to purchase through the market the services previously supplied through the enterprise or by the state to the extent that they still remain in demand. For example, if there is sufficient demand, private childcare will spring up via market forces to meet it. Moreover, the quality will be higher and goods and services will be more efficiently provided and responsive to people's needs.

57

58

Id, at 76. M. Boycko and A. Schleifer, "Russian Restructuring and Social Benefits", supra note

16, at 113. 59 60

44

World Bank, From Plan to Market, supra note 1, at 47. Id, at 75-76.

Economic Development in the Neoliberal Style 1.2.3.2 Reductions in public provisioning In the course of restructuring, the state may have a temporary role to play in taking over the administration of social assets such as schools, clinics, housing, and day care centers,61 especially if it is necessary to enable enterprises to restructure, as reducing the expenditures of enterprises is a priority. However, there are strict limits to the benefits that should be continued through this route. Any proposed reliance on the state or municipal authorities for services needs to be placed against the background assumption that public provision of most social services is inefficient and should be supplanted by private provision. The reasons are as follows: "Public spending is inefficient for several reasons... [M]ost large governments in transition economies spend a disproportionate share of public funds on programs with little if any impact on productivity and economic growth, such as subsidies and social transfers ... Since these programs create entitlements or vested interests, there are strong pressures for them to expand. Second, government saving ... and public investment tend to be unusually low.... Third, the efficiency of government services such as health and education in many transition economies is undermined by entrenched spending allocations within sectors, weak implementation capacity and high staffing ratios... Increased private participation and cost recovery are urgent priorities."62 In any event, there are inherent limits to the degree of public provision arising from the fact that high spending and taxation rates place a burden on the private sector. State expenditures are explicitly defensible in terms of their capacity to contribute to productivity and growth; otherwise, extensive public spending is presumptively undesirable.63 State expenditures which directly increase productivity are more acceptable than those with only indirect effects; there is a preference for state investments in infrastructure rather than human capital, as the relation to economic growth, according to the Bank, is stronger with the former than the

61

62 63

Id, at 47. Id, at 114-115. U.

45

Kerry Rittich latter.64 While the gains from investments in basic health and education are acknowledged, subsidies and social transfers are thought to be net losses. The heart of the transformation in the redistributive role of the state is set out in the following statement: "(Tjnstead of providing generous guarantees to secure adequate living standards for all, governments need to foster greater personal responsibility for income and welfare. Providing social protection is a key function of government in all economies, but in a market economy it should ... be mainly targeted at those vulnerable groups who need it most."65 Governments should limit their role to the provision of key services; reducing the redistributive role of the state is seen to be a fundamental aspect of economic restructuring. To this end, extensive state provision of transfer payments is actively discouraged under the agenda.66 Broadly based social programs and income transfers are thought to be inefficient, create vested interests, provide disincentives to work and slow productivity. Systems of income transfers should be reduced and directed only at the poor; programs that deliver roughly equal benefits to the populace are deemed paternalistic and "poorly targeted" and not in accord with the needs of a market economy.67 A major source of concern is the relatively high percentage of state funds that are now devoted to pensions. Regulations permitting early retirement, that is earlier than the norm in market societies, and provisions for earlier retirement for women than men are a source of high state spending; pensionable ages therefore must be raised.68 Public sector reform based on a separation of state policy from actual state provision of social services is increasingly promoted, through the devolution of service provision to local authorities and greater commercial service provision through contracting out and competition. These strategies are part of an effort to

64

World Bank, Workers in an Integrating World, supra note 4, at 21; World Bank, From Plan to Market, supra note 1, at 115. 65 World Bank, from Plan to Market, supra note 1, at 110. 66 W, at 114. 67 Id., at 78. 68 /<£, at 78. 46

Economic Development in the Neoliberal Style institute market-like incentives and structures within the public service itself and to encourage the public sector to become more efficient.69 Rather than a new system to ensure the delivery of particular benefits or services, what is envisioned in the economies of transition is wage replacement of non-monetary forms of compensation and market provision of most services. It is not proposed, for example, that delivery of all services simply be transferred from enterprises to local authorities or other state entities. And whether the service is provided through the market or administered by local authorities, subsidies should decline and be eliminated except for the poorest members of society.

69 This is discussed further in Maureen Mackintosh, "Competition and Contracting in Selective Social Provisioning", J. Vivian, ed., Adjustment and Social Sector Restructuring (Geneva: Geneva and the United Nations Research Institute for Social Development (UNRISD), 1995).

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2. NEOLIBERAL IMAGES OF LEGAL REGULATION AND THE STATE

"The transition from plan to market calls for a whole-sale reinvention of government. The state has to move from doing many things badly to doing its fewer core tasks well. This means government must at once shrink and change its nature. No longer the prime economic agent in most areas, it must instead facilitate private activity."1 Market reform in the neoliberal style requires the adherence to a set of rules and practices that facilitate the investment and transactional activity necessary to economic growth. Reform proposals proceed on the basis that there is an optimal division of labor between different institutions, that there are relatively clear distinctions between economic and political issues, and that the market must be organized around the pursuit of efficiency and protected from non-economic values and concerns. The resulting markets are imagined as discrete transactional spaces that are insulated from political interests and social values. This chapter aims to examine how these reforms are advanced and defended in their own terms, and to explore the place of law within the neoliberal reform 1

World Bank, World Development Report 1996: From Plan to Market (Oxford; New York: Oxford University Press, 1996), 110.

49

Kerry Rittich project as a whole. The purpose of the exercise is to probe the relationship between market reforms and the production of disadvantage, especially gender disadvantage within the market. First, how might redistribution occur in the process of instituting market regulations and policies? How are such effects sidelined, if not entirely blocked from view, in discussions of economic transformation? Finally, given the extensive institutional change which economic restructuring entails, how is economic reform organized and managed so as to contain the specter of interference in the domain of politics? The intuition pursued here is that, independently and collectively, the divisions and boundaries described above do much of the work of producing yet obscuring advantage and disadvantage for particular groups. Attention to the legal dimension of the exercise is crucial to understanding this process, as images of law and regulation, as well as claims about the nature of legal rights in market societies, play an important role in explaining and legitimating reforms. By providing the boundaries and divisions through which neoliberal reforms operate, law helps construct and mediate the division between economic and political concerns. The technocratic image of law projected in neoliberal policy discussions and the managerial, functionalist approach to questions of regulation all support the idea that there is a relatively clear division between legal or regulatory considerations and distributional or political considerations. Thus, particular conceptions of law are central to how neoliberal markets and institutional structures are both constructed and legitimated.

2.1 Positioning the State In the neoliberal vision, the state is positioned largely as the handmaid or servant of the market; the activities of the state must be subordinated to the demands of economic growth.2 This fundamental shift from the state to the market is justified as contributing to the overall public good; it is a reduction of the public for the sake of the public. Yet although it signals, at least on the surface, a displacement of public institutions by private actors and entities, this priority of the private over the public turns out to be simultaneously revealing and misleading in important ways. It is common to characterize this reconfigured relationship be2

50

Id.

Neoliberal Images tween the state and the market as a reduction in the presence of the state, the result of which is a "deregulated" economy. However, rather than simply a downsized state and a deregulated market, what is actually envisioned is a transformation in the role of the state in the direction described above, to the support and facilitation of private economic activity.3 "Deregulation" thus refers not only to the elimination of regulations, but also to reregulation: it means the implementation of a new and different configuration of rules, policies and institutions governing economic activities and relations. One of the most basic elements of neoliberal reforms is a heavy investment in the establishment of the correct division of labor between the state and the market. It is a recurring theme throughout reform proposals that there are distinct functions for different institutions and actors in market societies. While the state must provide the basic framework in which economic activity can occur, the responsible state will cede most other functions to the market. This commitment to a division of labor is expressed through the idea of the market as a bounded space that must be protected from illegitimate interventions on the part of the state, as well as from distortions or inefficiencies introduced because of "politics" or the claims of "special interests". This autonomous market can be created and protected by ensuring that economic activity is configured around a particular set of rules and practices. This requires two things: first, attention to the internal laws, regulations, policies and institutions which bear on economic activity; and second, a cabining of domestic "political" concerns and priorities which might prevent their implementation and disrupt the optimal functioning of the market. These dimensions of the neoliberal project are particularly evident in the policies developed for the states in transition to market economies; in this context above all, reforms are designed to institute a radical separation of the state from the market. For institutions such as the Bank, the prime deficiencies of the plan system can be located in the intermingling of public and private functions and the incursion of the state into what is quintessential^ private space - the market. The 3

Biersteker describes the aims of the World Bank's structural adjustment programs in very similar terms. See Thomas J. Biersteker, "The 'Triumph" of Neoclassical Economics in the Developing World: Policy Convergence and Bases of Governance in the International Economic Order", James N. Rosenau and Ernst-Otto Czempiel, eds., Governance Without Government: Order and Change in World Politics (Cambridge; New York: Cambridge University Press, 1992), 102,108.

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Kerry Rittich non-market allocation of resources gave rise to massive inefficiencies and permitted continual political interference on the part of bureaucrats and party members. The envisioned solution is a total restructuring of the economy in order to institute a sharp separation between two domains which had previously been closely interconnected, if not inseparable. This new relationship between the state and the market is expressed in a number of ways and rationalized on a number of different bases. States are encouraged to devolve the responsibility for the funding and provision of a broad number of goods and services to the private sector, on the theory that "states are overproviding a wide variety of goods and services that private markets could supply in their stead".4 Underlying the concept of "overprovision" by the state is the assumption that private provision is inherently superior, because market allocation of resources is more efficient than that which occurs through other means. There is a strong core/periphery model operating about proper, less proper and improper state activities. In the context of transition "core public goods and services" include "a foundation of lawfulness, a stable macroeconomy, the rudiments of public health, universal primary education, adequate transport infrastructure, and a minimal safety net".5 Other activities are peripheral and discretionary, while still others are clearly beyond the pale and outside the bounds of acceptable state activity. Prescriptions about the appropriate scope of state activities may also be tempered by institutional and pragmatic concerns. For example, there are increasing references to the variety of institutional capabilities and limitations that states might face;6 these too may affect the way that tasks are assigned to either the state or the market. However, specifying the ideal role for the state is not easy, nor is that role fixed and determined. Despite the insistence that there are proper and less or improper state functions, the Bank's position on what these functions are has shifted over time. For example, higher education, curative health services and pensions and insurance are characterized in 1997 as "private goods and services 4

World Bank, World Development Report 1997: The State in a Changing World (Oxford; New York: Oxford University Press, 1997), 59. 5 World Bank, From Plan to Market, supra note 1, at 110. 6

This is a major theme in the World Bank's World Development Report 1997: The State in a Changing World, supra note 4. 52

Neoliberal Images that in many countries have somehow wandered into the domain of public provision".7 This reflects the Bank's position that the role of the state in social provisioning should be sharply contained, with the market playing the predominant role in providing all but basic educational, health and social services. Yet only a short time later, in its 1998-99 report the Bank makes a sharp reversal, identifying expenditures on higher education as one of the best investments in productivity that can be made.8 Notwithstanding such variations in the role that is posited for the state, the idea that there are identifiably proper and improper functions for different actors and institutions in market economies remains a linchpin of neoliberal policy. Indeed, it seems to be the fact of the state-market divide and its centrality to organizing economic relations, as much as the specific division of labor, which is central to understanding the direction of neoliberal reforms. Although primarily articulated in economic terms, establishing the correct allocation of functions between the state and the market is sometimes described in normative terms as well, a matter that goes to the very legitimacy of the state action. For example, the Bank holds that "[sjorting out where state power is legitimate and where it is not is a constant task of governments everywhere. But whereas established market economies argue about questions at the margin, transition governments are completely refiguring the enforcement functions of public institutions".9 For developing and transitioning countries, the legitimacy of state action is measured in terms of its proximity to neoliberal market norms. Such choices take on heightened significance in the context of transition, as reformers are intent upon making a sharp break with the past to prevent any reversion to the former system of state control. Indeed, institutional arrangements associated with the old regime remain tainted, bearing the stigma of failure.10 7

Id.

8

See World Bank, World Development Report 1998/99: Knowledge for Development (Oxford; New York: Oxford University Press, 1999). 9

Id., at 88.

10

Joseph Stiglitz, "Whither Reform? Ten Years of Transition", World Bank, Keynote Address, Annual Bank Conference on Development Economics, Washington, D.C., April 2830, 1999 http://'www.worldbank.org/'researchi' abcde/washington_11fpdfs/stiglit%.pdf (last visited 11/08/2001). 53

Kerry Rittich The other prong of the transformation is the shift in the relationship between the state and the individual; the commitment to a primary role for the market is reflected here as well. In the neoliberal vision, the state's role in provision of services and income transfers should be minimized, and individuals are to become increasingly responsible for securing their own welfare and income. The result is that the state's role in mitigating risk and inequality among the population at large is sharply demoted, and welfare becomes largely a function of individual ability to successfully compete in the market. Over time, the Bank has modified its orientation towards the state: now, it concedes that "reducing or diluting the state's role cannot be the end of the reform story".11 Rather than the "minimal" state, the watchword has become the "effective" state. This shift in terminology is accompanied by evidence of increasing attention to laws, regulations and institutions; the Bank now takes the position that institutions are crucial to successful reform and economic growth.12 And in response to external criticism about both the process and effects of market reform and restructuring, there is a new inclusive rhetoric concerning the need for greater grassroots, "bottom-up" rather than "top-down" reform, and greater participation in decision-making by the affected groups.13 Yet despite the semantic shifts which are discernible in the discourse around the state and a new consciousness of the need for proper institutional infrastructure, it is unclear that they signal a transformed understanding of the relationship between the state and the market. The basic objectives of market governance remain the same: the state remains in the service of the market, playing a "catalytic, facilitating role, encouraging and complementing the activities of private businesses and individuals".14 It would also be a mistake to imagine that the Bank is of the view that basic decisions about the rules and institutions of economic governance are now to be determined through processes of democratic deliberation. Arguably, the turn to governance and institutions merely reinforces the need for a

1

'

12 13

14

World Bank, The State in A Changing Rote, supra note 4, at 3. World Bank, The State in a Changing World, supra note 4. Id., at 3.

Foreword, World Bank, The State in A Changing World, supra note 4. The commitment to private economic activity as the engine of development is reiterated in James D. Wolfensohn, A Proposal for a Comprehensive Development Framework (A Discussion Draft) (Washington, D.C.: World Bank, 1999). 54

Neoliberal Images thoroughgoing set of prescriptions about proper state functions, policies and regulations. This vision represents a radical departure from the pre-existing relationships between the state, the market and the individual in the states in transition; however it also represents a sharp departure from the status quo in many existing market societies. What follows is an attempt to identify and examine the arguments and assumptions within neoliberal discourse that make this vision seem compelling.

2.1.1 NATURALIZATION, NEUTRALIZATION AND NORMALIZATION OF THE MARKET

To begin to unravel the issues of distribution and disadvantage, it is instructive to begin with the idea of the economic domain that is contained within the proposals for reform. There is a number of images, propositions and assumptions about the market and the economy which co-exist within neoliberal discourse. Among the most fundamental is simply that the market has a natural form; another is that there is a discrete domain of economic activity which remains identifiable and separate from the rest of social life. These two assumptions underwrite the claim that there simply is some pre-existing division of labor between the enterprise and the market on one hand and institutions such as the family and the state on the other. The idea of the natural of "free" market also makes it meaningful to talk of "productive" and "non-productive" tasks. For if there is a natural, already defined economic sphere, there is also a natural allocation of activities and responsibilities to one sphere or another. Involvement in activities classed as "nonproductive" becomes simply a distraction and a definitionalry bad use of enterprise time and resources. However, neoliberal discourse also reflects another view, which is that the market has an optimal form. In spite of the room which might exist for variation in enterprise structure and activities, and whatever the fluidity in the boundaries between the market and other social institutions, there ought to be a particular division of labor and costs among enterprises, the state, civil society and individuals or households. Another assumption is that this natural or optimal market is essentially neutral as between the interests of different groups, and that neoliberal reforms are therefore compatible with a range of different political objectives. However, a competing strand of thought is also present on this point in neoliberal discourse. It is also argued that entrepreneurs should be empowered, that impediments to transactions 55

Kerry Rittich and investment dismantled, and that the interests of investors be given paramountcy over those of other social claimants in order that society as a whole benefit from the resulting growth. This might be described as an argument that the neoliberal market is necessary, if not altogether neutral. Arguments in this vein are advanced instrumentally, typically on the ground that certain institutions and incentive structures are conducive to growth, productivity and efficiency gains, while deviations constitute a threat to those objectives. All of these images and strands of argumentation are to be found throughout the reform agenda for the states in transition. Through the strategic combination and deployment of claims that the neoliberal model is natural, optimal, neutral and/or necessary, the proponents of reforms are able to construct an institutional structure that allocates specific roles and powers to different market actors. These images and arguments not only help build the market, they serve to secure and normalize a set of legal and institutional rules. The resulting market structure is then cemented with the claim that it represents "best practice" in states which are models of economic success. However, this claim is backed up by a disciplinary note as well. Reformers argue that the proper functioning of the market and the degree of prosperity which can be expected to flow from it are closely linked to the adoption of a canonical set of legal and political institutions and appropriate behavior on the part of states. As the Bank has seen fit to repeat on numerous occasions, in the market, "good" policies are rewarded while bad ones are punished harshly.15 This normalized, naturalized conception of the market generates a number of effects. First, it creates a boundary around the economy and the market, demarcating the terrain of economic or workplace concerns from other social or political concerns. Once established, this boundary operates to place certain issues outside the purview of enterprise responsibility, if not the domain of the market as a whole, and to legitimate the externalization of certain costs from production. Because of the close interconnection between the productive and reproductive spheres, the restructuring of economic activity can be expected to have deep effects on the concerns and activities of other social institutions.16 For example, it

15

See for example, World Bank, World Development Report 1995: Workers in an Integrating World (Oxford; New York: Oxford University Press, 1995). 16 See discussion in Part II. 56

Neoliberal Images may shift the nature and intensity of the activities which take place within households and communities, or increase the costs borne by the individual or the state. However, the normalization of a particular market structure helps obscure such effects, legitimating the transformations and encouraging a discounting or acceptance of such effects where they result. In the process of normalization and naturalization, restructuring is figured as a large scale project which is of benefit and necessity to all. The Bank's policy discussions emphasize the need for a harmonization of interests and objectives among different groups,17 and there is a concomitant attempt to downplay the conflicts of interest among different groups and tradeoffs which might be involved. The narrative of market reconstruction is that it is possible to devise institutional arrangements which, vested or "special" interests aside, all would agree constitute the optimal market. Furthermore, such institutional arrangements are in fact ultimately good for everyone, if not always equally beneficial at the outset. The desired state of affairs can be reached by organizing the market around the pursuit of wealth maximization and efficiency, understood as a condition in which any losses are outstripped and can at least theoretically be compensated by the gains which accrue to the winners.18 In the process, the interests of enterprise owners and managers, entrepreneurs and foreign investors, those who are expected to be the engines of economic growth, become co-extensive with the interests of the public in general. One consequence of the priority given to efficiency enhancement and wealth maximization is a demotion of the distributive dimension of reforms. At the stage of market design, little attention is devoted to the matter of how the gains of economic growth are dispersed and what the effects of reforms might be on particular segments of the population. However, the issue of income distribution

17

For example, in Workers in an Integrating World, supra note 15, the Bank encourages workers and labor groups to adopt a "unitary" rather than adversarial view of the employment relationship and their interests vis-a-vis the employer. The same view is arricvdated in the context of transition: "Successful labor policies are those that work in harmony with the market and avoid providing special protection and privileges to some labor groups at the expense of the poorest". World Bank, From Plan to Market, supra note 1, at 77. 18

Thus, the Bank's model of efficiency is based on Kaldor-Hicks rather than Pareto effi-

ciency.

57

Kerry Rittich does arise in one of the complementary themes of restructuring. The Bank has concluded that rising income inequality is necessary in the economies in transition, that some poverty is inevitable, and that it is both necessary and desirable for optimal productivity that there be a disparity in the rewards of the market.19 Acceptance of this greater inequality is invited by the claim that excessive attempts at interfering with the distribution of income are likely to be both futile and costly.20 Because the basic goal of economic reform, maximizing efficiency and growth, is assumed from the outset in neoliberal discourse and the method, the adoption of the best practices of normal markets, is determined, market reform and reconstruction can be figured as primarily a technical task. Reform proposals sound in a functional register; state performance becomes a question of managerial effectiveness, to be evaluated in terms of the degree to which economic activity is facilitated. However, while much of the conversation around reform is conducted in instrumental or pragmatic terms, discussion of the proper role of the state has a normative dimension as well: as noted above, distinguishing the appropriate from inappropriate concerns and activities of the state is also sometimes described as determining the tasks for which it is legitimate for a state to be involved.21 The discourse of "good governance" in particular productively blurs the distinction between what is instrumentally desirable and what is proper per se. Thus, rather than a matter of policy in which the various roles of the state might be derived from the specific goals which are to be pursued, the question is reversed and certain types of state action are ruled out of bounds ex ante. A spectrum of concerns can be discerned within the ideas of legitimacy and good governance. At one end are concerns about the presence of the rule of law, effective enforcement of legal rules, and knowledge on the part of market participants about the current state of the law.22 However, claims about the legitimate

19

World Bank, From Plan to Market, supra note 1, at 66. "Hungary made strenuous - and costly - efforts to offset rising inequality and has seen little change in income shares by population quintile..." World Bank, From Plan to Market, supra note I,at69. 21 World Bank, From Plan to Market, supra note 1, at 87-88. 22 See "Legal Institutions and the Rule of Law", World Bank, From Plan to Market, supra note 1. This is also one of the most commonly expressed concerns of entrepreneurs throughout the 20

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Neoliberal Images domain of the state in a market economy are also used to discredit legislative and executive actions that are regarded as arbitrary, impractical, improvident or otherwise undesirable. Thus, assertions of legitimacy and the demands of good governance provide normative support to neoliberal claims about the appropriate forms of state "intervention" and the permissible degree of variation among market economies. 2.1.2

THE ROLE OF ANTI-STATE RHETORIC

A number of positive roles are specified for the state in a market economy within neoliberal theory, in particular those which are necessary for the support of private economic activity.23 However, throughout the restructuring agenda, as in the discourse of privatization and "deregulation" in general, the state is invoked as the principal threat to prosperity and the source and location of waste and inefficiency. These themes have been articulated with particular force in the context of transition. It is a tenet of neoliberalism that the presence of the state in economic affairs beyond a limited supporting role inevitably raises the specter of rent-seeking and corruption on the part of officials and capture by special interests, all of which result in the impairment of economic progress.24 In addition, state interventions to enhance welfare tend to be paternalistic and lead to dependency. By contrast, the market is figured as the locus of freedom, democracy, opportunity and selfactualization. While the international institutions such as the Bank have in most instances retreated from the extreme anti-state position that they advocated in the

Central and Eastern European region. See M. Selowsky, "Improving the Environment for Business and Investment in the CIS and Baltic Countries: Views from entrepreneurs and World Bank country economists", Background paper prepared for the Seminar on Enhancing Prospects for Growth in the CIS and the Baltics sponsored by the EBRD, IMF and the World Bank, held at the 1997 Meetings of the EBRD (London, April 13, 1997) http://wbln0018.mrldbank.org/eca/eca.nsf/66d6/5004ed085ca852567dW011a8b8/fc68ea86b7bd79258 525692a0069d9f2 (last visited 11/08/01). 23 The recent positions that the Bank has advanced on this issue can be found in World Bank, The State in a Changing World, supra note 4 and James D. Wolfensohn, Comprehensive Development Framework, supra note 14. 24 This theme is well-developed in: World Bank, World Development Report 1991: The Challenge of Development (Oxford; New York: Oxford University Press, 1991).

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Kerry Rittich

1980s and early 1990s, the critique of the state remains an important strand of neoliberal discourse. Indeed, the prevalence of warnings about the threat to economic prosperity by the state has if anything increased, as concern about government failure and a preoccupation with corruption, non-transparency and lack of accountability have taken center stage on the development agenda.25 This negative characterization of state institutions and state power performs a number of operations. First, the either/or approach to the state/market relationship has the effect of narrowing the perception of the available options and generating consensus around the neoliberal agenda. Second, the emphasis on the dangers which state action presents tends to divert attention from concern over the problems generated by a weak state, such as absent institutions, inadequate regulation and lack of enforcement. By positioning the state as the principal threat or problem, whether to freedom or prosperity, and relentlessly focusing on the dangers of state coercion and abuse of power, attention is also diverted from the well-known problems associated with "private" power. Most significant yet most obscured by the sharp binary division between the state and the market is the state's role in constructing and supporting specific configurations of private power. This is particularly relevant in the economies in transition, given the radical expansion of private power which is central to the reform project as a whole. The use of anti-state rhetoric also helps to depict the state as an entity that is fundamentally external to the market and to society, superstructure to the preexisting domains of the economy and the community.26 When imagined as an

25

World Bank, The State in A Changing World, supra note 4. For a powerful articulation of this view in the context of transition, see Andrei Shleifer and Robert Vishny, The Grabbing Hand: Government Pathologies and Their Cures (Cambridge, MA: Harvard University Press, 1998). For a criticism, see Joseph Satiglit2, "Whither Reform?", supra note 10. 26 This image is characteristic of both liberal and Marxist understandings of politics and the state. As Berger and Piore describe, in both "society is conceived of as prior to politics and as deriving its central features from social and economic factors, not from political ones. The state is necessary only in the sense that it is required to carry out certain functions that society cannot autonomously perform. The state steps in to meet social needs, settle conflicts, and otherwise respond to problems generated in society. It has, according to the theory in hand, more or less autonomy in how it does so. But in none of the theories does the state itself have a primary impact on social and economic development. The state may facilitate and speed up modernization, but it does not thereby alter in any significant way the end results of the process". S. Berger and M. Piore, Dualism and Discontinuity in Industrial Societies (Cambridge, [U.K.]; New York: Cambridge University Press, 1980), 137. 60

Neoliberal Images external entity rather than as a set of institutions and practices which are inseparable from and constitutive of social and economic life, the state is relegated to a technical or instrumental role in economic affairs. From this position, the state can only respond appropriately or inappropriately to external forces and processes that are largely beyond its control. The use of anti-state rhetoric and its corollary, the sanctification of private economic activity, tends to encourage a monolithic and misleadingly simplistic view of both the state and the market. The result is that, on the one hand, the deeply layered and varied nature of state institutions and the multiplicity of roles which the state performs even in the realm of the economy tends to be obscured. Rather than a detailed consideration of the merits or demerits of particular actions in specific circumstances, disparate if not unrelated state functions which are in no way entailed by each other are conflated or confused and thereby discredited.27 On the other hand, the varied, often conflicting nature of private interests and diversity of possible ways of structuring private rights and recognizing these conflicting interests is also obscured. The construction of the state as both a common threat and fundamentally external entity to community, economy and society plays a normative rather than merely descriptive function. This operates in a particularly powerful way in the context of transition. First, it helps to set up a situation in which such policies as the privatization of state owned assets and enterprises, the deregulation of markets and transactions and the containment of the state power become the obvious or necessary solutions. Second, it derails controversy and softens objections that might surface with more force over changes to state powers and institutions and their connection to contestable social priorities. One effect of the attempt to maintain a firewall between the state and society is the denial or occlusion of the ways in which the state functions as an important site of distributional struggle among different social groups. The institutional structures of the state are key in all market economies to the coordination and cooperation necessary to the functioning of social and economic life; this is why they must be so central to market reform projects. However, these institutions also

27

An exploration of the different concepts of state intervention in the economy can be found in Thomas J. Biersteker, "Reducing the Role of the State in the Economy: A Conceptual Exploration of IMF and World Bank Prescriptions", 34 Int'l Studies Q. 477 (1990).

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Kerry Rittich mediate between different social interests and groups, embodying, generating and reflecting a particular distribution of resources and power. Indeed, it is these distributional effects which are arguably the key distinguishing feature among various state arrangements.28 Because institutional arrangements can be regarded as a sedimentation of past decisions about the allocation of power and resources to different social actors and groups, institutional reform and reconstruction inevitably opens up and frequently transforms these allocative and distributional decisions. Even where institutional change might be desired for efficiency or other reasons, any reconfiguration of state institutions or alteration of the scope of state power inevitably engages distributional issues. As a result, restructuring is likely to be controversial. While this feature is not an argument either for or against any particular change, it does suggest the ways in which the neoliberal position that market reforms are universally beneficial is likely to be misleading.

2.2 Legal and Economic Integration One of the major forces that drives neoliberalism is a deep belief in both the desirability and inevitability of global economic integration. Indeed, neoliberals are among the main authors of the current globalization thesis in both its descriptive and normative forms. Ever-closer transnational economic interdependence is posited as both an accurate account of the direction of the world economy and as the appropriate goal for developing and transitional states, given the benefits that can be expected to accrue from adopting a pro-integration strategy and the risks of pursuing an independent path. The nature, extent, effects and limits of global economic integration are among the most contested contemporary public issues.29 There is no agreement about the degree to which integration has been achieved; in the view of some analysts, the process remains partial, incomplete and highly uneven.30 Nor is there 28

Jack Knight, Institutions and Soda/ Conflict (Cambridge [England]; New York, NY: Cambridge University Press, 1992). 29 There are numerous examination of these debates. See for example, R. Boyer and D.Drache, States Against Markets: The Limits of Globalisation (London; New York: Routledge, 1996); P. Hirst and G. Thompson, Globalisation in Question? The International Economy and the Possibilities of Governance (Cambridge, UK: Polity Press; Oxford, UK; Cambridge, MA: Blackwell Publishers, 1996). 30 Id.

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Neoliberal Images any agreement concerning the extent to which it represents an unprecedented state in global economic relations.31 However, the importance of the globalization narrative lies only partly in any descriptive accuracy to which it might be able to lay claim. The thesis about the inevitability and desirability of globalization performs an equally important disciplinary and regulatory function in economic affairs. Indeed, emanating from the international financial institutions, the globalization thesis helps produce the very effects it purports to describe as these institutions possess considerable power to define the demands of global economic integration, through their role in establishing the criteria for market-worthiness on the part of states.32 A major effect of the success of the progress-through-globalization narrative is that those who jump on the bandwagon to facilitate the process of economic integration come to seem reasonable and pragmatic, while those who either resist or pose alternative interpretations of events seem alternatively hopelessly idealistic and old-fashioned or simply wrong.33 For example, within the Bank, nonacceptance of the globalization narrative tends to be interpreted as self-interested, ill-informed or illegitimate "political" resistance to reform efforts and economic progress, rather than legitimate doubt or disagreement about the path of economic development or resistance to its effects. Hence, the thesis of global economic integration is crucial to legitimating neoliberal proposals; in important ways, it defines the community of those who are to be taken seriously in the discussion and design of the new economic order. Once the inevitability of global economic integration is established as the basic framework in which all states now operate, a number of facts and propositions appear to follow simply as a matter of course. First, individual states have increasingly limited room to manoeuvre and to pursue regulatory and policy options that diverge significantly from those adopted by other states, as they are in competition

31

See for example, Jeffrey G. Williamson, "Globalization and Inequality Then and Now: The Late 19th and late 20th Centuries Compared, paper presented to the American Economic Association, San Francisco, January 5-7,1995, on file with the author. 32 Dani Rodrik, "Governing the Global Economy: Does One Architectural Style Fit All?", Paper prepared for the Brookings Institutions Trade Policy Forum conference on Governing in a Global Economy, April 15-16,1999, on file with the author. 33 David Kennedy, "Receiving the International", 10 Connecticut Journal of International Law 1(1994)

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Kerry Rittich with each other for resources and investment. Indeed, because of regulatory competition, states are at risk of losing the resources and investment they already have if the legal and economic climate for business turns out to be more favorable elsewhere. Thus, the thesis about global economic integration pushes states in the direction of "normal" markets. It provides an impetus for harmonization, simultaneously inducing states to institute "attractive" laws and to eliminate or reduce burdensome regulations and fiscal policies. It also operates to discredit divergent or heterodox economic and legal arrangements. Among the discredited arrangements are many of the labor regulations and the extensive social welfare programs typical of many western European market economies. The argument is that, because of the competitive pressures resulting from the globalization of production and capital flows, they are no longer sustainable in their more robust form. Certainly, no developing or transitional state can safely aspire to follow the New Deal or Keynesian policies of the industrialized states in the post-war years. In market reform discourse, law is the entry card to global markets in two senses. Fkst, the advancing process of economic integration is used by the international financial institutions to argue for policy and regulatory harmonization. In their view, the principal means by which states can favorably position themselves to attract capital and investment is through the adoption of policies and institutions that are compatible with the demands of global markets. While it is not maintained that states must have exactly the same laws or do exactly the same things, there are a number of forces at work which tend to push in the direction of harmonization and convergence. In the words of the Bank, "a strong commitment to international integration can also stimulate demand for law and provide market-friendly models of legislation....The point here is not that integration will push transition countries into precisely replicating foreign laws, but that it will fuel demand for certain types of law and help policymakers design laws that foster links with the outside world".34 However, these institutions also actively promote particular legal reforms, through policy and regulatory interventions in the states to which they lend. These activities in turn intensify the integration which the institutions continually remind states is the condition in which they must now operate. Even apart from the 34

64

World Bank, From Plan to Market, supra note 1, at 88.

Neoliberal Images leverage which these institutions exert through lending activities, there may be powerful external inducements to legal and regulatory harmonization and institutional conformity. The desire to participate in regional and global trade agreements and economic organizations may induce states to change laws and policies, creating a degree of regulatory harmonization and enhancing the push toward convergence.35 For example, in Central and Eastern Europe, the pressure toward some degree of policy and regulatory convergence is significantly enhanced because membership in the European Community is predicated upon conformity with its policies in such areas as budget deficits, taxation, competition and trade laws.36

2.3 The Role of Law Detailed prescriptions about law have not always been central to the neoliberal development agenda. At the early stages of transition, market reformers paid relatively little attention to the institutional requirements of markets, acting on the belief that markets would spring up naturally as long as the impediments to their operation were removed. What mattered was to get the state out of the economy and to privatize property; all else was secondary to simply getting assets into the hands of those who had incentives to put them to productive use.37 Concern about failing or stalled development, as well as the crises that have routinely beset developing states, have given rise to an enhanced focus on questions of governance, legal regulation and state institutions. Law has now been embraced as the solution to a vast array of economic problems, and the successful operation of private markets is increasingly linked to adherence to the rule of law and the presence of the right institutions. Yet while the turn to law is represented as the way forward, especially for states whose economic development is strangled

35 36

Id. Id.

37

Dani Rodrik, "Development Strategies for the Next Century", World Bank, Annual Bank Conference on Development Economics, Washington, DC, April 2000 http://orion.forumne.com/ABCDE/ftles.ftg/145jvdrikJapan.pdf fast visited 11/08/01); Gerard Roland, "Corporate Governance Systems and Restructuring: The Lessons from the Transition Experience - Preliminary Draft", paper prepared for World Bank Annual Bank Conference on Development Economics, Washington, D.C., April 2000 http://orion.forumone.com/ABCDE/ ftles.fcgif 140_roland.pdffa^ visited 11 /08/01).

65

Kerry Rittich by the grip of politics and corruption, when invoking the benefits of law, it is important to realize that market reformers are not referring to all forms of law, nor even to the rule of law simpliciter. Rather, reformers have in mind particular types of laws. Some forms of law and legislation might be bad or wrong. They may represent the "interventionist" or "arbitrary" state actions which are subversive of good economic order. Laws may be "ideological" or redistributive, deviations from the basic laws which represent the neutral ground rules of economic activity. They may interfere with private rights. Consequently, neoliberal policy involves not simply support for law but continuous determinations about the distinction between good and bad laws. The arguments about the properties, good and bad, of different laws are one of the major mechanisms by which neoliberals build not simply markets, but particular types of markets. Central to neoliberal legal discourse is the belief that there is a closed set of appropriate laws which provide the basic framework for economic transactions in market economies.38 A canonical list of legal rules and regulations is regarded as either foundational to the very existence of market economies or the best way to manage a market economy. Property rights are the bedrock to the regime, providing the foundation for the system as a whole. Implementing these laws, moreover, is described as the way to depoliticize markets and to institute a neutral framework within which market actors will transact and generate economic growth. In the neoliberal narrative, law is central, the sine qua non of economic development. Throughout the policy analyses of the Bank, there are countless references to the need for "good laws", support for the rule of law and the withdrawal of the state from administrative control.39 The clear definition and enforcement of rights is represented as a precondition to successful economic development. Conversely, the absence of a rule of law is thought to pose a threat to growth, as it generates uncertainty as to whether the agreements into which parties have voluntarily entered will be honored and enforced and investments thereby protected.

38 For a discussion, see Roberto Unger, Democracy Realised: The Progressive Alternative (London: Verso, 1998). 39 See for example World Bank, From Plan to Market, supra note 1, at 87.

66

Neoliberal Images In the context of transition, the rule of law is distinguished from regimes of administrative command and control in which "arbitrary" state action prevails. Law is the instrument that gives the individual power to resist the state: "Where the rule of law is in force, laws are applied fairly, transparently, and evenhandedly to all; individuals can assert and defend their rights; and the state's powers are defined and limited by law".40

Limits to state power, certainty of rights and entitlements, and predictability of enforcement are regarded as especially important where the intent is to attract foreign investment. Arbitrary state policies and changes to the law, by contrast, undermine the stability required for economic development. However, the relationship between the market and law also runs in the other direction. According to the Bank, not only does law underpin the market, but law itself is an object of supply and demand: "the rule of law can take hold only if good laws and competent institutions are supplemented by demand for them".41 As it turns out, the market is also the instrument to restrain the state from arbitrary actions and induce respect for law, for "when managers require a law-abiding reputation to purchase supplies or raise capital, they will think twice about violating the sanctity of contract or abusing minority shareholders".42 Economic investors and actors thus are pivotal: they are the very persons who both rely on the law and can be expected to exert the demand for law. The markets which result from the implementation of the canonical neoliberal rights are marked, at least on the surface, by the exclusion of distributive concerns and the privileging of flexibility over security. However, while this description captures part of the character of neoliberal markets, it is also misleading in important ways. Certain parties are the beneficiaries of greater entitlements under this regime, while others see their entidements weakened. For example, when markets are "deregulated", they typically produce less security and greater risk for workers. However, the resulting or residual legal framework provides a wide range of protection and security for the holders of capital. Consequently, it is simply missing something significant to say that neoliberal markets are deregulated or riskier. It all depends on where you stand. 40

Id

41

World Bank, From Plan to Market, supra note 1, at 88 Id

42

67

Kerry Rittich As the following discussion will outline, what is missing from the list of rules and institutions may be just as important as what is present. For example, the absence of labor, financial or environmental regulations does not mean that there are no rules governing labor, financial or environmental concerns; rather it means that other legal entitlements, such as property and contract rights, effectively govern these issues. Prioritizing some entitlements while sequencing or delaying the implementation of others, for example on the belief that some are less fundamental to the operation of the market than others, has similar effects; the entitlements that are recognized effectively structure the field in which economic transactions take place. 2.3.1

THE USE OF RIGHTS

Market reforms are often described in terms of protecting or enhancing private rights. Part of their appeal lies in the framework in which they are presented, the language of rights. The use of rights discourse is particularly important in the context of transition, as it allies the project of market reform with a number of powerful goals and objectives beyond the economic, while the moral currency provided by the language of rights gives reforms themselves an aura of authority and legitimacy. For example, casting market reforms as the enhancement of rights appears to place reformers on the side of the individual and suggests that reforms will provide protection against the abuse of the powerful. It associates the project of market reform with freedom and democracy. The symbolic capital43 of rights in the contemporary popular imagination and the semantic linkage of a variety of disparate values and objectives through the language of rights gives reformers a powerful vehicle by which to harness the appeal of human rights to market reforms. This opportunity is not lost on reformers, as human rights and property rights are increasingly allied in the discourse of markets.44 In short, the value of the discourse of rights is that it associates reforms with the merits of liberalism, the Enlightenment and modernism as against feudalism, totalitarianism and back-

43

P. Bourdieu, Outline of a Theory of Practice, Richard Nice, trans. (Cambridge ; New York: Cambridge University Press, 1977). 44 See for example, James D. Wolfensohn, Comprehensive Development Framework, supra note 14. 68

Neoliberal Images wardness, while greater liberty and dignity, as well as improvement in material wellbeing, themselves become linked to a particular set of market entitlements. Much is elided and confused in the process. However pervasive the assumption about the benefits that automatically flow from the institution of a regime of rights, the benefits may be overestimated for at least two reasons.45 First, missing from the picture is the issue of conflicts of claims and interests between different groups or classes of rights holders. Although these claims and interests may be recharacterized and transformed through the institution of a regime of private rights, they are not automatically harmonized, nor are the fundamental conflicts and choices embedded within them automatically resolved. No configuration of private rights is neutral as between all parties; the type and nature of rights which are recognized and the way in which initial entitlements are allocated will unavoidably empower individuals and groups in different ways. Nowhere do these observations have more force than in the context of the transition from plan to market economy, when the creation of an entire regime of private entitlements is envisioned. Second, restructuring entails inevitable interference with pre-existing institutions and practices. The implementation of reforms will disrupt established modes of delivering goods and services, whether or not access to those goods and services was formally enshrined in terms of legal rights. However, as it is rarely acknowledged by reformers that the regimes which are to be replaced or restructured were not simply entitlement vacuums, but different regimes for allocating economic resources,46 the shift in entitlements may be easily missed, mystified in the language of rights. What is significant here is that any resulting advantage and disadvantage is not merely a "transitional" or short term effect. Legal rights generate material endowments that will better enable some rather than others to prosper in the new market-centered regimes. While the recognition of new rights, for example private property rights, will strengthen the position of some, the loss of these other forms of entitlements is very likely to make others worse off. Indeed, the likelihood of persistent disadvantage from reforms is increased by the denial that any redistribu-

45

This issue is explored in more detail in chapter 4. L. Specht, "The Politics of Property: Soviety Property as a Bundle of Rights", S.J.D. dissertation, Harvard Law School, April, 1994, on file with the author. 46

69

Kerry Rittich tion or repositioning of different groups is part of the process of legal reforms. The reason is this: when questions of disadvantage are delinked from the basic structure of market entitlements, the importance of those entitlements recedes into the background, and solutions are sought elsewhere, for example through the state or in civil society. This is precisely what is reflected in neoliberal policies in the states in transition. 2.3.2

LAW VERSUS REG ULA TION

Neoliberal legal discourse is heavily invested in the idea of "core" set of legal rights that promote efficiency and place spheres of private control beyond the reach of politics and the state. The priority given to these rights has the effect of displacing numerous other laws from the reform agenda. The argument for particular types of laws is typically made in one of two ways. The first argument is simply that particular legal rules such as property and contract are intrinsic to the nature of a market economy. The other is that legal rules are essential for more instrumental reasons, such as ensuring maximum economic growth or foreign investment. However, because continual determinations about desirable or undesirable legal rules must be made, it is helpful to have a means of distinguishing among different rules that will also justify these decisions. The solution is a distinction among legal rules within neoliberal discourse which is often articulated as the recognition and enforcement of rights on one hand and regulation by the state on the other. This distinction between rights and regulation involves a normative evaluation which can be broadly described as follows: while "law" in general is a good idea, many forms of legal regulation are not. Laws are the protection of private rights; however, regulations constitute intervention on the part of the state. Laws are beneficial because they create incentives and promote growth, while many regulations impair growth and efficiency. Legal regulation accordingly falls on a spectrum ranging from the absolutely essential, to the desirable, optional, extraneous, less desirable, and finally positively dangerous and dysfunctional. In general, good legal rules are differentiated from bad according to their contribution to efficiency and growth, their capacity to unleash entrepreneurial energy and support the efforts of the private sector. In short, they are measured in terms of their efficiency effects. Consistent with the

70

Neoliberal Images focus on promoting private economic activity and containing the growth of the state, foremost among the basic laws are those which enable economic transactions and provide the framework for private sector investment. These include rules for the definition, protection and transfer of assets; the organization of corporate entities; the relations between market actors; and the promotion of competition and compensation for market failure.47 Also required are rules and regulations governing corporations, foreign investment, bankruptcy, credit and securities regulation and competition law,48 as well as protection of intellectual property. Labor rights and human rights have recently been added to the list.49 However, they remain latecomers to the regulatory agenda whose status and content remains uncertain; the status of labor rights in particular remains precarious,50 for reasons to be described below. Among the canonical ideas is that economic development requires, above all, defined property rights. It is reiterated over and over again that ownership rights provide the necessary control and incentives to boost productivity and induce the proper monitoring of investments. The following statement is a representative summary of the governing rationale: "Property rights are at the heart of the incentive structure of market economies. They determine who bears risk and who gains or loses from transactions. In so doing they spur worthwhile investment, encourage careful monitoring and supervision, promote work effort, and create a constituency for enforceable contracts. In short, fully specified property rights reward effort and good judgment, thereby assisting economic growth and wealth creation. In addition, a wide distribution of property rights can counteract any concentration of power in the political system and contribute to social stability."51 While there are occasional references to the complexity and variety of property rights in successful market economies,52 concepts of property and private 47

See World Bank, From Plan to Market, supra note 1, at 88. See "Legal Institutions and the Rule of Law", World Bank, From Plan to Market, supra note 1, at 87-97. 49 See James D. Wolfensohn, Comprehensive Development Framework, supra note 14. 50 See for example, World Bank, World Development Report 2000/2001: Attacking Poverty (Oxford; New York: Oxford University Press, 2001). 51 World Bank, From Plan to Market, supra note ,1 at 48-49. 52 Id, at 88. 48

71

Kerry Rittich rights are invoked in reform proposals in ways that suggest that the nature and content of a regime of private rights is self-evident and non-contestable as well as widely understood and accepted.53 In the context of transition, the discussion of property and rights proceeds largely in terms of the contrast between collective and private ownership and administered or plan versus market economies. Each system is represented in a highly stylized form; collective ownership is associated with plan economies, while private ownership with the market. The dominant image and understanding of property that pervades the Bank's policy discussions, the type of property right that is promoted as the cornerstone of economic development, is a right that comprises the power to use, alienate, exclude and appropriate any income generated.54 It is a sphere of absolute control, in which regulatory constraints and other fetters on these powers are largely absent.55 The emblematic problem to be solved or avoided through the institution of private property rights is the legendary "tragedy of the commons". In this property fable, common property or multiple use rights contain an inherent drawback: they are inefficient as compared to a regime in which rights are vested in a single owner, where the cost of any behavior which is not maximally efficient is imposed directly and exclusively on one owner who also has complete control over the property in question.56 According to this logic, where there are multiple interests and users, there are inadequate incentives

53

The neoliberal assumptions with respect to property rights and economic growth in states in transition to market economies has been challenged or qualified in a number of pkces. See Gil Eyal, et al, "The Theory of Post-Communist Managerialism", 222 New Left Review 60 (March/April 1997) (effective control of enterprises in the CIS is vested in managers, unrelated to property rights; ownership may actually be detrimental). See also J. Stiglitz, Whither Socialism? (Cambridge, MA: MIT Press, 1994) and J. Stiglitz, "Whither Reform?", supra note 10 (noting the degree of economic development which is occurring in China despite the lack of defined property rights). A review of the emerging diversity and complexity of property rights in the economies in transition can be found in David Stark and Laszlo Bruszt, Postsocialist Pathways: Transforming Politics and Property in East Central Europe (Cambridge, UK; New York: Cambridge University Press, 1998). 54 World Bank, From Plan to Market, supra note 1, at 48. The role of the "unified" property right in neoliberalism and the possibilities for alternative configurations is discussed in Roberto Unger, What Should Legal Analysis Become? (London: Verso, 1996). 55 World Bank, From Plan to Market, supra note 1, at 88. 56 See for example James M. Buchanan, Property as a Guarantor of Liberty (Aldershot, Hants, UK; Brookfield, VT: E. Elgar, 1993).

72

Neoliberal Images for anyone to put property to its best use, with the result that there are inevitably losses in wealth maximization. The other linchpin of the system is the enforcement of private agreements. Not only must private property entitlements be recognized and protected, the state must use its authority to guarantee that private agreements will be enforced as well.

2.3.3 MARKET FAILURE AND STA TE INTERVENTION Departures from basic contractual and property rights or additions to the basic regulatory regime are, however, entertained in a number of scenarios in neoliberal theory. The logic governing such "interventions" can best be understood from the disciplinary standpoint of those who make decisions about market design: law is approached primarily as a set of incentive structures to promote efficient economic activity. The major rationale for intervention then is the failure of the market to allocate resources efficiently.57 Potential sources of market failure include the presence of substantial transaction costs, incomplete markets, nonprovision of public goods, monopolies, information gaps and asymmetries and negative externalities. Intervention may also be warranted in some instances for "equity" reasons; however, such interventions are clearly exceptional.58 However, even in the case of market failure, the presumption lies against regulatory intervention, for at least three reasons. First, the identification of market failure alone does not establish the case for intervention, because in the view of neoliberals, government failure is as common as market failure.59 Consequently, the cure may be worse than the disease. The general problem with regulatory inventions is described in the following terms: "interventions may be guided by political objectives, be poorly implemented, create vested interests, or give rise to rents and corruption. Well-intentioned government intervention to correct market failures may prove even worse than suboptimal private provision. In a market economy the burden of proof regarding public intervention lies with the government."60

57

World Bank, The State in a Changing World, supra note 4, at 26.

58

Id. Id.

59

60

World Bank, From Plan to Market, supra note 1, at 111. 73

Kerry Rittich A second set of constraints on regulatory initiatives arises out of pragmatic considerations. Institutions such as the Bank increasingly stress the need to match regulations to institutional capability,61 cautioning states to desist from intervening where they lack sufficient and effective administrative capacity. Because of such limitations, transitioning and developing states are encouraged to remain focused on the "basic" laws described above. Third, growing emphasis is placed on non-state solutions rather than state intervention in response to market failures. Proposed solutions may take the form of the introduction of competition, voice and self-regulation to achieve particular social objectives. Public-private collaboration and citizen initiatives in particular are encouraged.62 Alternatively, "direct public action" to improve health or environmental concerns may be preferable to attempts to regulate working conditions.63 This reflects the belief that social concerns are best addressed outside the market, rather than through the market. In general, the move is toward flexibility in regulation and away from reliance on top-down, rule based regulation.64 Other than property entitlements, there is a concern about recognizing a broad number of substantive entitlements. Despite the general presumption against regulatory "interventions", there are a number of scenarios in which regulation is actively encouraged. Nonetheless, one of the conceptual puzzles in the neoliberal theory of regulation is this: when should market failures be compensated or corrected and when they should not? The issue is the following. In numerous situations, it is clear that an economic argument could be advanced for "regulation", understood as a change to the existing legal regime, due to the presence of some market failure or transaction cost. Indeed, it is not unusual to encounter competing efficiency-based rationales regarding the optimal regulatory bases of productivity and economic growth. This is the heart of the unresolved disputes over such issues as the role of employment standards and collective bargaining legislation in enhancing productivity and

61

This is a major theme in the 1997 World Development report, The State in a Changing World, supra note 4. 62 World Bank, The State in a Changng World, supra note 4, at 75. 63 World Bank, Workers in an Integrating World, supra note 15, at 5. 64 World Bank, The State in a Changing World, supra note 4, at 71. 74

Neoliberal Images economic growth.65 Because such circumstances are routine rather than exceptional, there is typically a range of arguments for regulation available that might be consistent with the logic of wealth maximization and efficiency. However, it seems equally clear that in many if not most cases, these available arguments are not deployed by neoliberal policy and regulatory analysts. So the question ultimately becomes, under what ckcumstances does the presumption against regulation hold and when is it relaxed? There is no comprehensive rationale or set of guidelines to be found in neoliberal policy recommendations other than first, regulations should enhance efficiency and second, in a market economy, the burden of proof lies against those seeking regulation.66 There is also no clear answer as to how far or in what direction to regulate once intervention is indicated by the presence of some market failure, inefficiency or externality. Some clues to the logic of regulation are to be found in the overarching concern for "a commitment to competitive markets and an accompanying willingness to eliminate obstacles to their operation"67 and the often-expressed need to "unleash" a competitive market economy.68 The guiding idea is that all regulations should be designed to further efficiency and make positive contributions to growth.69 Yet because what actually contributes to growth over the long term is often the very question to be answered, in the end, efficiency-enhancement often proves to be an unsatisfactory explanation. Moreover, many existing market economies clearly diverge from this model, going beyond the objective of simply minimizing constraints on capital. However, another answer to the regulation/intervention conundrum is simply that, even though all governments regulate, some regulations go beyond what is "normal" in market societies.70 In other

65

See for example, S. Deakin and K.D. Evving, "Inflation, Economic Performance and Employment Rights",]. Michie and J. Grieve-Smith, eds., Managing the Global Economy (Oxford ; New York : Oxford University Press, 1995). 66 World Bank, From Plan to Market, supra note 1, at 111. 67 World Bank, The State in a Changing World, supra note 4, at 64. 68 The Challenge of Development, supra note 24; World Bank, The State in a Changing World, supra note 4, at 62. 69 World Bank, From Plan to Market, supra note 1, at 77. 70

Id, at 89.

75

Kerry Rittich words, regulation has its limits, and proper regulation conforms to best practice in the dominant market societies. Where regulation is indicated for reasons of efficiency, regulatory disputes become matters of misinformation or ignorance, to be remedied by finding the "right" answer. Where arguments are made about normal regulation, they end up being arguments in favor of particular practices simply because they are dominant. However, in both cases, regulation ends up being primarily a technical matter best left in the hands of experts, rather than something connected to larger normative or political debates. It is sometimes recognized that equity may prompt state intervention even in the absence of market failure.71 There are also occasional concessions to the need for regulation on political grounds, such as "public acceptance of the fairness and legitimacy of market outcomes".72 Both are intriguing suggestions, as they signal the presence of the distributive dimensions and the political elements which are ignored or denied in reform or restructuring as a whole. However, these are minor, almost forgotten, themes in restructuring. The general rule is that equity and distributional concerns should be dealt with through safety nets and income transfers rather than through the regulation of the market.73 This is because regulatory solutions, unless designed to correct a proven market failure, are likely to introduce inefficiencies into the system and distort incentives, thus subverting the goals of market reform and reconstruction. The exclusion of equity and distributional concerns from the debate about market design and their consignment to the legislative and political realm, too, permits regulation to remain largely the domain of experts. However, at best, such arguments and propositions are highly general; in and of themselves they do not give rise to any "regulatory logic" or mechanism by which to determine when interventions are indicated. The reasons and policies advanced for and against particular types of regulation range in many different directions. This is unsurprising, and arguably entirely desirable. More significant perhaps than the presence of competing regulatory rationales is that the choices 71

World Bank, The State in a Changng World, supra note 4, at 26. W.,at65. 73 For a discussion of the merits of redistribution outside of the legal system, see Louis Kaplow and Steven Shavell, "Why the Legal System is Less Efficient than the Income Tax in Redistributing Income", 23 J. of Legal Studies 667 (1995). 72

76

Neoliberal Images among alternative modes of rationalizing or explaining regulatory interventions are themselves typically unexplained. "Liberalization" means deregulation in some cases but not in others; the presence of negative externalities might indicate regulation in some instances but not others. The failure to address the question of how determinations are to be made at this level makes the arguments often seem arbitrarily and opportunistically deployed; policy explanations ultimately raise as many questions as they answer. Nonetheless, it turns out that some insight can be gleaned by looking at the contexts in which regulatory debates take place. The following three examples, financial regulation, environmental regulation, and labor regulation give some sense of the varied and contradictory ways that regulatory arguments are deployed. The case for financial regulation is expressed in the following terms: "With economic liberalization, many areas of regulation have been recognized as counterproductive, and wisely abandoned. Yet in some areas the traditional rationales for regulation remain, and market liberalization and privatization have themselves brought new regulatory issues to the fore... [L]iberalization in the financial sector is not the same as deregulation. The case for regulating banking is as compelling as ever...[emphasis added]"74 Banking regulation is defended primarily on the grounds that it is essential in order to correct information asymmetries. The reason given is that without regulation, outsiders would be unable to judge the health of financial institutions. Banks may appear to be healthy, even if they lack the resources to repay loan principals and are only able to keep up interest payments by taking up new loans. Failing banks typically engage in reckless gambles, driving up losses before the inevitable crash. Furthermore, because of the development of derivatives and other new financial instruments, the balance sheets of financial institutions are difficult for outsiders to understand and to monitor.75 Beyond this, market failure in the financial sector is regarded as particularly serious. Bank failures tend to be contagious; liquidity may drain out of the system as a whole with severe macroeconomic

74

World Bank, The State in a Changing World, supra note 4, at 65.

75

Id.

77

Kerry Rittich consequences. Given the economic implications of a lack of confidence in the integrity of the banking system, the case for regulation is compelling.76 Presented in this light, the case for banking regulation does seem compelling. However, what is significant is not the conclusion but rather how it is explained. Although the burden of proof as a general rule lies on those advocating regulation because of the economic costs it is said to exact, in this case the inevitable regulatory tradeoffs are not mentioned, nor are the winners and losers identified. These tradeoffs might include lower interest rates for depositors in return for greater security, or less capital available for small business loans. Moreover, the claims about information asymmetries and the consequences of failure in this instance seem less unique once the arguments are placed in a broader context; the question is why the same arguments might not apply elsewhere. The market is rife with examples of information asymmetries that have potentially serious consequences; the financial sector is not entirely exceptional in this regard. Corporations, for example, routinely have more information on the safety of their products than do consumers and, because of the division of labor within the workplace, not infrequently possess more knowledge than do workers about the actual health and safety risks of particular manufacturing processes,77 as the costs of alternatives are normally a crucial determinant in the adoption of particular modes of production. Inability to follow the complex financial operations of corporations is probably the rule rather than the exception for many outsiders. And the failure of large scale corporations, particularly in communities that are heavily dependent on them, may have devastating effects which rival those of bank failures.78 However, given the presumption against intervention, many of these potential effects pass without scrutiny, presumably to remain uncorrected in the model market. The general question which is raised, how to determine which information asymmetries ought to be corrected and which ought to lie as they fall, remains unaddressed and indeed mysterious.

76

Id.

11

G. Calabresi, The Cost of Accidents: A Legal and Economic Analysis (New Haven: Yale University Press, 1970), 90-92. 78

78

J. Singer, "The Reliance Interest in Property", 40 Stanford Law Rev. 611 (1988).

Neoliberal Images

The logic of the regulation/non-regulation conundrum becomes even more complex in the case of the environment. The presence of externalities is a classic instance in which regulation is often justified, as negative externalities from pollution have long been identified as a source of economic inefficiency. Notwithstanding, the neoliberal solution to environmental externalities turns out to be something other than regulation; moreover, "technocratic approaches" to regulation are eschewed, even though elsewhere they are the rule. Here is how the reasoning goes: "even countries with strong institutions find environmental regulation immensely challenging....the costs of many ... forms of damage are diffuse, and may be invisible even to those closest to the source of the pollution...Pollution emissions can also be tricky to measure. And the environmental consequences may depend heavily on the demographic and ecological features of the surrounding area. A further complication is that the political incentives of community, business, and political stakeholders can foster ambiguity and negotiated outcomes rather than predictable and consistent implementation. Poor communities daily confront a dismal bargain, borrowing immediate survival against long-term environmental degradation. Private firms weigh the predictable costs and the benefits of complying with well-defined environmental regulations against the prospect of cutting costs by avoiding regulations altogether. Consequendy, politicians may often conclude that environmental inaction is the politically expedient course. In this climate of ambiguity...purely technocratic approaches to environmental regulation have little hope of success."79

In this situation, states are counselled that what is needed are approaches that "rely at least as much on public information and citizen participation as on formal rules".80 The following factors, then, are said to weigh against environmental regulation in many contexts. The costs of damage are dispersed and difficult to measure and the impact of regulatory interventions may vary across contexts. Environmental regulations provoke ambivalent reactions in the community because they exact costs in addition to providing benefits. To complicate things further, differ79 80

World Bank, The State in a Changing World, supra note 4, at 66. Id.

79

Kerry Rittich ent groups have different opinions as to their value and consequently may be prepared to bargain over and ultimately trade off the benefits of regulation. Alternatively, for the same reasons, they may simply fail to comply with those that do exist. Private firms may be tempted to circumvent regulations to cut costs; politicians may collude with them because it is politically expedient to do so. This might be read simply as a rueful description of the political fate of regulatory initiatives, along with an admonition not to expect too much of law and to be pragmatic about institutional limitations. Yet however appealing this explanation, it runs directly into conflict with the main neoliberal thesis about regulation, which is that clear rules and defined incentives are essential to spur economic development. Arguments about the political exigencies surrounding regulation and the inevitability of "negotiated compliance" could be met, as they are elsewhere in neoliberal policy discussions, with exhortations to the state to crack down on corruption, strengthen administrative capacity and respect the rule of law if economic development is not to be subverted. Moreover, the drawbacks which are identified in the context of environmental regulation could easily be applied to numerous other regulatory situations. Determining both the aggregate costs and the distributive effects of regulatory interventions is a notoriously difficult exercise. The effects of regulation are routinely, rather than exceptionally, far-reaching, diffuse and variable; at some point, the feedback effects and intersection with other rules makes the determination of cost quite incalculable. Regulations almost always exact costs at the same time as they provide benefits, both within and among different social groups. Conflicts among interests are at the heart of regulatory initiatives; it is more common to have struggle than agreement over their form and content. Moreover, even assuming agreement could be reached on these matters, there is no agreed upon formula for determining the level or stringency of regulation; the same conflicts of interests often simply surface again at this point. Resistance to regulation is commonplace. Indeed, regulatory shortcuts and non-compliance are time-honored ways to increase profits: for example, there are routine failures of compliance in landlord and tenant situations and occupational health and safety matters. Finally, it is wellknown and accepted within the neoliberal paradigm that regulatory initiatives are typically subject to political factors which are external to any efficiency calculus. The ultimate structure of regulations commonly results from the pull and demands of various constituencies, rather than from the operation of the general or public 80

Neoliberal Images interest in the abstract, whether determined on the grounds of efficiency or anything else. With respect to environmental regulation, there is a frank admission that regulation is as much a political as a technical exercise. Furthermore, political considerations not only affect the outcome of regulatory efforts, but enter into the calculus at the implementation stage. The larger questions that begin to surface here, yet remain largely unaddressed in neoliberal policy discussions, are why and when such complications come to weigh against regulatory interventions in the first place, and why they are dispositive in some contexts but not others. Labor and employment regulation directly raises the question of distribution of resources and allocation of power through the market. One of the hallmarks of neoliberal approaches to economic policy and regulation is a marked hostility to labor and employment regulations. Employment standards, affirmative action programs and collective bargaining all attract criticism on the ground that while they may protect vulnerable groups, they also "introduce rigidities and hinder the deployment of labor".81 The classic rationale for both employment standards and collective bargaining regulation is to redress the persistent, structural disparities in bargaining power between workers and employers that otherwise obtain under regimes of contract law modelled on commercial relationships.82 They are primarily directed at distributive concerns and ensuring industrial democracy, rather than efficiency concerns. This distributive dimension is acknowledged by the Bank.83 Yet it is also regarded as a fault that unionization does change the balance of power between workers and capital, and that at the same time it creates dualism within the labor force and disparities among workers through the creation of a favored, protected sector of the workforce. In the view of the Bank, the problem with unions is this: "Unions do often act as monopolists, improving wages and working conditions for their members at the expense of capital holders, consumers, and nonunion (unorganized) labor. The higher wages unions win for their members either reduce business profits or get passed on to consumers in the

81

World Bank, Workers in an Integrating World, supra note 15, at 70.

82

Freeman and Medoff, What do Unions Do? (New York: Basic Books, 1984). W,at79.

83

81

Kerry Rittich form of higher prices. Either result leads unionized firms to hire fewer workers, increasing the supply of labor to the unorganized sector and depressing wages there Where wages for the relatively few workers who are unionized are pushed up, the actions of unions can adversely affect the distribution of income."84 Labor and employment regulations may be similarly counterproductive, even for workers: "many governments ...regulate wages and job security - and these policies, although well-intentioned, often have the perverse effect of reducing incomes and employment. Minimum-wages rules and wage indexation increase the cost of hiring workers. This leads firms to adopt an input mix that employs fewer people and more capital. This can result in unemployed or underemployed labor... Employment regulations, such as job-security laws, can undermine the link between pay and performance and also lead employers to hire fewer permanent workers..."85 The concerns expressed by the Bank with respect to labor market regulation have as much to do with the redistribution of income between different market actors as with the effects of collective bargaining on efficiency and wealth maximization. Yet the concern over adverse distributional effects on consumers, nonunionized workers and capital in this context is striking, given the persistent subordination of distributional considerations to efficiency and aggregate wealth maximization in the market reform project as a whole. The underlying assumption seems to be that redistribution, whether between labor and capital or simply among workers, is either an insufficient reason to regulate labor markets or per se undesirable. There is a host of questions that might be raised by the argument that labor market regulation is per se undesirable. For example, what are the background conditions against which such regulation is to be implemented? Is it clear that regulation will automatically reduce growth and productivity? Yet the question which seems to demand attention first is why features such as redistribution and shifts in power are singled out for particular scrutiny and concern in the context of 84

W,at81. World Bank, The Challenge of Development, supra note 24, at 79. This rationale is repeated again in Workers in an Integrating World, supra note 15. 85

82

Neoliberal Images labor and employment rules and regulations. On one level, the answer is obvious; everyone knows that that is what they do. However all regulations change the balance of power between different parties; that is inevitably an effect and, as in the case of labor regulation, sometimes directly intended. Given that the purpose of union rules is to change the balance of power between employers and workers, it is unclear why it is a drawback that it succeeds in doing so. Too, nearly all regulations produce negative as well as positive effects, including negative effects for the parties they are intended to benefit. Since, again, this is the norm rather than the exception, it is not unreasonable to presume that groups such as workers when advocating particular regulations are conscious of the risks and, having weighed them, still think the benefits outweigh the costs. Regulations also routinely affect the distribution of income. The question is why so much attention is devoted to the possibility of negative distributional effects for some workers which are generated through collective bargaining rules when they are a pervasive effect of many other regulatory and deregulatory proposals. Similarly, why the presence of distributional effects among workers does not militate in favor of extending collective bargaining and employment protections to further categories of workers rather than reducing or eliminating them for all is unexplained.86 The answer seems to be that, with the exception of labor and employment regulations, the redistributional effects of regulation, particularly those which are implemented for reasons of efficiency, are often simply not acknowledged. Nor is regulation for the purpose of redistribution accepted as legitimate. The real concern lies not with the particular distributional disparities that labor market regulations are said to introduce - empirical evidence suggests that labor markets without labor and employment regulations and governed by property and contract rules alone in general produce greater, not lower, wage disparities among workers87 but simply with the use of regulations to alter the income distribution of market processes. In other words, despite the arguments about how inadequately they achieve their purposes, the underlying anxiety seems to be that legal regulation is 86

There are arguments that substantive labor standards such as minimum wages are a better route than entidements to collective bargaining for some classes of workers, particularly those diat lack bargaining power. However, under neoliberalism, both the cartelkation effects of unions and the interference with the market valuation of labor diat minimum wages produce are suspect. 87 R. Freeman and J. Medoff, What Do Unions Do?, supra note 82.

83

Kerry Rittich used not to further efficiency and growth but to address equity or distributional concerns. Whatever the motivation, the effect of the Bank's regulatory analysis is to displace or demote rights and regulations motivated by values, interests and concerns other than efficiency. These include those which are directed at distributional concerns, such as labor rights. This effect is not necessarily mitigated by the increasing inclusion of references to human rights and even labor rights in discussions about market design.88 Such rights are typically distinguished from standards,89 and rules which aim to secure substantive conditions under which people work are still regarded as impediments to efficiency. It would be difficult to overstate the significance of the argument that regulation should be primarily, or even only, about efficiency. First, this claim reinforces the view that only overtly distributive regulations actually redistribute wealth, income and power when, as will be discussed in chapter 4, redistribution is a ubiquitous feature of the recognition and operation of all legal rights. Second, it extrudes such concerns from the market to the political realm. Third, it does so when the room for the state to respond to distributional inequities produced by market forces is sharply contracting, not simply as a "fact" about an increasingly globally integrated world, but also because of the normative power of neoliberal argumentation about the regulatory and policy demands of globally integrated markets. It would be a mistake to take the efficiency arguments at face value, or to imagine that they are purely descriptive claims unattached to other assumptions. It also remains unclear that the aggregate gains from a relatively "deregulated" market, one which creates benefits for capital holders at the expense of other parties, in fact exceed what might be achieved under alternatives. This is the heart of the debate over the high skill, high-wage vs. low skill, low-wage growth trajectories.90 Similar concerns over the ultimate costs of production also animate debates

88

See for example, James D. Wolfensohn, Comprehensive Development Framework, supra

note 14. 89

See for example International Labour Organization, Declaration on Fundamental Principles and Rights at Work, 86th session, June 1998, http://www.ilo.org/public/english/ standards/decl/declaration/text findex.htm (last visited 11/08/2001). 90 For a discussion, see S. Deakin and F. Wilkinson, "Rights Versus Efficiency? The Economic Case for Transnational Labour Standards", 23 Ind. Law J. 289 (1994). 84

Neoliberal Images over environmental regulation. However, it is clear that the calculus by which "efficient regulation" is measured in market reform proposals excludes many distributive consequences. Without even entering into the non-economic concerns which are raised, the ideal legal regime envisioned by neoliberals permits its beneficiaries to externalize significant economic costs, costs which typically turn up elsewhere. They might represent increased costs to the state or reduced capacity of workers to engage in productive activity, to the detriment of aggregate economic efficiency. For example, missing regulations might enable owners to avoid the costs of unsafe or unhealthy working environments, the costs of illness, childbirth and childcare. 2.4 Best Practices As mentioned above, one way around such inconsistencies and a common answer to such regulatory conundrums is simply that they represent normal or market "best practices". In neoliberalism, best practices refer to the institutions, laws, strategies and policies that are dominant and established in the model, developed market economies. Having either stood the test of time or evolved as required to meet the changing needs of market societies, best practices are said to have "proved themselves". It is assumed that they are at least compatible with and at best directly responsible for successful economic growth; on the basis of this track record, opponents are challenged to prove that any other course of action would be better. Best practices represent both the recipe for success and the model, norm or standard which alternatives must overcome. Best practice arguments appear in both weak and strong forms in neoliberal policy prescriptions. The strong form contains both descriptive and normative claims about the "one way" to economic development and the growing worldwide convergence toward a single set of institutions and practices.91 There are now persuasive critiques directed at the rigid adherence to "one way" for economic development,92 and best practice arguments advanced this strongly are becoming more rare. 91

This argument is discussed in Roberto Unger, What Should Legal Analysis Become?, supra

note 54. 92 Joseph E. Stiglitz, "More Instruments and Broader Goals: Moving Toward the PostWashington Consensus", WIDER Annual Lectures 2, Helsinki, January 7, 1998

85

Kerry Rittich Yet, the idea of the adoption of normal market institutions and practices as the route to economic development remains embedded at the methodological level within the neoliberal project. Despite the fact that there is considerable diversity among existing market institutions and a spectrum of laws and institutions compatible with the markets organized around rule of law, the protection of property, and the facilitation of investment and private economic activity, the commitment to discerning an optimal path or model remains a central objective. Much of the analysis is devoted to the options facing states, ranged from the most to the least desirable, and the dangers of alternatives and risks of substantial deviation from the optimal path. In part simply because of the gains from harmonization and forces which push toward convergence, the room for strategic, deliberate variation turns out to be sharply circumscribed. As a result, even if best practices were not explicitly invoked throughout neoliberal policy analyses, neoliberalism itself would seem to imply their existence. Indeed the entire project of elaborating a general development paradigm is hard to understand without the assumption of best practices. For if there is a theory about the existence of a global, universally applicable economic development model or framework, then it must rest on a set of strategies and institutions which have been evaluated for their contribution to economic growth. The specter of best practices is omnipresent in neoliberal policy behind the myriad generalizations about economic development that pervade neoliberal policy recommendations. Best practices encompass everything from specific policy recommendations based on detailed empirical analyses to broad generalities and received conventional wisdom about the attributes and requirements of a market economy. The concept of best practice functions as a point of linkage and transfer among different aspects of the reform agenda which may otherwise be only contingently related, reinforcing arguments which on their own may be unpersuasive. In one sense best practice arguments simply are neoliberalism, in that they typically contain an amalgam of the different claims and arguments, theoretical, empirical, normative, institutional and practical, that make up the fabric of neoliberal analysis.

bttp:/liiww.ivider.ttnu.edu/ (last visited 11/08/2001); Joseph Sriglitz, "Whither Reform?", supra note 10.

86

Neoliberal Images The concept of best practices rests on the assumption that it is possible to make judgments on a comparative basis about the institutional features that generate economic development among states that otherwise vary in innumerable ways. It might be thought that such complexities render it difficult to tell which institutions and policies are in fact responsible for success and which are not. Or, the presence of different histories, cultures and starting points might suggest that different policies are in order in different places, thus rendering the entire concept of best practices dependent on a series of prior events and contingencies. However, best practice arguments do not in fact function this way. While it is acknowledged that economic development may be affected by historical, cultural or political factors, such factors bear only marginally on the design of neoliberal development policies themselves. For example, the Bank does not deny the complexity of economic development and the myriad contingencies which might impede or advance its success. Yet these factors are not regarded as fatal, or even seriously damaging, to the idea of best practices; instead, they operate in the direction of more comprehensive and thoroughgoing adherence to the neoliberal development program. They militate in favor of linkages between market policies and the bundling of reforms. States are advised to implement reform policies as a package, because the absence of one might put the efficacy of others in danger. And, precisely because of what is not yet known about successful economic development, states are advised to emulate existing economic success stories, mimicking their institutions and practices as closely as possible.93 Undergirding the idea of best practice is the idea that there is a rational, functional basis for the emergence and persistence of certain rules and institutional forms. Beyond this, neoliberals claim to be agnostic about, even uninterested in, the causes of institutional convergence and regulatory harmonization. It is this assumption of the rationality and functionality of dominant market rules and practices that makes it possible to imagine that economic development is in the first instance a technical problem.

93 This may pose problems, one of which is accounting for the economic successes which do not result from adherence to best practice. For example, the experience of the so-called "East Asian tigers" has been confronted and explained by the World Bank in a number of different ways. See World Bank, The East Asian Miracle: Economic Growth and Public Policy (New York, NY: Oxford University Press, 1993) and World Bank, The State in a Changing World, supra note 4.

87

Kerry Rittich Because economic development is regarded as a state toward which nations can move by adhering to a well-delineated formula, development becomes a dilemma to be solved by specialists with empirical tools. Best practices both emerge from and serve this functionalist approach to economic development, insofar as such arguments suggest that the optimal institutions can be empirically and scientifically derived through observation and analysis of markets and economic structures on a comparative basis. A central part of the work of the Bank involves research into the role that particular types of investments or institutional factors play in economic growth. In this process, political, historical and cultural factors may be held in abeyance as researchers engage in a comparative study of different economies in an attempt to locate, isolate and identify the importance of variables ranging from infrastructure investments, to education levels, to health care expenditures. Increasingly, this research extends to the elements of good governance as well, understood as the absence of corruption and arbitrary state action and the presence of a "rule-based" culture.94 Inter-country comparisons performed in the same mode may also operate in the other direction; they may be used to discredit links between particular policies and economic growth or to refute alternative contentions about the best route to economic growth. However, reformers largely assume rather than interrogate the superiority of dominant market practices, both by ignoring the legal and institutional histories of "successful" market societies and by situating optimal market institutions at the culmination of a narrative of progress and development. Alternatives are either ignored,95 located off the map or at some earlier point on the same trajectory, or assimilated to the neoliberal model, however uncomfortable the fit.96 Thus, best practices place the burden of proof on those with alternative views. References to "what works" provide the ultimate support for neoliberal proposals, backstopping warnings about the dangers of deviation from established and successful paths to development. Continual references to established practices in successful market

94

This elements of good governance and their relation to economic development are the subject of the World Bank, 1997 World Development Report, The State in a Changng World, supra note 4. 95 See the discussion of township-village enterprises in China, infra, for example. 96 R. Wade, "Japan, the World Bank, and the Art of Paradigm maintenance: The East Asian Miracle in Political Perspective", 217 New Left Review (1996). 88

Neoliberal Images economies add a worldly, pragmatic element to neoliberal policy proposals, at the same time deflecting charges that best practices contain ideological elements. The functionalist approach to growth which best practices embodies helps establish the relative autonomy of the market and effect a separation between questions of market design and questions of politics. It focuses attention on the enabling, coordinating and wealth-maximizing functions of market rules, institutions and policies, to the exclusion of their distributive, ideological and normative dimensions. However, there are also jurisdictional limits and considerations of institutional legitimacy which compel the Bank to adopt such a stance. For example, the Bank's constitutive articles require it to refrain from interference in the internal political affairs of states.97 Adopting a technical, functional approach to the question of development aids the Bank in maintaining the appearance of appropriate distance from controversial political disputes. In addition, the functional approach to questions of market design surely also emanates from the fact that the architects of market reform are overwhelmingly economic technocrats with relatively homogeneous professional and disciplinary formations and similar methodological commitments. As a result, both the public face and self-understanding of neoliberals is that they are pragmatic development technocrats who are simply interested in analyzing and promoting what works and avoiding what does not. Beyond ideology and the outside service of particular factions or interest groups, they represent the aggregate public interest in economic development.98 Apart from a commitment to democratic values in the broadest sense,99 they are non-ideological and nonpolitical. Their economic and institutional prescriptions are available and applicable to all, as long as economic development is the goal. 97

International Bank for Reconstruction and Development, "Articles of Agreement", as am. February 16, 1989, Article IV, Section 10 http:/ / ww.wrldbank.org/html/extdr/backgrd/ ibrd/art4.htm#I11 (last visited 11/08/2001). 98 For critiques of this position, see J. Stiglitz, "Development Thinking at the Millenium", Keynote Address, World Bank, ABCDE, Aprii 2000; P. Gowan, "Neo-liberal theory and practice for Eastern Europe", 213 New Left Review 3 (September, 1995). In different ways, both authors suggest that institutions involved in reform are often furthering interests of their own. 99 Reforms in Central and Eastern Europe, for example, are often described as the pursuit of twin goals: the market economy and political liberalization. See the comprehensive overview by the World Bank on reforms to social policy in N. Barr, ed., Labor Markets and Social Policy in Central and Eastern Europe: The Transition and Beyond (New York, NY: Oxford University Press, 1994).

89

Kerry Rittich Yet even if best practice claims are often framed in terms of factual observations or inferences which can be safely taken as self-evident, best practices are inevitably infused with ideological investments and political commitments as well. These elements surface repeatedly, and are particularly evident in the claims about the state and the role of law. One of the places in which the multiple and shifting bases of best practices arguments can be seen is in claims about the nature and function of property rights in a market economy. A key neoliberal policy and institutional claim is that strengthening property rights is crucial to the promotion of economic growth. However, typically no particular evidence is adduced in support this claim, beyond the assertion that regimes of private property are associated with successful economic development, while property rights are absent or weak in economies which are less successful or failing. In such arguments, empirical arguments are weak if not entirely absent, and the functioning of legal rules is reduced to relatively simple economic models. The claim is that defined property rights are the key to maximizing wealth and efficiency, as no one except private owners is motivated to put resources to their highest possible use. However, what makes the assertion seem unproblematic and plausible is the prior acceptance of a set of economic arguments about the linkage between property ownership, self-interest and incentives to productivity. Similar commitments underlie the slippage from arguments in favor of defined incentives to arguments for particular forms of property rights. Despite the slippage, however, the explanatory power of the economic incentive argument is insufficient to either determine the rule choices to be made or explain those which are preferred after the fact.100 The degree to which those assumptions are both ideological and dependent on myriad other institutional and practical considerations can be suggested by the following examples. At least since the appearance of The Modern Corporation and Private Property,101 it has been clear that simple assertions about the relationship between property ownership and control over the allocation of resources, and thus wealth maximization, are no longer available. Instead, this relationship has been called into question by the very legal/economic institutions which form part of the

100

See chapter 4 for a discussion. Adolf Berle and Gardiner Means, The Modern Corporation and Private Property (New York: Macmillan, 1933). 101

90

Neoliberal Images neoliberal route to development. For example, the corporate form on its own does not automatically maximize the self-interest of diffuse groups of property owners; this has generated a huge literature on agency problems. Contemporary counterexamples to the simple form of the property myth are emerging in the very context of development and industrial modernization. On the one hand, in China, township-village enterprises appear to be thriving sites of economic growth, despite diffuse, uncertain and shifting property entitlements and the intimate involvement of public authorities in economic life.102 On the other, in parts of Eastern Europe, it appears that the property owners of newly privatized enterprises might be actually disadvantaged relative to managers; property holding in this instance seems only tenuously if at all related to the exercise of economic control.103 Similarly, whether the level of intellectual property protection that states must provide in order to participate in the World Trade Organization can be defended in terms of what is needed to promote scientific or intellectual production is largely unsubstantiated. These brief illustrations indicate not so much that neoliberal analysts are wrong in their assertions about the basis of growth, although they are often highly selective in their choice of examples. Rather, they indicate that the empirical data on productivity "speak" in a particular way because an underlying set of assumptions about what contributes to economic growth has already been accepted and integrated into the research methods. This becomes problematic where the question is what actually contributes to economic growth; in such cases, prior commitments to best practices risk foreclosing the very analysis which needs to be undertaken. However, because of the commitment to what has demonstrably worked in the past, experimentation with alternative institutional arrangements is not encouraged. To the extent that it might interfere with established business or market practice or is perceived as challenging the balance of power among economic 102

Zhiyuan Cui, "China's Rural Industrialization: Outline of the Basic Arguments of a Research Paper" (1993), paper on file with the author. 103 David Stark, "Recombinant Property in East European Capitalism", 101(4) American Journal of Sociology 993 (1996); Gil Eyal, et al, "The Theory of Post-Communist Managerialism", supra note 53. Eyal et al claim that East Central European economies while capitalist, are subject to the control of the managerial, not the propertied class. This new technocracy has used privatization as a vehicle to appropriate control of economic institutions; their power is based on "cultural" and "social" capital rather than ownership.

91

Kerry Rittich interest groups, institutional change is unwelcome. In the view of neoliberals, deliberate experimentation with as yet untried forms is a path which is fraught with danger and by now self-evidently littered with disasters.104 However, while best practice arguments may appear to promote economic conservatism, they are not incompatible with the idea that market norms could and should be adapted to external events. For example, best practices might be responsive to changes in the structure of the global economy due to informational and technological advances. Moreover, the underlying imperative, the pursuit of growth through the empowerment of private actors, might also be a source of change to established institutions and practices. In some contexts, best practices may be transformative; for example, they clearly function as instruments of profound change in economies whose practices and institutions deviate from the norm. Because both the forces of stasis and change are always present, best practice arguments can operate in the service of a shifting consensus centered around the evolving needs of capital in a globally integrated economy. Because best practice is an inherently open and indeterminate concept, the actual content of current best practices could undergo significant change, even reversal, without disrupting the demand for submission and conformity to a dominant development model or displacing the idea that what development requires is a "technical" fix. Thus, challenges to particular aspects of current development orthodoxy do not necessarily pose a threat to the overall project of articulating a global development project. Indeed, the continual evolution of best practices may permit the project to be renewed and legitimated; the fact that they resist any stable definition may be precisely what enables them to survive as a discourse and structure of analysis. Best practice arguments are routinely sustained on a shifting set of institutional, pragmatic, normative, empirical and even occasionally political claims.105 Through a process of cycling and rotation among the available strands of reason-

104

This is a recurring theme in World Bank, From Plan to Market, supra note 1. For example, concessions to interest group pressure or distributional concerns can be accommodated within neoliberal policy, if they are thought necessary to secure political support for the larger reform project. For example, the original impetus to the development of social safety nets was to quell the resistance to the economic restructuring programs implemented by the Bank in the wake of the debt crises. See]. Vivian, z&., Adjustment and Social Sector 'Restructuring (Geneva: Geneva and the United Nations Research Institute for Social Development (UNRISD), 1995). 105

92

Neoliberal Images ing, the various grounds are displaced or supplemented, only to be recovered again and deployed as elements of future arguments. At the point at which the explanatory power of one argument runs out or seems unpersuasive, another is always ready to be pressed into service. This permits best practice as a way of conceptually organizing development policy to survive and retain a certain plausibility, especially if one does not look too closely at the shifts and displacements which are continuously going on.106 However, to the extent that best practices express the idea of normal mar107

kets

and remain invested in resistance to legal, policy or institutional innovation,

they will tend to support two quite opposing tendencies. The first is the status quo in developed market economies. The second is that status quo as a model or goal to which states that have not yet reached the most advanced stages of development should aspire. In the first case, best practices may promote quiescence; in the second, reform and deep transformation. Although the assumption underlying best practices is that dominant institutional forms emerge and persist out of functional superiority, attention to the history of legal rules and economic practices calls such assumptions into question. Rather than a product of Darwinian superiority, rules and practices become dominant under a variety of pressures and circumstances. They are often the result

106 In this argument, I adopt and adapt the exemplary analysis of the structure and dynamics of international legal argumentation by David Kennedy. See David Kennedy, International Legal Structures (Baden-Baden: Nomos, 1987); David Kennedy, "A New Stream of International Law Scholarship", 7 Wisconsin International Law Journal 1 (1988). A related discussion is Biersteker's identification of the different possible explanations, sys temic, interest-based, institutional and ideational, for the current hegemony of neoclassical economics. See Thomas J. Biersteker, "The Triumph' of Neoclassical Economics in the Developing World: Policy Convergence and Bases of Governance in the International Economic Order", supra note 3, at 102. Biersteker's claim is that while none alone is sufficient, combined they account for the timin and content of the change in economy policy (122). However Biersteker's account suggests a more determinate relation between these components than I would argue exists for particular best practices. And, while he seems to suggest through the form of his argument how the exhaustion of one explanation leads inexorably to the next, he does not have a meta-structure which would account for a process of rotation among them, nor does he investigate the inadequacies in the individual explanations or the ways in which they may function to supplement each other. 107 The role of "normali2ation" in the legitimation of particular market structures and practices received its classic treatment in Daniel K. Tarullo, "Beyond Normalcy in the Regulation of International Trade", 100 Harvard Law Rev. 547 (1987).

93

Kerry Rittich of political struggles. Alternatively, dominant institutional forms and practices may be the consequence of various hegemonies, national, professional, ideological and disciplinary.108 They may also be directly adopted or imposed as conditions of financial or other forms of assistance or entry into political and economic associations.109 Such pressures tend to make a concept such as best practices selfreinforcing, and suggest that the very present-minded orientation of the discourse is an element of its success. Given these contingencies, the existing rules or institutions seem inadequately captured by the idea that they constitute either the 'only' or the 'best' available structure through which market coordination might occur. Nor is the process by which best practices come to prevail insignificant. Notwithstanding the dominant role of economic technocrats in current development policy, the rules and institutions which now constitute best practices were not the product of economic theory, nor were they implemented with cool deliberation at remove from political calculation. Rather, many were the product of now-forgotten battles waged in the name of particular interests and projects. In the process, alternative rules and institutions, at least some of which may have been equally plausible and functional, if different in their social or distributive impacts, were necessarily displaced or defeated. This is an important dimension which is largely absent in the discourse of best practice.110 The genius of best practice arguments is that, through the suppression of alternative practices and amnesia about the history of existing practices, local successes and particular interests are construed as the general interest and the inevitable outcome of the process of market evolution. 108

The worldwide influence and proliferation of American models and styles of legal practice is a case in point. See D. Trubek, Y. Dezelay, R. Buchanan,]. Davis, "Global Restructuring and the Law: studies of the internationalization of legal fields and die creation of transnational arenas", 44 Case Western Law Rev. 407 (1994). Dezelay and Garth account for the development of the field of international commercial arbitration through the preeminence of a relatively small body of influential and interconnected practitioners. See Yves Dezelay and Bryant Garth, Dealing in Virtue: International Commercial Arbitration and the Construction of a Transnational Legal Order (Chicago, IL: The University of Chicago Press, 1996). 109 For example, entry into the European Union, which is considered highly desirable by many of the nations in Central and Eastern Europe, is contingent upon conformity with certain institutional and fiscal standards. 110 A classic exploration of the evolution of legal norms and institutions and their relation to shifting yet identifiable economic interests is contained in M. Horwitz, The Transformation of American Law, 1780-1860 (Cambridge, MA: Harvard University Press, 1977).

94

Neoliberal Images An alternative view would represent best practices as the contingent settlement of political interests crystallized in particular rules and regulations and sedimented in institutional forms. Through struggle over time, their content has been modified; they in turn have modified the practices and interests of those who may have pressed for their adoption in the first place. Subsequent and ongoing modifications to rules and institutions, in other words, current best practices, are likewise the interactive product of this interplay of culture, practice, institutional structures and material interests. The idea of best practice functions to specify an ideal set of market structures, roles and powers for states aspiring to develop economically. However, because of the distributive properties of these institutional and regulatory structures, a matter to be explored below, best practices also operate to justify a particular allocation of risks, resources, powers, costs, burdens and benefits among different market actors. In other words, best practices at least partly determine the distribution of economic gains among firms, households and individuals. As a result, despite the innocuous, even attractive, moniker and notwithstanding the argument that best practices are simply about efficiency, technical matters which are administrative rather are than political, best practices are a vehicle with potential for profound social consequences and distributional upheaval. The commitment to best practices expresses the idea that economic governance is essentially a management exercise. In the best practice narrative, good governance and effective management of the economy become equated with the implementation of particular legal rules and institutions. In practical terms, this has tended to lead to an institutional fetishism concerning Western, in particular Anglo-American, legal rules and practices.111 On the surface, best practice seems likely to reinforce tendencies toward regulatory convergence and harmonization. However, for a variety of reasons, the promotion of best practice is unlikely to result in the simple replication of model rules and institutions. Instead, the main effects are likely to be disciplinary; indeed that may be their purpose. Best practices may be important not because neoliberal

111

Rodrik reports that the international financial institutions have used the Washington consensus as a wedge to further a particular set of policy and institutional preferences. See Dani Rodrik, "Development Strategies for the Next Century", supra note 27.

95

Kerry Rittich policy makers will actually succeed in propagating a single set of standard rules and policies. Instead, their most important effect may be to discredit local deviations and alternatives, including pre-existing institutional systems and structures. In short, best practices cabin the available responses to social and economic dilemmas and place constraints on alternative ways of organizing economic and social life. The attempt to replicate successful institutions and practices through best practice was first popularized in the context of industrial organization and microeconomic management. At this point, it has undergone significant chastening and revision;112 indeed, the fate of best practices in the industrial realm should serve as a cautionary tale for its adherents in the economic development project. Boyer describes the limits of best practice in industrial organization as follows: "[ejven when they try to copy strictly a supposed superior model, managers, workers, and governments finally produce a hybrid local management style and coordinating mechanisms. After a long period of trial and error, the end product usually differs widely from original intentions".113 Actual replication proves impossible; the results of the exercise seem to generate results that are considerably different from what was originally intended. The extension of a best practice approach to questions of governance, law, regulation and market design seems likely to produce yet more divergence. There are myriad reasons why best practices in these areas may fail to function as intended quite apart from the usual reasons advanced to explain failing reforms, which are that, despite good advice, they were not properly implemented, or that it is "too soon" to ascertain if they are successful. The following list suggests but a few sources of potential divergence. First, there is the problem of identifying the practice in question and determining its scope. Best practices in the realm of governance, law and regulation do not come pre-packaged and self-identified, nor are they easily separated from the institutions and culture in which they are embedded. Defining a best practice, then, is inevitably arbitrary and contentious in ways that are related to the second point.

112

Robert Boyer, "The Convergence Hypothesis Revisited: Globalization but Still the Century of Nations?", Suzanne Berger and Ronald Dore, eds., National Diversity and Global Capitalism (Ithaca, NY: Cornell University Press, 1996), 29. 113

96

W,at30.

Neoliberal Images This is that all legal practices operate in conjunction with numerous other laws, policies and institutions and non-legal practices, at least some of which are crucial to their success, coherence and desirability as strategies worth pursuing. Consequently, it may be a mistake to imagine that replicating a particular law amounts to replicating even a coherent and severable part of another system; out of context, it may do nothing like it does in its original setting. This presents a very live problem, particularly with respect to the economies in transition, for the following reasons. Despite the fact that the Bank often advocates that developing or transitional economies imitate the institutions of model market economies, their policy prescriptions are inevitably selective. Some rules and institutions are prioritized over others while others which are common or even ubiquitous in market economies are ignored and excluded. Third, once implemented, rules and institutions may be understood, developed or used in radically different ways. Adjudication is not merely a technical exercise. The inculcation of a particular professional culture among legal practitioners and the development of standard legal procedures and fora may go some distance to standardizing the approach to the adjudication of legal disputes.114 This suggests why the Bank might be interested in judicial education and reform projects. However, in developed market economies, even members of the same profession, with the same disciplinary formation, routinely come to very different conclusions about the content, scope and application of legal rules. Even if these contingencies could be reduced, they are all exponentially increased by the interaction of formal laws with the varied systems of informal norms also in play. None of this necessarily delegitimates the discussion about institutional reform as an important aspect of development. However, market design emerges as a strikingly more complex and multi-faceted process than the policy discourse of the Bank would suggest. Moreover, rather than a mode of depoliticizing the economic sphere, the choices about law and regulation turn out to be deeply political. This in turn casts into question the rationale for ceding decision-making power over such issues to experts from afar. There is every reason to expect the process to fail more often than it succeeds, even on its own terms, if these dimensions are repressed rather than acknowledged. But they also cast light on the

114

The standardization of dispute resolution in the field of international commercial arbitration is discussed in Y. Dezelay and B. Garth, Dealing in Virtue, supra note 127.

97

Kerry Rittich inevitable extra-efficiency effects of market reform and deeply problematize the pervasive effort to sanitize economic development of such complications.

98

3. THEORETICAL ANTECEDENTS OF NEOLIBERALISM

T

he discourse of best practice appears to place empirical and func-

tional considerations at the heart of development policy. However, as the previous chapter discussed, technical and practical concerns

alone do not account for the myriad strands of reasoning nor the particular contours of the arguments in neoliberalism. One of the most striking elements of neoliberalism is the degree to which political and economic arguments for particular policies and institutions appear in tandem or seriatum or are used interchangeably within policy and regulatory discourse. For example, the defence of private property rights in the context of transition often includes arguments about the positive role of property rights in the maintenance of political stability as well as their contribution to economic growth. In the words of the Bank, "a wide distribution of property rights can counteract any concentration of power in the political system and contribute to social stability".1 Throughout neoliberal discourse, the connection between markets and democracy is continually suggested in both overt and hidden ways. Often, arguments about law and rights serve as the point of connection, the mechanism for ensuring the coherence and integration of the two goals. The idea that neoliberalism might be built through a congeries of diverse political and economic theories or methodologies runs counter to an understanding 1

World Bank, World Development Report 1996: From Plan to Market (Oxford; New York: Oxford University Press, 1996), 49.

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Kerry Rittich of best practice as economic pragmatism. Nonetheless, a number of different methodologies as well as distinct schools of economic and political thought seem clearly discernible and influential within neoliberal claims. The deployment of efficiency analysis and the reliance on principles of neoclassical economics is both obvious and acknowledged throughout neoliberal development policy. However neoliberal policy discourse also discloses the influence of libertarian or laisse^faire concepts of property, liberty and contract in the mode of theorists such as Friedrich von Hayek and Milton Friedman.2 The influence of public choice theory in the discourse around the state, especially in arguments about rent-seeking, government failure and the state as a nexus of interest seekers, is also pervasive. Both libertarian thought and public choice theory are revealing sources of neoliberal ideas on distribution, market values, and the role of the state. Each embodies or embraces a particular view of the relationship between law and the state on the one hand and society and the market on the other. Each is also associated with particular approaches to legal and policy analysis, as well as substantive positions on institutional design and economic distribution. Libertarian and public choice theories are also replete with political as well as economic arguments, both explicit and implicit, about the connections between markets, economic growth, freedom, democracy and legal rights. This chapter discusses several representative theorists and writings from these schools with a view to uncovering these links. The idea is not to undertake a comprehensive exploration of libertarian thought, laisse^faire economics, or public choice theory, nor is it to map all of the positions that adherents of these school might stake out on the various elements which make up neoliberal policy and institutional design. Rather, the idea is to move in the reverse direction, and starting from neoliberal claims, to make more explicit some of the theoretical antecedents of neoliberal thinking and the relationships, functional, historic and contingent, which make up neoliberal best practices. Following this, I will suggest an alternative way to imagine the relationship between law, the state and the market employing legal analysis derived from legal realism, institutional economics and some of its successor movements such as critical legal studies.

2

The influence of these theorists on neoliberalism is also observed in Paul H. Brietzke, "Law, Democratization, and Markets", Robin Paul Malloy and Christopher K. Braun, eds., Law and Economics: New and Critical Perspectives (New York: P. Lang, 1995), 31.

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Theoretical Antecedents of Neoliberalism

3.1 Libertarian Concepts of Property, Regulation and the State: Hayek and Roepke The writings of Friedrich von Hayek and Wilhelm Roepke are a useful place to begin to explore the connection between economic and political arguments in neoliberal thought. In both, there are political and economic rationales, tightly integrated and interwoven and powerfully expressed, for many of the market structures, political institutions and state policies which make an appearance in neoliberal discourse around development and transition. Both Hayek and Roepke were members of the Mont Pelerin Society, a postwar society organized to facilitate discussion among prominent adherents of libertarian and loisse^faire ideals within the liberal social order. As well as Hayek and Roepke, it included many theorists and economists who were to be influential in the development of the economic paradigms and methodological approaches which have dominated contemporary economic theory and practice in post-war United States.3 The existence of the society itself seems to have been the catalyst for certain theoretical explorations. For Hayek, for example, the meetings of this society provided the occasion on which the relationship between the political and economic elements of liberalism were synthesi2ed.4 For both Hayek and Roepke, economic and political freedom are intimately and inseparably connected. In their view, a certain type of economic and political structure is not only desirable, it is absolutely essential if freedom is not to be eroded. As Roepke explains it, "there always exists a definite, more or less fixed relationship between a political and an economic system which makes it impossible to combine just any political system with just any economic system, and vice versa.5 In brief, their position is that the market is the economic guarantor of freedom, while socialism necessarily implies totalitarianism.6

3

Among those influenced are Milton Friedman, Aaron Director, George Stigler, and Karl Popper. 4

For example, "The Principles of a Liberal Social Order" was first delivered by Hayek to this society in 1966; F.A. Hayek, Studies in Philosophy, Politics and Economics (London: Roudedge & K. Paul, 1967), 160. 5 W. Roepke, The Social Crisis of Our Time, A. and P. Schiffer Jacobson trans. (Glasgow: William Hodge, 1950), 87. 6

Id., at 90.

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Kerry Rittich

This union if not elision of markets and democracy is memorably described by Roepke in the following passage: "The process of the market economy is, so to speak, a "plebiscite de tous les jours," where every monetary unit spent by the consumer represents a ballot, and where the producers are endeavoring by their advertising to give "election publicity" to an infinite number of parties (i.e., goods). This democracy of consumers has the drawback of a very unequal distribution of ballots which could, however, be extensively corrected - but it also has the great advantage of a perfect proportional system: there is no nullifying of the minorities' will by the majority, and every ballot carries its full weight. The result is a market democracy, which in its silent precision surpasses the most perfect political democracy."7

For Hayek, liberalism and democracy, while compatible, are not the same.8 Moreover, it is liberalism or freedom rather than democracy which is the principal value to be protected. Liberalism, in Hayek's view, is distinguished by one fundamental concern, which is limiting the coercive powers of the state. Hayek contrasts two conceptions of liberalism, one associated with the English, the other with the French.9 These two conceptions, and Hayek's preference for the English over the French, turn out to be illuminating as regards his position on the regulatory and institutional possibilities of a market economy. The good version of liberalism is the English version, inductive in method and empiricist in orientation, which emerged from the spontaneous order which Hayek styles the "catallaxy" of the market. It is "based on an evolutionary interpretation of all phenomena of culture and mind and on an insight into the limits of the powers of the human reason".10 This liberalism is the recognition rather than the creation of an order; justice is discovered, not determined.11 It is a modest creed, exhibiting reverence for tradition, in particular the economic and social 7

W. Roepke, The Soda! Crisis of Our Time, supra note 5, at 103. F.A. Hayek, "The Principles of a Liberal Social Order", supra note 4, at 160,161. 9 However, some French theorists are placed within the "good" liberal camp. Hayek identifies the prototypical good liberals as: David Hume, Adam Smith, Edmund Burke, T.B. Macaulay and Lord Acton in England; B. Constant, A. de Tocqueville, Kant, Schiller and von Humboldt on the Continent; and James Madison, John Marshall and Daniel Webster in America. See "The Principles of a Liberal Social Order", id., at 160. 10 W., at 161. 11 W, at 166. 8

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Theoretical Antecedents of Neoliberalism order which has evolved in England and the United States and which is associated with the great drive toward industrial expansion and accumulation of wealth. Bad liberalism, by contrast, is "constructivist". It is the liberalism of theory, in which rationalism prevails over practice, "contemptuous of tradition because it regards an independendy existing reason as capable of designing civilization".12 Hayek writes against all attempts to engage in institutional innovation or design, rejecting the idea that mere knowledge that culture or society is man-made implies that it can be deliberately changed. In his view, we are ignorant of all of the things which account for the success of Western civilization: "the case for individual freedom rests chiefly on the recognition of the inevitable ignorance of all of us concerning a great many of the factors on which the achievement of our ends and welfare depends."13

And, "from the countless number of humble steps taken by anonymous persons in the course of doing familiar things in changed circumstances spring the examples that prevail. They are as important as the major intellectual innovations which are explicitly recognized and communicated as such".14 In an early precursor to the idea of best practice, Hayek argues that the spontaneous order which prevails should be treasured as an instance of the evolutionary survival of the most well-adapted and functional economic practices.15 Consequently, Hayek is deeply invested in protecting the status quo regarding the prevailing institutional order. The liberal social order is predicated on a strong public/private distinction and the principle of a limited state. Law in a free society is derived from common law and natural law; these are the sources of the rule of law, and are to be sharply distinguished from administrative or public law, those rules issued from authorities for the purpose of social organization. Indeed, the progressive displacement of

12

Here Hayek cites Voltaire. Id., at 161.

13

F.A. Hayek, The Constitution of Liberty (Chicago: University of Chicago Press, 1960),

14

/
15

See also F.A. Hayek, "The Principles of Liberal Social Order", supra note 4, at 161.

29.

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Kerry Rittich private by public law is the destruction of the liberal social order and the path to totalitarianism.16 Key to comprehending Hayek's view of law is this strong distinction between the spontaneous order based on abstract rules and an organization based on commands.17 Laws in the liberal social order should be prospective, general and universally applicable.18 "It is because the lawgiver does not know the particular cases to which his rules will apply, and it is because the judge who applies them has no choice in drawing the conclusions that follow from the existing body of rules of the case, that it can be said that laws and not men rule."19 The virtue of the rule of law understood in this way is that, by following abstract rules, individuals pursue their own purposes and achieve a much more complex society than ever could be achieved by the deliberate pursuit of particular results. Invoking Hume, Hayek claims that all advanced legal orders, while differing somewhat over the precise structure of rights, are committed to the "three fundamental laws of nature, that of the stability of possession, of transference by consent, and of the performance of promises".20 Hayek also subscribes to a strong distinction between law and legislation or regulation. Moreover, while law is associated with generality and abstraction, legislation is the realm of specificity. Hayek's conception of law is expressly antipositivist and anti-realist; he believes that such trends in legal theory, whether of American, German or Russian origin, run counter to the ideal of the rule of law.21 And while law which is grounded in common and natural law instantiates freedom, "legislation is the chief instrument of oppression".22 Law is concerned with actions rather than purposes or end states; justice is negative and prohibitory rather than enabling, directed at remedying infringements 16

17

W., at 169. F.A. Hayek, "Law, Commands and Order", The Constitution of Liberty, supra note 13,

at 148. 18

Id.

20

Id., at 154, citing David Hume, Treatise, Part II. s.6 (Works, II, 293). F.A. Hayek, The Constitution of Liberty, supra note 13, at 156,235-239. Id.

21

22

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Id,, at 153.

19

Theoretical Antecedents of Neoliberalism of the protected domains of others.23 For this reason, the concept of welfare or the public good can never be defined in terms of common goals or objectives. "A state of affairs as such...cannot be just or unjust...".24 It follows that "the aim of economic policy of a free society can therefore never be to assure particular results to particular people".25 Material equality and equality before the law are incompatible, a situation which follows from "factual" differences between people. In Hayek's view there is a direct conflict between the ideal of freedom and distributive justice.26 In Hayek's theory, the links between arguments from freedom and arguments from efficiency begin to emerge. Hayek observes that opposition to state intervention in economic affairs has classically rested simply on a belief in freedom and the rule of law; mere enforcement of the common law has not constituted government interference. There are good reasons, in his view, why all governmental concern with economic affairs is suspect and why there should be a presumption against the active participation of the state in this sphere.27 However, the objections do not rest on arguments from freedom; they rest on the fact that in general such measures will be inefficient, "inexpedient" in Hayek's terms, being destined to fail outright or undesirable because their costs will outweigh their benefits. Appeals to non-interference by the state merely confuse the issue of which measures are compatible and which are incompatible with the rule of law. In Hayek's view, the dichotomy between laisse^faire and intervention does not provide an adequate criterion for admissibility of particular state actions.28 The issue is to determine which state activities assist the spontaneous forces of the economy.29 There is a range of government activity which in principle is reconcilable with freedom; in this category fall "framework" activities and the provision of public goods which are subject to collective action problems.30

23 24 25

F.A. Hayek, "The Principles of a Liberal Social Order", supra note 4, at 166,177. W, at 170. Id., at 173.

26

F.A. Hayek, The Constitution of Liberty, supra note 13, at 232.

27

Id., at 221. Id, at 231. Id, at 222. Id., at 223.

28 29 30

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Kerry RiWch "The important point is that all coercive action of government must be unambiguously determined by a permanent legal framework which enables the individual to plan with a degree of confidence and which reduces human uncertainty as much as possible".31 While we can probably never be certain to have discovered the best arrangements or institutions, "all further improvements are bound to be slow and gradual".32 In other words, there is a core set of market institutions, with some room for manoeuvre or alteration at the margin or periphery. And, in Hayek's vision of the liberal state, the limits to the rule of law are reached just when the state attempts to engage in distributive or social justice: this "is precisely what a state bound by the rule of law cannot do".33 A striking feature in the theories of Hayek, Roepke, Friedman and other market libertarians is the pride of place given to the entrepreneur and man of property.34 This figure reappears to play a central role in the drama of the neoliberal economy as well; enormous weight and significance is vested in him as the engine, saviour and hero of the market economy. Hayek explicitly endorses the existence of economic disparities and the promotion of wealth by unfettering persons of property in the pursuit of their affairs. "The rapid economic advance that we have come to expect seems in a large measure to be the result of this inequality and to be impossible without it".35 Hayek claims that the poor often eventually benefit from the excesses and luxuries of the rich: "[t]he range of what will be tried and later developed, the fund of experience that will become available to all, is gready extended by the unequal distribution of present benefits; and the rate of advance will be greatly increased if the first steps are taken long before the majority can profit from them".36 The poor of today owe their material well-being to past inequality, whereas the wealthy are merely living at a somewhat advanced evolutionary phase which 31

Id., at 222. M, at 231. 33 Id. 34 Id., at 124-125. Here Hayek demonstrates his affiliation with the Austrian economists such as Joseph Schumpeter. 35 Id., at 44. 36 Id. 32

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Theoretical Antecedents of Neoliberalism others have not yet reached.37 It follows that Hayek is against the redistribution of wealth; such efforts will merely spoil progress for all. From his positions on the requirements of freedom and the rule of law, the relation of wealth to economic development and the inevitability of income inequality flow Hayek's views on the welfare state. Hayek is against any attempt to orchestrate the distribution of income, going so far as to say that the market does not distribute, it merely disperses income.38 He is also skeptical of the orientation of the paternalistic state; in his view, there is no such thing as "general altruism", as care is naturally directed at particular persons.39 One of Hayek's main concerns is to point out that the welfare state, in the guise of efficient service provision, is in danger of becoming a covert, creeping substitute for generally discredited old-fashioned socialism.40 In Hayek's view, the objectives of the social welfare state have been fundamentally altered and perverted from their original aim. Over time, there has been a shift from concern over poverty to the goal of equity. This has taken the form of a movement from the legitimate prevention of destitution, to the intermediate position of compelling people to provide against want so that they do not become a burden on the rest, to the point at which now the state has become an instrument of compulsory redistribution, assuming the power to determine the "just" position of everybody.41 These are objectives that in Hayek's view are both impossible to satisfy and are in any event improper. By way of example, Hayek argues that programs of compulsory insurance are now regarded as entitlements despite the fact that they are subsidized through massive redistribution from the wealthy.42 Hayek's critique of the methods of the welfare state is broad-ranging and operates on a number of fronts. He objects to the monopoly position of the state in the provision of services and to the complexity and incomprehensibility of the administrative regime to which it has given rise. This, he maintains, has created a created a cadre of experts who are specialists in particular institutions and professionally invested in their continuation. This results in a sort of role reversal: rather 37

Id.

38

F.A. Hayek, "The Principles of a Liberal Social Order", supra note 4, at 171.

39

F.A. Hayek, The Constitution of Liberty, supra note 13, at 78.

40

Id., at 285. Id., at 289. Id., at 292.

41 42

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Kerry Rittich than merely implement public policy, bureaucrats now direct public opinion as to its advisability.43 All of this redistribution is underwritten through policies of progressive taxation, the widespread adoption of which Hayek regards as a regrettable mistake.44 Progressive taxation is a source of injustice as well as misallocation of resources for the following reasons: high levels of taxation on the wealthiest have a negligible effect on the revenues collected; they offend against the "only universally recognized principle of economic justice", equal pay for equal work;45 they produce obvious and well known adverse economic incentives; and, they have deleterious effects on the rate of savings. In the final analysis, having turned away from the strategy of combating social evils through the growth of wealth, we are now in a situation in which growth is threatened by the very remedies we have devised. The chief dangers which face us will come from: inflation, paralyzing taxation, coercive unions, the increasing dominance of government in education and a powerful, arbitrary social service bureaucracy.46 In Hayek's account, some of neoliberalism's central themes and specific concerns are clearly in evidence: growth as the only remedy to poverty, control of inflation as the overarching economic concern, excessive taxation as a disincentive to economic activity, and unions as repositories of monopoly power. Hayek's distinction between the proper aims of the state in social provision, that is poverty relief rather than redistribution or equity, also surfaces in a softer but still recognizable form in neoliberal policy. Such analyses now attempt to discredit on both normative and efficiency grounds the aim of basic social provisioning which lies at the heart of the welfare state, at the same time changing popular expectations about the state as a primary provider of services such as health and welfare.47 The writings of Roepke have much in common with Hayek, providing further perspectives on neoliberal economic policy concerning the welfare state. In addition, Roepke provides an explicit theorization about the positive relationship 43

Id, at 290-291.

44

F.A. Hayek, "Taxation and Redistribution", The Constitution of Liberty, supra note 13, at

306-323. 45

46

W., at 317.

Id., at 305. 47 See the World Bank's 1997 World Development Report: The State in a Changing World (Oxford; New York: Oxford University Press, 1997). 108

Theoretical Antecedents of Neoliberalism between the neoliberal view on the proper relation of the market and the state and global economic integration. As against the view of the complete autonomy of the economic sphere, Roepke maintains that economic success is dependent on a metaframework which consists of the proper legal, institutional and moral conditions.48 In no society can economic integration go further than its social-political-legal-moral integration.49 "Mutual trust, confidence in the stability and reliability of the legalinstitutional framework (including money), contractual loyalty, honesty, fair play, professional honour and that pride which makes us consider it unworthy of us to cheat, to bribe or to misuse the authority of the State for egoistic purposes. All that is to be based on a "creed" in the most general sense of the belief in ultimate values and norms, of acknowledging some final sanctity and, last but not least, on some understanding of the meaning and working of the economic process itself'.50 What emerges then is an insistence on the need for a common set of values, at least as far as the operation of the market is concerned, acceptance of the "final sanctity" of the rule of law which backstops contract and property relations, and a knowledge of the principles and acceptance of the values which guide market transactions. The categorical imperative of such a system, as Roepke describes, is "pacta sunt servanda".51 Roepke identifies two prerequisites to the international economic order. The first is a stable currency; the second is an "unimpeachable legal order and, beyond this, an unwritten but generally recognized code of norms, principles, rules of behavior and value ideas".52 The international economic order presupposes a certain state of affairs and certain reforms of the domestic order.53 International trade is no different than intranational trade; the only difficulty is the issue of a 48

W. Roepke, "Economic Order and International Law", 86 Receueil des Cours 203 (1954), 211. For a discussion of the role of law in Roepke's thought and his place among the ordoliberals in Germany, see David Gerber, "Constitutionalizing the Economy: German Neoliberalism, competition law and the "New" Europe", 42 American J. of Comparative Law 25 (1994). 49 W. Roepke, "Economic Order and International Law", supra note 48. 50 Id, at 211-212. 51 52

53

Id., at 212. W, at 218.

W. Roepke, The Soda/ Crisis of Our Time, supra note 5, at 235.

109

Kerry Rittich supranational order. And how have states obtained this order in the absence of a world state? Through the "universal-liberal" solution, the international "open society", a secularized version of the Res Publica Christiana which prevailed in Europe during the Middle Ages, in which free trade is a postulate of natural law. It is this liberal world order, Roepke maintains, which has guaranteed the economic co-existence of big and small countries on a footing of complete equality and which has precluded the possibility of the exploitation of weak states by political powerful nations.54 Roepke echoes Hayek's belief in the essential need to contain the state and erect bars to the its incursions into areas of social life through the protection of non-political spheres.55 Roepke is perhaps best known as an exponent of the proposition that there should be the widest possible separation of politics from the economy.56 It is this principle, he insists, which accounts for the successful functioning of the liberal international order, as it minimizes the significance of sovereign states with different legal orders and administrative systems and the presence of borders, all of which are potential sources of conflict in the operation of an international economic order.57 This order makes possible the functioning of an "As-If-World Government".58 In a phrase remarkably resonant with current Bank claims, Roepke states that, "[ojbedience to these directives of the market is rewarded, disobedience is punished..."59 However, in an apparent move away from the stark anti-positivism expressed by Hayek, Roepke explicitly endorses a functionalist approach to the law governing economic life.60 He extolls the virtues of the marriage and cooperation of the economist and the lawyer and lauds the development of an economically literate

54

Id., at 107. Id., at 85. 56 W. Roepke, "Economic Order and International Law", supra note 48, at 224. 57 Id. 5S Id., at 227. 59 See World Bank, World Development Report 1995: Workers in an Integrating World (Oxford; New York: Oxford University Press, 1995), 5: "international capital movements intensify the impact of domestic policy on labor outcomes, richly rewarding policy when it is sound but punishing it hard when it is unsound". 60 W. Roepke, "Economic Order and International Law", supra note 48, at 227. 55

110

Theoretical Antecedents of Neoliberalism legal profession in a system based on free markets, free competition and a freely working price system.61 Despite the totemic way in which socialism and market societies are commonly contrasted by both Roepke and Hayek and despite the fears of creeping totalitarianism that pervade their discussions of the liberal social order, Roepke recognizes that the welfare state, a command economy, and privatization are all distinct and separable elements of what is commonly known as socialism. This he describes as "a policy whose aim it is to bring about a radical change in the distribution of income and property by all the means which make up the modern Welfare State, i.e. generally speaking by taking continuously from the ones and giving it to the others".62 He insists, moreover, that the problems of the economic order - that is the issue of plan (which he calls "office") versus market economy - and those of economic incentives be kept stricdy apart. The presence of a welfare state is not necessarily incompatible with a market economy. "The interesting question, however, is whether this is not again one of the cases where quantity finally changes to quality. We can no longer doubt that once the fiscal system takes more than a certain maximum share of the national income it ceases to be a mere machinery to change the distributional aspect of the market economy".63 Here we can see the clear limits which are to be placed on redistribution through tax and transfer on the part of the state. The problem with the welfare state is that it depends upon a sharply progressive income tax. After a certain point, taxes become confiscatory and punitive, fundamentally altering the incentive structure of a market economy. People, reacting to incentives, will lose the desire to work, with the result that total production declines. Those who underwrite the welfare state will lose the impetus to produce for profit. But more is involved than mere economic constraints; the health of society is at stake. In Roepke's view, it is a truism that social assistance beyond a certain limit destroys the individual's sense of responsibility and creates a diseased state. As the

61

W. Roepke, The Problem of Economic Order, in Two Essays, Johannes Overbeek ed. (Lanham, MD: University Press of America, 1987). 62 Id., at 7. 63 Id. 111

Kerry Rittich state takes care of us, all "true charities" will die out. In a critique of the concept of social and economic rights, Roepke argues that "the spurious 'freedom from want' kills all the genuine freedom".64 Roepke provides a very neat summary of the limits of redistribution as well as the deleterious moral effects of the welfare state: "Under the crushing burden of taxation as we find it today in so many countries, people will tend to prefer leisure to work, safety to risk, routine to initiative, and consumption to saving".65 Like Hayek, Roepke also offers a critique of unions, as well as stern warnings about the dangers of inflation.66 His writing reflects a deep concern with the moral qualities of capitalism and the deleterious changes in motives and incentives which arise from deviation from the liberal order. He is concerned that any economic system rest on incentives which correspond to what he invokes as "human nature", that is work, saving, and caring for one's family.67 However, Roepke distances himself repeatedly from a purely economistic approach to life,68 as well as from those who, dwelling in the land of theory, are concerned only with questions of supply and demand. Instead, the necessary support to freedom of the market in his view is a comprehensive social program which is traditional and nostalgic, if not romantic and Utopian, in its orientation. It includes: decentralization, promotion of smaller production and "sociologically healthy forms of life and work (after the model of the peasant and the artisan)", legislation against monopolies and financial concentration, elimination of "overcomplicated methods of organization, specialization and division of labor" and widely dispersed property ownership (i.e. anti-feudalism).69 In Roepke's world, the state "without which a genuine and real market economy cannot exist" is a strong state, a state "which knows exactly where to draw the line between what does and what does not concern it", an "energetic umpire", a

64

W. Roepke, The Social Crisis of Our Time, supra note 5 at 27. Here Roepke refers to Franklin Roosevelt's famous "four freedoms" speech which launched the post-World War II human rights movement. 65 Id., at 8-9. 66 See "The Problem of Economic Order" in W. Roepke, The Problem of Economic Order, in Two Essays, Johannes Overbeek ed. (Lanham, MD: University Press of America, 1987). 67 W.,atl5. 68 W. Roepke, "Economic Order and International Law", supra note 48. 69 W. Roepke, The Soda/ Crisis of Our Time, supra note 5, at 179.

112

Theoretical Antecedents of Neoliberalism state with "courage" and "independence from group interests", staffed by a highly qualified civil service small in number but with a pronounced "esprit de corps".70 Here we have a description of the ideal neoliberal state: competent within its proper sphere, independent of all particular interests, functionalist in its orientation, and reticent about expansion. The danger of state-created and state-supported monopolies, whether they be corporations, unions, or patents, is a constant obsession of both Roepke and Hayek. The monopoly power of unions to bid wages above the level that they would otherwise be is a frequent target;71 this type of monopoly is singled out as a particular danger in neoliberalism as well. Roepke regards unionization as a classic example of a state-constructed power which is an ill-advised and illegitimate intervention into the freedom of economic life. To remedy this, he advises that law courts be made organs of national economic policy and given jurisdiction over matters which up to now have been left to the administrative state.72 Both Hayek and Roepke are concerned primarily to defend the liberal economic and political order against totalitarianism and economic collectivism. The bulk of their attention and energy is devoted to establishing the merits of capitalism and the dangers and evils of socialism, largely by contrasting the two systems in stylized, representative form. Consequently, their positions on the internal institutional possibilities of market economies are neither nuanced nor welldeveloped. To some extent, they are engaged in an intellectual exercise not unlike the proponents of radical market reform in the context of transition. In addition, however, both are deeply engaged in debates that now surround neoliberal practice and economic development, foremost of which are the possibilities and prospects of the welfare or interventionist state and the appropriate structure of state institutions and regulatory practices in market economies. What comes out clearly in the writings of both Hayek and Roepke is the centrality of a particular set of values to a market economy and the necessity of introducing a quite specific mode of political and social organization to ensure its 70

Id., at 192-193. "The monopolistic practices which threaten the functioning of the market are today much more serious on the side of labour than on the side of enterprise, and the preservation of the market order will depend, more than on anything else, on whether we succeed in curbing the latter". F.A. Hayek, "Principles of a Liberal Social Order", supra note 4, at 177. 72 W. Roepke, The Social Crisis of Our Time, supra note 5, at 193. 71

113

Kerry Rittich success. In these respects, Hayek and Roepke may appear to part company with neoliberals. To recall, in the reform narrative, best practices are ostensibly just about functionality and efficiency, efficiency itself is thought to be a universally desirable value and reforms are represented as consistent with a broad range of cultural values and social and political choices. However, despite pretensions to relative political and cultural neutrality, the promotion of market values is a powerful, if often submerged, element of neoliberalism. What is evident in economic reform efforts, and particularly visible in the context of transition, is the concern of reformers to build a culture of acceptance around the distributive outcomes of market processes. In order for the market to thrive as the unimpeded engine of growth, the redistributive functions of the state must be carved back radically. In order for this to occur, individuals and households must be induced to take responsibility for their own welfare and security. In addition, other than the 'natural' intra-family dependency of children upon parents and women upon male providers, dependency must be denigrated and pathologized. This requires not simply that the market actor be enshrined as the universal social citizen and that the market be figured as the primary locus of the exercise of individual freedom. In addition, the worker must be remodeled in the image of the entrepreneur and come to see himself as an autonomous market actor, stake his fortunes on market processes, and assume a preference for risk over security. In order for this to be successful, market outcomes must be seen as fundamentally just and legitimate, rewarding merit and effort. This in turn requires that market rules and institutions be characterized as neutral in respect of the powers and interests of different groups of actors. The value of reading Hayek and Roepke is that the political dimensions and social implications of these key neoliberal policies are right out front. In their analyses, we can see clearly the ways in which freedom is contrasted with security and solidarity, while efficiency claims prevail over equality in the normative order, only to be justified by aggregate increases in human progress and welfare in the long run. In this way, these writings provide both an introduction to the characteristic values and preoccupations of market reformers and an elaboration of the rhetorical devices and economic arguments through which the privileging of these values occurs.

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Theoretical Antecedents of Neoliberalism

3.2 Public Choice Theory One of the most pervasive assumptions in contemporary development policies is that the market is the most efficient mechanism for allocating social resources. However, it has long been recognized that such claims are dependent upon the absence of externalities and transaction costs and the presence of perfect information as well as mobility and complete markets for all factors of production.73 It is uncontroversial that the presence of some, many or all of these conditions provides at least a theoretical case for an "intervention" on the part of the state. Because transaction costs, information deficiencies and incomplete markets are pervasive rather than exceptional, the conditions under which pure market solutions are optimally efficient rarely obtain in practice. Consequently, correcting market inefficiencies through various mechanisms, including state regulation, would appear to be crucial to arguments about the superiority of market allocation of resources. To understand how such a conclusion is avoided in neoliberal policy, it is necessary to examine the role of another key tenet of neoliberalism, which is the necessity of a modest, defined and circumscribed state. Despite caveats about the importance of the state to the functioning of the market and the necessity of state engagement in the "right" activities, debates on economic policy and restructuring are riddled with references to the omnipresent possibility of "government failure" and skepticism about the value and possibilities of effective state intervention in the economy. In neoliberal literature, there is a presumption, particularly with respect to regulation and industrial policy, that either the state is liable to "get it wrong" or that the cure may be worse than the disease.74 Consequently, the specter of the failing, inefficient state looms throughout, a source of permanent constraint on action to redress market failure or to achieve distributive goals, even where action might otherwise be regarded as desirable. These limitations are only enhanced by the concern over corruption and lack of transparency and accountability in many developing and transitional states.75 Arguments about the dangers of state solutions to market or social prob73

R. Coase, "The Problem of Social Cost", 3 Journal of Law and Economics 1 (1960). For example, it is a common claim in neoliberal theory and an argument against industrial policy that governments are bad at "picking winners". 75 For a discussion of these themes, see World Bank, The State in a Changing World, supra note 47. 74

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Kerry Rittich lems are stock elements of best practice arguments. There are constant observations and warnings about corruption, the inefficiencies of state agencies and the power of special interests in the ongoing narrative of non- or under-development. Similarly, the welfare state, excessive taxation and redistribution are figured as drags on economic growth. Enter public choice. Public choice is the field in which the issues of government failure and regulatory capture have been theorized most directly and accounted for as institutional and political phenomena. Through the analysis of the incentives facing individuals and the presumption of self-interested action, public choice theory purports to explain the behavior of the state and public officials and, in particular, the divergence between the stated purposes and the apparent results of state intervention.76 In this way, public choice, as a theory of "government failure",77 provides the rationale for restraint in state action which is the complement and necessary counterpart to arguments about market efficiency and the superiority of the private to the public in the complete neoliberal theory of the market. Public choice theorists analyze the state deploying the same construct used in neoclassical analysis of the market, that is, homo economics, the self-interested actor rationally pursuing and maximizing his objectives. Public choice thus extends neoclassical economic methodology to the public sphere, on the basis that the same people populate both arenas.78 Public choice theorists see themselves as operating in the social contract tradition, which they understand to be concerned with the following questions: Can the existing organization of the state be explained in terms of rational calculation by individuals? Can a logic of collective action be derived from analysis of individual choice? Public choice theory thus brings methodological individualism into the analysis of the state, focusing on the incentives facing the individual in the process of 76 "The interest group theory of government is based on the idea that there is a sizeable gap between standard economic rationalizations for state interventions in the economy and the actual properties of specific instances of state intervention". Robert D. Tollison, "Rent Seeking: A Survey", 35 Kyklos 575 (1982), 588. 77 James Buchanan, "Politics Without Romance: A Sketch of Positive Public Choice Theory and Its Normative Implications", James Buchanan and Robert Tollison, eds., The Theory of Public Choice-tt (Ann Arbor, MI: University of Michigan, 1984), 11. 78 James Buchanan, "Toward Analysis of Closed Behavioural Systems", James Buchanan and Robert Tollison, eds., The Theory of Public Choice-II, supra note 77, at 12.

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Theoretical Antecedents of Neoliberalism political decision-making and the calculus by which such decisions are made.79 In public choice, "all theorizing...is resolved finally into considerations faced by the individual person as decision-maker".80 However, there is an important distinction in the effects of self-interested action in the public and private spheres. While the self-interested actor in the market is to be encouraged, "unleashed" in the terminology of neoliberalism, because of the unintended beneficial effects which his actions create for all, public choice theory posits that the self-interested actor in the public sphere generates inefficiencies and welfare losses.81 The state in public choice theory is modelled on Hayek's notion of catallaxy or spontaneous order and coordination. It is populated with actors pursuing their respective objectives within a voluntary exchange or market model.82 Political processes and regulatory reform are imagined as exercises in barter and complex exchange, involving self-interest and gains from trade on the basis of voluntary agreement. Much public choice theory is devoted to the exploration of rent-seeking,83 defined as "the resource-wasting activities of individuals in seeking transfers of wealth through the aegis of the state".84 Rent-seeking is the institutional process by which individuals, in attempting to maximize their interests, generate net social welfare losses or waste, defined in terms of wealth or aggregate output, rather than surplus. In the broadest sense, rent-seeking encompasses all of the ways in which

79

James Buchanan and Gordon Tullock, The Calculus of Consent, Logical Foundations of Constitutional Democracy (Ann Arbor, MI: University of Michigan Press, 1962), 312 80 W, at 315. 81 "A paramount difference between politics and the market consists of the different constraints that confront self-interested actors in the two cases. ...Behaviuor will differ in the two cases, not because the objectives of behaviour are different, but because constraints on behaviour are different". Robert D. Tollison, "Rent Seeking: A Survey", supra note 76, at 588589. 82 James M. Buchanan, Liberty, Market and State (New York: New York University Press, 1986), 20-21. 83 The terms "rent" and "rent-seeking" are used in ways in public choice theory which should be distinguished from the traditional Ricardian or Marshallian concept of rent, which is a return to a factor of production over and above the amount required to induce its offering onto the market. See William S. Baumol and Alan S. Blinder, Economics: Principles and Policy, 6th ed., (Fort Worth: Dryden, 1994), 376. 84 James Buchanan, Robert Tollison and Gordon Tullock, eds., Toward a Theory of the Rent-Seeking Society (College Station: Texas A & M University, 1980), ix.

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Kerry Rittich advantage or monopoly power could be sought and obtained by groups or individuals through legal and regulatory change. While rent- and profit-seeking are normal features of economic life in a market economy,85 public choice theorists distinguish "ordinary" rent-seeking from "artificial" rent-seeking: the rent-seeking that public choice theorists decry occurs when economic actors attempt to alter the regulatory or policy framework in which market transactions take place.86 One corollary to the postulates of rent- and interest-seeking is a skepticism that regulatory or state interventions could actually function in the public interest. This creates an anti-regulatory or deregulatory bias, along with a presumption against policy or regulation that is designed to further redistributive objectives. This anti-regulatory and anti-redistributive bias is based on the belief that, because of the manner in which policy and regulation is made, regulatory interventions are likely to reflect particular rather than general interests that will result in welfare losses to all. In the view of public choice theorists, the best way to limit rentseeking is to institute the sharpest possible separation of the market from political influences and processes and simply to limit government.87 There are two aspects to the public choice attack on rent-seeking. A central concern is the alleged waste involved in the activity itself of lobbying for policy or regulatory change. Much public choice literature is devoted to the opportunity costs and the presumed net social welfare losses that result when people expend productive energy on such activities. However, the attack on rent-seeking is also directed at the interventions or regulation that result from lobbying and interest seeking. For the belief that rent-seeking is socially wasteful and undesirable rests on the premise that regulations which merely alter the distribution of income or wealth without improving or, even worse, while actually reducing productivity or aggregate output, are per se welfare-reducing. In public choice theory, efficiency is the pre-eminent public value to be furthered while distributive considerations are inherently suspect bases upon which to regulate. Nonetheless, public choice theorists attempt to distinguish claims that individuals are motivated by self-interest from claims that self-interest should be the

85 86

87

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Robert D. Tollison, "Rent Seeking: A Survey", supra note 76, at 577. Id. Buchanan et al., Toward a Theory of the Rent-Seeking Society, supra note 84.

Theoretical Antecedents of Neoliberalism norm in political decision-making. Public choice theorists also concede that it is a matter of fact, to be determined contextually, whether the assumption of selfinterest is "realistic".88 This is the difference between individualism as a methodology and individualism as a norm for organizing society or individualism as an empirical fact.89 However, despite these qualifications, the assumption of selfinterested action plays a pivotal role in public choice theory, ostensibly serving an "empirical function" to enable comparative institutional analysis. In its most restrained and sophisticated form, the argument is couched in methodological rather than empirical or normative terms. Even if homo economicus is neither a relatively accurate image of man, as Stigler maintains,90 nor an accurate predictor of human behavior, which is the argument that Friedman advances,91 nor the type of person we might wish to cultivate, public choice theorists maintain that he is nonetheless an appropriate model by which to design institutions.92 The argument is that this assumption encourages the creation of structures by which to translate and turn private interest in the direction of public welfare;93 this is something that can only be regarded as desirable. However, whether the strong or more modest version is advanced, and whether or not the self-interested man is thought to be ultimately sustainable, the effect is largely the same: the postulates of rent- and interest-seeking become installed as the primary feature of the political landscape and function to influence institutional and policy design. Rejecting the image of the state as the "benevolent despot", public choice theorists are deeply skeptical of the idea that the state could be plausibly imagined as either embodying or pursuing the common or general interest. This is because the self-interest of legislators diverges from the public interest, while that of

88

Id., at 312.

89

Id., at 315. G. Stigler, "The Economist as Preacher", Tanner Lectures, Harvard University, April, 1980. 91 M. Friedman, "The Methodology of Positive Economics" (1953). 92 Geoffrey Brennan and James M. Buchanan, "The Normative Purpose of Economic 'Science': Rediscovery on an Eighteenth-Century Method", in The Theory of Public Choice - II, supra note 77, at 382, 386. 93 Id., at 389. 90

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Kerry Rittich bureaucrats diverges from both the legislators and the public. It is not surprising then that the state does not figure as a possible locus of positive social change. There are both normative and positive elements at work in the anti-state position. First, public choice theorists share the libertarian normative stance against coercion. One public choice theorist describes it in the following way: "The person who shares this perspective places a primary value on liberty, as such. He personally disputes, rejects, resents, opposes attempts by others to extend control or power over his own choice behaviour. He does not like the harness. There is an exhilaration in simply being free".94

Second, public choice theory begins with assertions about the deficiencies of the state. For public choice theorists, the failure of governments is the fact to be explained, not a thesis to be interrogated, and incursions of the state into areas which are illegitimate a self-evident truth. "Governments are viewed as exploiters of the citizenry, rather than the means through which the citizenry secures for itself goods and services that can best be provided jointly or collectively. Both the modern analysis and the observed empirical record suggests that governments have, indeed, got out of hand."95

Public choice theorists also challenge monolithic models of the state, whether liberal, organic or Marxian,96 sharing with many other contemporary and critical theories an image of the state as a complex, decentered and fragmented entity. However, unlike other theories which attempt to incorporate or model decentered decision-making and conflict among different actors into the account of the processes of political institutions and rule-making, public choice does not attempt to account for power imbalances between private actors and their role in the outcome of political processes.97 In public choice theory, the analysis of power is limited to that exercised by the state. The threat of its abuse comes from the state, not private actors; coercion

94

"Liberty, Market and State" in James M. Buchanan, Liberty, Market and the State, supra note 82, at 3, 4. 95 Buchanan, "Politics Without Romance: A Sketch of Positive Public Choice Theory and Its Normative Implications" supra note 77, at 19. 96 Buchanan and Tullock, The Calculus of Consent, supra note 79, at 12. 97 Buchanan, Liberty, Market and State, supra note 82.

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Theoretical Antecedents of Neoliberalism emanates from the state through regulation and the administrative agencies not from the power of private actors. Regulations such as the Occupational Health and Safety Act and the Environmental Protection Act are cited as examples of the "arbitrary" regulation of economic affairs.98 It is taken simply as a given that detailed, specific regulation will raise the cost of production and harm growth" and that enormous amounts of static inefficiency are the consequence of governmentcreated monopolies and restrictive regulations.100 Laws should accordingly have broad, general coverage in order to decrease rent-seeking and inefficiency.101 Paralleling public choice, assertions of the widespread failure of the state are one of the most powerful themes in neoliberal theory.102 Even where states have done a good job in the past, it is strongly suggested that old successes may not count in the new economy, and that the path of the welfare state, even where it has arguably worked, is no longer a viable option. As in public choice theory, powerful assertions are made about the role of self-interested actors in the state sphere. These assumptions are treated as self-evident and non-problematic; conclusions are then drawn which become translated into certain stances toward regulation and public policy. Neoliberals frequently suggest that regulatory and policy initiatives are likely to emanate from "special interest groups". That is, they represent attempts to preserve vested interests or carve out a favorable niche or set of advantages which will work against the general public interest. This conclusion comports with the presumption that runs throughout neoliberal theory and practice, which is that state action will tend to detract from, rather than add to, the general welfare. However, this identification of regulation or policy intervention with special or particular interests also allows those who might resist deregulation, privatization and market reforms to be depicted as marginal and a threat to the public interest.

98 Gordon Tullock, "The Backward Society: Static Inefficiency, Rent Seeking, and the Rule of Law" in James Buchanan and Robert Tollison, eds., The Theory of Public Choice-II, supra note 77, at 224,225. 99 Id. 100 Id., at 235. 101 W, at 235. 102 The World Bank's 1997 World Development Report, for example, begins by positing the failure of the state and its eclipse by the market in both developing and industrialized states See The State in a Changing World, supra note 47.

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Kerry Rittich In other words, the presumption of self-interested action in the public sphere is a way of deflecting debate over the content of the regulations, and by extension, the content of the "unregulated" market. As with public choice theory, the remedy for these defects is to avoid regulation, minimize the opportunities for capture and to design institutional mechanisms so that the incentives to seek private advantage are removed.103 The major strategy and policy proposal is downsizing the state; state agencies are encouraged to divest themselves of functions that the market might perform, for example, by contracting out services traditionally provided by the state,104 adopting a "marketfriendly" orientation and supporting rather than impeding private ventures. Finally, states should emulate the market as much as possible: state agencies are advised to make their own operations accountable to market forces, engage in competitive service provision with the private sector, institute market mechanisms internally, and create economic incentives for employees.105 The influence of public choice theory seems particularly evident in the continual concern expressed over the possibility of "arbitrary" state action and the opportunities that state power creates for corruption and the pursuit of particular rather than the general interest.106 However, the nature of that "arbitrariness" is often not clearly defined; as a result, it is not explained how arbitrary is to be distinguished from non-arbitrary state action. Instead, such claims seem indistinguishable from regulatory or policy initiatives that are simply regarded as undesirable.107 Concerns about state capture are particularly visible in the design of social policy; indeed, in this area, there are explicit references to the influence of public choice theory.108 Most significant here is the way that the acceptance of a particular set of expectations about the process comes to powerfully drive the arguments about the substance or content of reforms. Because of the presumption that rentand interest-seeking are at work, all efforts to redistribute or regulate tend to 103

Id. Id., at 26-28. 105 Id. 106 7
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Theoretical Antecedents of Neoliberalism become characterized as attempts at "capture" by special or particular interests and thereby delegitimated. For example, those who work on issues of social policy express concerns that attempts to redistribute through income transfers will in the end largely benefit the more powerful because of an inevitable process of legislative and regulatory capture by those who are typically more politically savvy and organized. While there are powerful arguments which row in the other direction,109 arguments about the need to severely limit benefits and transfers become much more plausible and persuasive when the process is presented as one of inevitable middle class capture, rather than desirable improvement in social welfare. Public choice, in other words, provides a theory about how social policy is destined to fail, no matter how it is motivated.110 A similar line of argumentation - the inevitability of capture of state institutions leading to the advancement of particular rather than general interests, supplemented by presumptions of incompetence on the part of the state - structures the neoliberal stance toward industrial policy. There too, attempts to direct the allocation of productive resources will inevitably prove to cost more than they are worth. In addition, they are perfectly designed to induce corruption and cronyism. In both cases, the policy outcome is the same: let the market function unimpeded by any objectives other than furthering market processes. One question which arises is how the assumptions of self-interested behavior by public officials and welfare declines through state action operate in neoliberalism. On what basis are self-interested behavior and the attendant welfare losses in fact established? How do neoliberals come to accept this account as a persuasive description of the functioning of the state, more plausible than competing explana-

tions? Here, economic analysis based on the presumption that actors behave as selfinterested, rational maximizers appears to provide the starting point. It seems likely that the acceptance of these presumptions with respect to the operation of markets has a conditioning effect, predisposing the architects of reform to accept a methodologically similar analysis of the operation of the public sphere. Simple empiricism functions to reinforce the plausibility of these arguments, providing the 109

See for example the essays in Dominique van de Walle and Kimberley Nead, Public Spending and the Poor Theory and Evidence (Washington and London: Johns Hopkins Press, 1995). 110 For an analysis of the history of these arguments, see Albert O. Hirschman, The Rhetoric of Reaction:perversity, futility, jeopardy (Cambridge, MA: Belknap, 1991).

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Kerry Rittich pragmatic element to ground the translation from theory into practice. The process seems to work as follows. If the same assumptions are applied to individuals in the realm of the state as are accepted in the context of the market, certain types of political phenomena become explicable. Simple observation in both established and developing economies, it is asserted, establishes that there is a lot of "government failure" as well as rent-seeking and other forms of self-interested behavior occurring among individuals and groups in the sphere of the state. Who could disagree? From there, the move to policy prescription and institutional design based on the presumption of self-interested action is but a short and obvious step. It need only be accepted that, as rent-seeking seems to go on everywhere, it must be an intractable or inherent part of human nature. Indeed, just as it does for the market, the pursuit of self-interest may provide the best model for understanding the operation of the state. The result is best practice solutions based on less state, more market. While neoliberal reforms to the state can be described in empirical terms, libertarian and public choice analysis undoubtedly provides useful theoretical scaffolding to the project. The endpoint for both libertarian theorists such as Hayek and Roepke and public choice theorists concerned about rent-seeking is a deep distrust of the state and the operation of democratic processes. Both disclose a concern to protect private liberty from the incursions of politics. To reiterate, in the view of Hayek, it is liberty rather than democracy that is the primary value to be protected. For at least one public choice theorist, it is the prospect of constraint itself that is troubling. Both schools of analysis are also skeptical of efforts to engage in redistribution through the state; in both, images of law and regulation are deployed or relied upon to explain their positions. For Hayek, the effort at redistribution itself is illegitimate. Central to his analysis is a defence of the distributive outcomes of formally neutral rules. In his view, justice and the public good must be determined not by the status of particular groups, but by the conditions under which human action takes place. Indeed, there is a conflict between freedom, the ideal he valorizes, and distributive justice. For public choice theorists too, redistributive projects are suspect, as they likely to represent capture of state processes and institutions by special interests at the expense of the general interest. Both presume that there is a set of legal rules - private law rules as opposed to regulatory interventions - that do not attract the complaints about incursions

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Theoretical Antecedents of Neoliberalism into freedom and illegitimate intervention on the part of the state. Rather they represent freedom and the protection of private rights. For Hayek and Roepke, the relevant division is clearly between "law" and "legislation". Although not as evident in public choice literature, public choice theorists too necessarily posit a domain of law that lies beyond the state and remains insulated from political conflicts and the operation of special interests. The desire to contain the reach of democratic decision-making is pervasive in neoliberal literature; for example, it is clear that the design of markets is not regarded as something that can be safely left to democratic processes. Echoing Roepke, reformers advocate the strongest possible separation of economics and politics. While the argument is frequently couched in instrumental terms - the entry of politics into markets will impede desired growth - it is also defended as a matter of the rule of law and the protection of investor rights. Law is the mechanism to separate economics from politics: rules of general validity and unimpeachable value are contrasted with rules of lesser pedigree that are impure and deeply political in origin. Reforms are also defended in political terms; particularly in the context of transition, reformers are clearly concerned to prevent as much as possible any return to the old regime. As discussed in chapter 2, distinctions between law and regulation, private rights and state intervention, are heavily relied upon in such arguments. It seems likely that such claims gain some of their persuasive power because of their resonance with parallel arguments and positions in libertarian theory and public choice analysis. Libertarian thought and public choice provides an answer as to why limiting the reach of democracy at least in the realm of the economy is a good thing.

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4. LAW AND DISTRIBUTION IN THE MARKET: A POST-REALIST VIEW

E

mbedded in the neoliberal narrative about the regulatory and institutional reforms needed to construct markets is a set of propositions and assumptions about the nature of law as a social practice, the types of laws that are appropriate to market societies, and the manner in which those laws operate. These propositions and assumptions about law provide a complex, interrelated set of supports to the claims that continually thread their way through neoliberal policy and regulatory debates. They can be summarized briefly as follows. Market economies must be organized around a known and stable set of laws based upon the protection of property and contract rights; further rules and regulations are permitted to the degree that they demonstrably further efficiency. Properly designed by experts, implemented and enforced, these legal rules will function in predictable ways to spur investment and transactions, foster economic growth and ensure that economic activity remains insulated from political considerations. In general, legal regulation should not be used to further distributive concerns or to respond to the demands of special interests. Such efforts distort the optimal operation of markets, interfere with efficiency and ultimately impair growth. In order to evaluate these claims, it is helpful to make the assumptions upon which they rest explicit. This chapter will consider the nature of the legal claims in 127

Kerry Rittich neoliberal reforms and contrast them with a set of counter-theses about the operation of legal rules derived from realist and post-realist scholarship in American law. What emerges from the exercise is that neoliberal reforms are justified on the basis of a series of propositions about law that has long been contested, if not discredited entirely, in legal analysis itself. From the standpoint of postrealist analysis, neoliberal legalism appears riddled with deeply misleading claims about, for example, the nature of property rights and the operation of legal rules in practice. For a number of reasons, realist and post-realist scholarship is particularly useful for assessing the distributive consequences of market reforms. First, it makes clear the connection between legal rules and the allocation of resources and power to different groups. Second, it indicates the role of law in constituting social and economic relations rather than in merely "regulating" them. Third, it provides a rich source of material with which to explore the concepts, argumentative structures and rhetorical moves by which reforms are justified and their effects normalized and naturalized. Although the constellation in which they now appear is novel, the propositions about law that are advanced within market reform proposals are not themselves new, nor are the debates over the social and distributive consequences of market rules unprecedented. Rather, similar arguments and concerns have surfaced before in recognizable form. Indeed, there are distinct parallels in the social context and the political concerns which gave rise to realist analysis and which continued to fuel some strands of post-realist critique, and the concerns which motivate reflection on the structure and direction of contemporary market reforms. These include debates over the place of markets in social and political life, struggles over the distribution of the gains of economic activity, and controversy over the conflict between the protection of property and contract rights and the use of law in the pursuit of progressive social transformation. The relationship between law and economic power has been explored in American legal scholarship at least since the work of the progressive and realist scholars and sociological jurisprudes.1 It began at the turn of the last century, 1 For further discussion, see G. Alexander, Commodity and Propriety: Competing Visions of Property in American Legal Thought, 1776-1970 (Chicago: University of Chicago Press, 1997); M. Horwitz, The Transformation of American Law, 1870-1960: The Crisis of Orthodoxy (New York: Oxford University Press, 1992).

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Law and Distribution in the Market during a period of rime rivalling the present in turbulence and contestation over the nature and direction of economic transformation. Among the central objects of attention in realist and post-realist scholarship is the idea of law as a scientific practice and an autonomous discipline, one divorced from the influence and concerns of policy and politics. However, there are myriad other themes explored in this literature that are salient in current debates around economic restructuring. They include: the role of the state in constituting private power; the relationship between the public and private spheres; the coercive nature of private law rules and the ideological function of legal norms. The pertinence of this analysis to current debates around global economic governance seems clear. As one scholar observed, "a major goal of the legal realists was to undermine laisse^faire ideology by attacking the idea of a self-regulating market system based on free contract, which operated largely outside state influence and control".2 In their analysis of the legal foundations of markets and the nature of adjudication, legal realists disrupted existing understandings of property and contract, the public versus the private, and freedom and constraint, in the process revolutionizing conventional understanding of legal rights and law's relation to market power. The outcome was a fading and discrediting of once-reigning conceptions such as law as a process of deduction from principles which remains autonomous from questions of distribution, policy or politics. As a result, it has been said about American legal scholarship that "we are all realists now".3 What is meant by this is that realism has indelibly marked mainstream approaches to legal analysis and fundamentally transformed what we think of as persuasive argument about law. Realism's ongoing influence in American legal scholarship can certainly be traced in schools as diverse as legal process, law and economics and critical legal studies. Yet in the context of debates around economic restructuring, such optimism about the legacy of realism appears to be overstated; within contemporary law and development discourse, key realist insights are in abeyance. Formalist approaches to law abound in neoliberal discussions of law and the state. Institutional and policy debates are often conducted in conceptualist terms, and the rhetoric of technocracy and the rationality and autonomy of law from politics is everywhere to be found. 2

Joe Singer, "Legal Realism Now", 76 California L. Rev. 465 (1988), 477.

3

Id.

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Kerry Rittich What follows is a description of the assumptions that infuse neoliberal claims about law. This in turn is followed by a brief review of realist and post-realist scholarship analysis of the structure and doctrine of economic rules in the market place. The aim is to recuperate some of the insights generated in this scholarship to reflect on neoliberal claims about the role of law in the governance of markets. As the realist and post-realist scholarship analysis discloses, many of the dominant assumptions about the legal requirements of markets within current development and economic restructuring cannot easily be maintained as they are commonly presented. Instead, they are better understood as deeply contested arguments with powerful counterclaims. These counterclaims, moreover, go directly to the distributional implications of market reform that have been suppressed in the course of the debate around reform and restructuring. To prefigure part of the conclusion, what a post-realist analysis reveals is that the focus on the efficiency of the regulatory structure obscures an appreciation of the distributive dimensions of legal regulation and institutional design of markets. The effect is not only a displacement of distributional concerns from the legal to the political sphere, but their continual deferral to some future moment in time. It is tempting, and common, to conclude from neoliberal prescriptions about law that there are no distributive properties in the resulting "efficient" markets. However, the following analysis suggests how, despite the attempts to deflect such concerns from discussions about markets, the matrix of legal rules that both constitutes markets and governs the transactions within them operates to distribute resources and powers to various groups and actors in particular ways. The relevant question therefore is not whether distributive concerns should be taken into account, but rather how they play out in the process of market reform. The realist analysis also suggests why, to the extent that equity and distributive outcomes are a concern in the context of development and market restructuring, these rules should be a central site of attention and analysis. For it is through market transactions that the initial distribution of the income generated by productive activity occurs. Whatever redistribution of that wealth takes place via other means, what occurs in the market is an important determinant of the welfare and status of different groups under this mode of economic development and restructuring.

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Law and Distribution in the Market

4.1 Neoliberal Legalism The most basic, and arguably the most significant, assumption about law in contemporary development and market reform and restructuring policy is that the move to markets implies the adoption of a relatively closed list of laws and institutions. There is a body of known, fixed "good laws" that furthers development in a globally integrated economy; legal reform means simply adopting such rules and harmonizing legal regimes so that they are compatible with dominant legal norms and institutions. The second assumption is that such rules constitute the economy as a "free market" in two senses. Such rules are neutral in their effects and create a level playing field in which fair bargaining over market transactions can occur. Indeed, the resulting "deregulated" markets provide a neutral and just context in which all can presumptively expect to thrive, as long as they make the requisite effort. However, they also create an economic space that is free from the coercion, constraint and control of the state. Closely related is the assumption that such legal rules provide a depoliticized framework for economic activity within which market actors freely engage in transactions of mutual benefit. They are universal in their applicability rather than specific to particular cultures, times or places, and they are uncontroversial as to the interests and values they promote. Neoliberal legal reform is thus a fundamentally apolitical exercise and represents the best route to the pursuit of greater human freedom and welfare. Yet another assumption is that the protection of property and securing contract rights is itself self-explanatory and straightforward. If properly implemented, such rights function in predictable and determinate ways and can be relied upon to promote growth and gains to welfare. Legal reforms are concerned solely with efficiency rather than distribution or equity. Desirable laws create incentives to economic activity, which is the appropriate focus of market design. For this reason, market reform is a largely technical or professional rather than a democratic, popular, interest-based enterprise. Finally, the preferred legal rules do actually protect the market and the economy from the state, and can be distinguished from regulations which represent state interventions in economic activity and the introduction of political issues or "special interests" into markets.

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4.2 A Post-realist View of Law and the State While neoliberal policy represents the rules that are required to constitute market economies and successfully compete in a globally integrated economy as known and fixed, it is relatively uncontroversial to observe that markets operate within and are a product of historically varied and contested systems of rules. This is as true of the model free market economy in neoliberal theory - the United States - as any other. Rather than a stable, settled or obvious structure, the rules that govern economic transactions are an ongoing project and a site of endless confrontation and struggle among different groups. There are, moreover, significant differences in the rules which obtain in market societies, both among contemporary states and within them over time. In short, there is no single template for the legal structure of market societies; instead, there is immense variety and choice. In the discourse of neoliberal market reform, legal rights are represented as the mechanism for holding the state at bay. They empower individuals and create a zone of autonomy for private action. However, legal rights also create differential obligations among private parties. It has long been noted that the recognition of a right in one party entails a correlative duty, "no right", disability or liability in another.4 Thus, legal rights may alter relations among individuals as well, advantaging some and disadvantaging others, depending on how they are designed and which rights are recognized. The existence of private rights does not mean that all parties will be equally well off, or that all valid and important social interests will be legally protected. Market reform prescriptions proceed upon the basis that property and contract are determinate legal constructs and that what is entailed in enforcing and protecting such rights is uncontroversial. However, among the insights of the legal realists was the realization that legal and economic constructs such as "private property" and "freedom of contract" are not self-executing,5 nor is their content 4

Wesley Hohfeld, "Some Fundamental Legal Conceptions as Applied in Judicial Reasoning", 23 Yale Law Journal 28 (1913). 5

Among the classics of this literature are works by Morris Cohen, "The Basis of Contract", 46 Harvard Law Rev. 553 (1933); Morris Cohen, "Property and Sovereignty", 13 Cornell Law Q. 8 (1927); Wesley Hohfeld, "Some Fundamental Legal Conceptions as Applied in Judicial Reasoning", supra note 4; Felix Cohen, "Transcendental Nonsense and the Functional Approach", 35 Columbia Law Review 809 (1935); Robert Hale, "Coercion and Distribution in a

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Law and Distribution in the Market self-evident. In and of themselves, they do not generate any necessary or particular body of legal doctrines and policies, nor do they imply determinate outcomes in specific cases. Still less do they dispose of the matter of the weight to be given to competing values and interests as a matter of general policy. Rather, they are open concepts, replete with internal puzzles, many of which can only be resolved by resort to values and policies which are external to the law. The legal regulation of property and the resolution of contract and property disputes entail inevitable ideological and distributional choices. Between the legal concept and its material realization, there are interminable, unavoidable decisions, many of which can only be made by resorting to open consideration of the conflicting paths that are available. This intractable demand for choice at every turn is one way to account for the broad-ranging variation in the structure of private rights that characterizes the legal regimes of market societies.6 It also accounts for the fact that law does not provide closure to ideological disputes and political conflicts. Instead, law becomes an important arena in which such disputes are played out. Whether at the stage of law reform or adjudication, law is not the antithesis or antidote to politics but the vehicle for the pursuit of political projects and social visions. The realists concluded that property was properly conceptualized as a bundle of infinitely divisible rights governing the relations between persons with respect to things.7 In the process, the classical Blackstonian ideal of property as a complete set of powers of disposition, use and alienation was revealed to be but one subset of any number of possible configurations of property relations. Once this is established, the assertion of a property right becomes merely the

Supposedly Non-Coercive State", 38 Political Science Quarterly 470 (1923); Robert Hale, "Bargaining, Duress and Economic Liberty", 43 Columbia Law Rev. 605 (1943). See also: W. Fisher, et al., American Legal Realism (New York: Oxford University Press, 1993); J. Singer, "The Legal Rights Debate in Analytical Jurisprudence from Bentham to Hohfeld", 1982 Wisconsin Law Review 975 (1982); J. Singer, "Legal Realism Now", supra note 2. 6

The evolution in American private law rules in the course of industrial development in the 19th and early 20th centuries is discussed in: M. Honvitz, The Transformation of American Law, 1780-1860 (Cambridge, MA: Harvard University Press, 1977) and M. Horwitz, The Transformation of American Law, 1870-1960: The Crisis in Legal Orthodoxy, supra note 1. 7

For a discussion of the evolution in conceptions of property, see K. Vandevelde, "The New Property of the Nineteenth Century: The Development of the Modern Concept of Property", 29 Buffalo Law Rev. 325 (1980) and Thomas C. Grey, "The Disintegration of Property", J. Roland Pennock and John W. Chapman, eds., Property, Nomos XXII (New York: New York University Press, 1980), 69.

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Kerry Rittich starting point to the real inquiry, rather than a statement of a set of determinate interests and values that should be legally recognized. The pertinent questions are, what property interest? For whom? Subject to what limits? The field of contract underwent a similar deconstruction, as it became apparent that nothing in the principle of freedom of contract itself determines the limits of contract, the conditions of valid contract formation, the types of fraud or nature of coercion that vitiate consent, the circumstances that courts will find excuse performance or the types of remedies which are available for breach. It is the answers to these questions that give substance to the idea of contract and ultimately determine the value of the contract and the powers that contracting parties actually bear. Contract, in essence, is a promise that courts are prepared to enforce; far from private, the inevitable decisions concerning enforcement make contract very much a public venture.8 An important figure in the analysis of economic transactions was Robert Hale. The specific contribution of Hale to realist thought was twofold. First, Hale identified the inseparability of legal and economic power and second, he recognized the omnipresence of coercion and constraint in economic life. The insights have profound implications for claims about the neutrality of legal rules.9 Hale observed that private law rules are the mechanism by which market actors are both endowed with powers and burdened with prohibitions and constraints. These rules of property, contract and tort are the framework in which bargains are struck and conflict between different economic actors and social groups is played out. The particular legal structure operating in the market at least partly determines a range of factors from the value of assets to the relative bargaining power of various actors. The recognition, transformation and reordering of rights and entitlements function to empower and disempower market actors, and thus different social groups such as workers and capital holders, in material ways, and are an important constitutive element in any settlement of the gains of productive activity. The shifts in power and resources that result from variations to those rules may generate profound distributional consequences. Despite the prevailing image of the 8

Morris Cohen, "The Basis of Contract", supra note 5. See Robert Hale, "Coercion and Distribution in a Supposedly Non-Coercive State", supra note 5; Robert Hale, "Bargaining, Duress and Economic Liberty", supra note 5; Robert Hale, Freedom Through Law: Public Contra/ of Private Governing Pouw (New York: Columbia University Press, 1952). 9

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Law and Distribution in the Market market as the locus of freedom and self-actualization and legal rights as the border protecting the zone of individual autonomy, Hale described the functioning of markets in a quite different way. In his analysis, economic activity is a process of mutual, unavoidable coercion in which the actions of players in the market continually impinge upon and constrain the freedom of others. An early, and crucial, realist claim was that the state plays a significant role, both initial and ongoing, in regulating the distribution of economic gains from market processes. This is because state is the guarantor of the "private" order of property and contract rights and the ultimate source of the regulatory underpinning to a complex market economy. It is necessarily and inevitably implicated in the enabling, support and maintenance of economic relations, through the recognition of particular interests, the failure to recognize others and the allocation of resources and power to various actors within the game. Moreover, the state may be no less present when it fails to act than when it visibly regulates.10 One reason is that the absence of a particular legal right may simply ratify the existing structure of powers, powers that may themselves be traceable to prior decisions of the state to recognize some entitlements rather than others. Alternatively, the absence of a particular entitlement, such as a labor regulation, may simply leave some other legal entitlement, for example the employer's property right, to govern the transaction. One result of the revelation of the role of the state in the exercise of private power is that a sharp boundary between the state and the market becomes incoherent and impossible to maintain. "Private" economic power operates necessarily through and with the exercise of public power. Every decision about private power implies a correlative role for the state and a series of implicit or explicit policy decisions about the resources and power to be granted to different social actors. The attack on formalism begun by the realists has been relentlessly extended, generalized and refined in one of its successor movements, critical legal studies. Much of this scholarship might be characterized as the progressive dismantling of the careful boundary drawing and typologizing that organized classical legal thought.11 Deploying genealogical methods, critical scholars have uncovered the 10

W. Hohfeld, "Some Fundamental Legal Conceptions as Applied in Judicial Reasoning", supra note 4. 11 See Duncan Kennedy, "Toward an Historical Understanding of Legal Consciousness: the Case of Classical Legal Thought in America, 1850-1940", 3 Research in Law and Society 3 (1980).

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Kerry Rittich histories of particular rights, traced the shifts in the power and position of different groups to which they are related, described the roads not taken, the sharp reversals at various turns and the complete redrawing and reconceptualization of legal fields over time.12 Among the enterprises undertaken by critical scholars is a critique of dominant approaches to the analysis of rights and an examination of the role of ideology in legal reasoning. Extending the implications of the realist analysis, taking steps that the realists themselves did not, critical scholars maintain that the effect of the radical openness and contingency of legal concepts and the revelation that they are unavailable as a retreat from policy and politics is to place the coherence of rights reasoning itself in jeopardy. Analyzing the various realist and post-realist projects such as interest-balancing, the turn to process and the use of efficiency, critical scholars maintain that in spite of these attempts to inject new forms of order, rationality and certainty into law, the adjudication of legal rights remains an arena of ideological contestation, a process that resists easy resolution through pragmatic reconstructive techniques. One of the concepts that has been most problemati2ed in the analysis of both the realists and critical scholars is the public/private distinction. Beginning with the realist insight that private power can be construed as a delegation of sovereignty,13 critical scholars have examined the ways in which the geography of the private is constituted by public rules and private power delimited by the public.14 The idea that the terms themselves either describe fixed social spaces or generate determinate solutions to legal disputes turns out to be chimerical. The endpoint is that it is no longer useful in many contexts to contrast public and private power.15 Instead, the inside is out, and the outside is in. The public and the private have collapsed

12

See for example Duncan Kennedy, "The Structure of Blackstone's Commentaries" 28 Buffalo Law Rev. 209 (1979); Karl Klare, "The Judicial Deradicalization of the Wagner Act and the Origins of Modern Legal Consciousness, 1937-1941", 62 Minn. Law Rev. 265 (1978). 13 M. Cohen, "Property and Sovereignty", supra note 5. 14 K. Klare, "The Public/Private Distinction in Labor Law", 130 U. Penn. Law Rev. 1358 (1982); M. Horwitz, "The History of the Public/Private Distinction", 130 U. Penn. Law Rev. 1423 (1982). 15 Karen Engle, "After the Collapse of the Public Private Distinction: Strategizing Women's Rights", Dorinda G. Dallmeyer, ed., Reconceiving Reality: Women and International Law (Washington, DC: American Society of International Law, 1993).

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Law and Distribution in the Market into each other; rather than separate, the public and the private are mutually constitutive. For example, even in such quintessentially "private" spheres as the family, the hand of the state can be discerned, not simply at the margins but at the very center, ordering relations and distributing power and resources in differential ways, for example between men and women and parents and children.16 Moreover, upon examination, "public" and "private" turn out to be shifting, relative terms which may apply to the same sphere at different times or in different contexts or vary depending on the question at issue. The market, for example, is normally thought to be private vis-a-vis the state, yet public with respect to the family.17 Because of these problems, the efforts at line drawing and categorization tend to be mere conclusions about the manner in which powers should be allocated and the rhetoric of public and private more likely to obfuscate than clarify the issues at hand. As a consequence, enormous pressure has been brought to bear on this mode of conceptualizing legal questions. One result of this collapse of the private into public is that it has become impossible to distinguish a "free" from a "regulated" market, or to maintain a tenable distinction between rights and regulation based on the presence or absence of the state. Moreover, the revelation of the role of the state in structuring private rights means that the basis on which to assert any priority of private rights as against regulatory interventions falls away. Rights do not come before regulation; rather regulation is a mode of creating and reconfiguring rights. The rules of the market may be sometimes distinguishable from each other in origin or form of adjudication or administration.18 However, it would simply be a mistake to regard the mere form of the legal rule as the basis upon which to determine either state interference with the market or the presence of policy and value choices. In recent years, through the rise of the law and economics movement, the idea that laws and regulations can and should be devised to conform with effi-

16

The classic exploration of this issue is Frances Olsen, "The Family and the Market: a study of ideology and legal reform", 96 Harvard Law Review 1497 (1983). 17

Id. For example, rules may be judge-made, administrative or legislative in origin. See Duncan Kennedy, "The Role of Law in Economic Thought: Essays on the Fetishism of Commodities", 34 Am. U. Law R. 939 (1985), 958-967. 18

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Kerry Rittich ciency, or even stronger, that certain legal rules simply instantiate efficiency,19 has gained increasing credence. This view is often linked to the position that other considerations, particularly equity and distributional considerations, should be extruded from the determination of legal rules and dealt with instead through such devices as taxation and transfer.20 Both of these theses are reflected and replicated in neoliberal policy, performing a crucial normative role with respect to the design of markets. To reiterate, in neoliberalism, efficiency is said to justify a particular institutional structure and to provide the basis for the particular state "interventions", as regulations are justified primarily on the basis of correcting market failures or externalities, that is to say, the inefficiencies of the market. As both its practitioners21 and its critics understand,22 law and economics can be described as one of the post-realist schools of legal thought. It is an overtly instrumental or consequential mode of analyzing legal entitlements.23 However, the installation of efficiency as the metric by which to adjudicate legal disputes and legislate entitlements suggests that, in law and economics, conceptualist reasoning has not disappeared but has rather been displaced. Moreover, attempts to determine the structure of legal entitlements and resolve policy questions through apparently technical devices such as efficiency continue to raise problems of legitimacy, determinacy and closure. There are a number of fundamental problems with the assertion that an optimal set of legal rules can be derived through reliance upon efficiency alone.24 The 19 Richard Posner, for example, has maintained that the common law has evolved in response to concerns about efficiency and can be understood as an efficient legal code. See, R Posner, Economic Analysis of Law, 4th ed. (Boston: Little, Brown, 1992). 20 Louis Kaplow and Steven Shavell, "Why the Legal System is Less Efficient than the Income Tax in Redistributing Income", 23 J. of Legal Studies 667 (1995). 21 Richard Posner, "The Decline of Law as an Autonomous Discipline": 1962-1987", 100 Harvard Law Rev. 761 (1987). 22 Gary Minda, "The Law and Economics and Critical Legal Studies Movements in American Law", Nicholas Mercuro, ed., Law and Economics (Boston: Kluwer Academic, 1989), 87. 23 See J. Singer, "Legal Realism Now", supra note 2. 24 See M. Kelman, A Guide to Critical Legal Studies (Cambridge, MA: Harvard University Press, 1987); M. Kelman, "Misunderstanding Social Life: A critique of the Core Premises of Law and Economics", 33 J. of Legal Education 274 (1983); M. Kelman, "Consumption Theory, Production Theory, and Ideology in the Coase Theorem, 52 Southern Cal. Law Rev. 669 (1979); Mark Kelman, "Trashing", 36 Stanford Law Rev. 293 (1984); D. Kennedy, "The Role of Law in Economic Thought: Essays on the Fetishism of Commodities", supra note 18; D. Kennedy,

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Law and Distribution in the Market first is that the concept of efficiency is itself indeterminate. All arguments about efficiency turn out to rest not on rational maximization alone, but depend on additional circumstances and specifications that typically remain undisclosed. Agreement on these in turn require interpersonal utility comparisons, as well as the normative and political determinations that economic analysis purports to avoid. The most common unstated assumption or background condition is the acceptance of the pre-existing distribution of property and wealth. Another assumption is that the value that a person places on something can be determined by her willingness to pay not in any abstract sense, but as expressed through her ability to pay. Thus, efficiency determinations themselves turn out to depend on precisely what is in issue, the structure of entitlements. It is accepted among economists that what is efficient varies with the allocation of resources and distribution of income. Consequently, a variety of different legal regimes might be efficient, depending on the circumstances, and there is typically a range of solutions that would all meet the criterion of Pareto or KaldorHicks optimality.25 As is indicated by the realist analysis, the value of resources and the distribution of income are themselves strongly influenced by the structure of legal entitlements. Efficiency analysis itself thus cannot function to specify any particular set of rights, except to the extent that it proceeds on the basis of some prior, assumed set of background legal rules. Such complications are commonly minimized or ignored.26 However, given the role of legal rules in allocating various types of economic, social and political capital, reliance on efficiency is neither necessarily benign nor devoid of values and political choices. This in turn brings us to the second prong of the critique. Efficiency is supposed to provide a criterion that, if not value free, is at least minimalist

"Cost-Benefit Analysis of Entitlement Problems: A Critique", 33 Stanford L. Rev. 387 (1981); D. Kennedy and F. Michelman, "Are Property and Contract Efficient?", 8 Hofstra Law Rev. 641 (1980). 25 Kaldor Hicks optimality is understood as a state in which the benefits to the winners are such as to enable them to compensate the losers. 26 There are however exceptions; some law and economics scholars explicitly acknowledge the distributive costs of the pursuit of efficiency-enhancing reforms, and make no claim that efficiency considerations are necessarily dispositive of all of the policy and regulatory questions involved. See for example Michael Trebilcock, Marsha Chandler and Robert Howse, Trade and Transitions: A Comparative Analysis of Adjustment Policies (London; New York: Routledge, 1990).

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Kerry Rittich in a way that no one could object to. The very attraction of efficiency-based rule determination is the claim that it is normatively uncontentious. However, if these determinations themselves proceed with respect to a submerged structure of rights and entidements, then the neutral role of efficiency in ordering economic relations is called into question. Proponents of efficiency analysis may admit these effects but at the same time seek to avoid their implications. For example, they may suggest in a pose of professional modesty or institutional deference that any alterations to the distribution of property or income are political questions that are the province of the legislature. To the extent that they do, the use of such strategies and techniques tends to render efficiency reasoning status quo reinforcing. An illustration of the problems that arise from proceeding on the basis of an assumed set of background rules arises in the context of debates about regulation. As we have seen, neoliberal theory sets up the case for regulatory intervention to correct for market externalities on efficiency grounds, yet counters that possibility in many instances with further arguments about the inefficiencies which would result from implementing such corrective regulation. Yet what such analyses of the externalities problem fail to incorporate is that externalities are not simply natural phenomena, but are produced by the rule structure in place. "Externalities [are] externalities only because there [is] no private law rule requiring the cost imposer to desist or to pay the victim, or requiring the beneficiary of an externality to pay the person who generated it".27 Nor, as Coase pointed out, is the question of externalities and injuries something that can be solved by reference to simple ideas of causation, as externalities are the result of the mutual operation of productive activities.28 Coase proposed that, absent transaction costs, an efficient outcome will result no matter how legal entidements are set, as parties will simply bargain and trade

27

Duncan Kennedy, "Law and Economics from the Perspective of Critical Legal Studies", Peter Newman, ed., The New Palgrave Dictionary of Economics and the Law (London: Macmillan Reference; New York, NY: Stockton Press, 1998). 28 The impossibility of relying on empirical arguments or the simple attribution of causation was set out in its classic form in R. Coase in "The Problem of Social Cost", 3 J. of Law and Economics 1 (1960). The issue has been further explored in G. Calabresi and D. Melamed, "Property Rules, Liability Rules, and Inalienability: One View of the Cathedral", 85 Harvard Law Review 1089 (1972). See also D. Kennedy, "Cost-Benefit Analysis of Entitlement Problems: A Critique", supra note 24.

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Law and Distribution in the Market entitlements among themselves.29 This argument has often been used to counter arguments about the need for state intervention in market processes. However, what is affected by the way that entitlements are set is the distribution of income between different parties. That is to say, even if in a transaction-cost-free world, efficiency were guaranteed no matter what the structure of entitlements, the initial position of the parties and their position at the outcome of the transition may be greatly affected by the bargaining chips that each brings to the table in the form of entitlements. This suggests that the most significant dimension of legal regulation might not be efficiency or wealth maximization per se, but rather the distributional effects generated by different legal regimes. As critical legal scholars have suggested, when both a rule and its opposite might be efficient, a judgment that one of the rules is efficient is a mode of covertly privileging the interests of one party for unstated political or ideological reasons.30 Moreover, such a claim may justify complacence or acquiescence, by making the existing social world seem both inevitable and beneficial.31 As discussed, a linchpin of neoliberal theory is the importance of private property rights to economic development and the dangers that can be expected from regulatory regimes that impair the most efficient use of property. However, missing from the equation is an analysis of the varied ways in which different groups might expect to benefit from any wealth that is generated. In addition, the contention about the connection between property rights and growth itself rests on a number of assumptions about the market economy that may be unsound a priori and untrue as an empirical matter. In an article comparing the effects of different property regimes, Kennedy and Michelman respond to the standard economic argument for private property, which is that reliance on selfinterest induces an aggregate increase in the production of wealth.32 They conclude that there is no a priori reason to conclude that regimes of private property are/XT se more value-producing than other modes of property holding such as the "state of nature" or regimes of forced sharing. The mere provision of property rights is not a sufficient inducement to wealth creation. The reason is that property rights will 29 30 31

32

See R. Coase, "The Problem of Social Cost", supra note 28. M. Kelman, A Guide to Critical Legal Studies, supra note 24, at 148. M, at 184. D. Kennedy and F. Michelman, "Are Property and Contract Efficient?", supra

note 24.

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Kerry Rittich both create and reduce uncertainty; some will be better off and others worse off, and people will ultimately make calculations based on their expected access to resources. Assumptions about the merits of private property which are grounded in simple assumptions about the motives of human behavior are also suspect, as people do not respond mechanically and predictably to the introduction of legal incentives. Instead, a range of normative structures is likely to affect the effort that people put into work. In any event, all regimes nominally based on private property and freedom of contract are in fact hybrids. They include elements of state of nature, such as commonses and other forms of collectively held goods, and forced sharing, such as taxation. This indicates that some "confection" of regimes is actually efficient in practice. Mark Kelman adds to this analysis the claim that the empirical evidence that private property in fact induces greater income than substitution effects is ambiguous at best.33 Moreover, it would be incorrect to identify any particular market as competitive based on the presence of factors such as a particular legal institutional regime.34 The theoretical justification here is just as inconclusive, and hence ideologically driven, as it is in the case for private property. To sum up, what is visible from a realist/post-realist standpoint (and missing from the neoliberal account of law) is the diversity of possible market forms and the wide variety of legal rules which are compatible with market societies. For this reason, the design of markets requkes interminable choices well beyond the mere decision to recognize property and enforce contract rights. These are choices which cannot be made without resort to a variety of normative and political considerations, however submerged they may be in the process. Second, there may be profound distributive implications in the choice among different legal rules, quite apart from the efficiency considerations involved. Different legal regimes are not neutral in their effects. Rather, legal rules endow parties with resources and powers which alternatively weaken or strengthen them in the context of economic bargaining. Third, there is no "free market" as such. There are only markets which subject actors to different forms of limits and constraints and recognize other liberties and powers. The question, to reiterate, is which constraints and powers to recog-

M. Kelman, ^4 Guide to Critical Legal Studies, supra note 24, at 156. M. Kelman, "Trashing", supra note 24.

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Law and Distribution in the Market nize and for whom. There are inevitable tradeoffs to be made and conflicts of interests to be resolved. Legal regulation is not necessarily or fundamentally different than the recognition of legal rights. One is not public, while the other is private. Rather both involve the considerations described above. For all these reasons, the boundary between law and politics remains fragile and porous. There is an unavoidable role for the state in determining which of the diverse possible private rights to recognize in a legal order. The protection of private rights is therefore a public and political matter. States and, to the extent that they are in a position to exercise influence or authority over them, other bodies such as international organizations are therefore implicated not merely in the regulation of economic affairs, but in the constitution of economic power and the fortunes and chances of different actors in the market. Legal rules function in cross-cutting and often far-reaching ways, and the effects of law reform extend far beyond efficiency; for this reason, it is inadequate to limit the analysis of law reforms efforts to their effects on efficiency. However, efficiency itself turns out to be an indeterminate foundation upon which to build legal orders. Indeed, efficiency determinations presuppose a particular set of legal rules. This is obviously problematic, especially in the context of transition.

4.3 Institutional Economics At first glance, it might seem as if the primary problem with the legal analysis in neoliberal reforms is its economistic focus and neglect of the social or cultural dimension of reforms. However, the quarrel is not with the economic analysis of law, or the conscious use of legal rules and reforms to generate economic outcomes. The legal analysts described above are, among other things, engaged in a critique of the economic reasoning deployed in the context of neoliberal reform projects. They are participants in internal economic debates about how best to understand the function and operation of legal rules within markets. Their objection is rather with the manner in which that analysis is conducted, the uses to which it is put and the values and dimensions of social and economic transformation that are masked in the process. There are, in fact, alternative economic analyses of the processes under consideration. Many of the insights of realists concerning the role of legal rules in

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Kerry Rittich economic activity, as well as the critique of efficiency developed by critical legal scholars, are reflected and taken up in the work of institutional economists such as Warren Samuels, Nicholas Mercuro and Steven Medema.35 Much of their work is specifically devoted to such questions as the role of law and the state in economic life, the distributional impact of economic rules and the submerged value choices that characterize mainstream economic thinking. Their analyses seem worth discussing here for two reasons. First, because they are methodologically indebted to the ideas of Hale36 and employ the paradigm of coercion and constraint to analyze economic transactions, they illustrate the ways in which realist and critical insights into the role of legal rules in market transactions could be incorporated into the analysis of economic reform and restructuring. This in turn suggests ways in which cross-disciplinary alliances, alternative to the traditional approaches to law and economics, could be forged between lawyers and economists. Second, they have used realist and critical methodologies and positions as a point from which to deconstruct some of the claims and concepts which are key to the integrity of neoliberal arguments, including rentseeking, the distinction between law and regulation and the benefits of deregulation. Hence, they are helpful to the overall project of analyzing the distributive and normative implications of the project. The broad outline of this approach to the role of the state and legal institutions in the economy is set out in a number of essays of Warren Samuels and can be summarized as follows. The state is intimately involved in the definition and creation of the economy; this role is continually obscured in an attempt to selectively channel this engagement. The crucial issue is almost always legal, that is, the changing interests which the state supports through law. Hence, it is important to think in terms of a "legal-economic nexus" - although the economy and the polity are typically comprehended independently, this conception is a distraction which masks the fact that the two are continually engaged in a process of mutual refor-

35

See Nicholas Mercuro and Steven G. Medema, Economics and the Law: From Posner to Post-Modernism (Princeton, N.J.: Princeton University Press, 1997); Warren J. Samuels, "The Economy as a System of Power and its Legal Bases: The Legal Economics of Robert Lee Hale", 27 U. of Miami Law Rev. 261 (1972); Warren J. Samuels, Essays on the Economic Role of Government, Volume 1: Fundamentals (Washington Square, NY: New York University Press, 1992). 36 Other important influences include Richard Ely, John Commons, Thorstein Veblen, Henry Carter Adams. See N. Mercuro and S. Medema, Economics and the Law, supra note 35.

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mation which negates the possibility of their separation.37 The institutional framework which is commonly juxtaposed to the market, for example, in the construct "the market versus the state", is in fact endogenous to the market, as it constitutes part of the decision-making process of economic activity.38 The functioning of the market is in important ways ultimately reducible to the operation of legal rules.39 From these premises, institutionalists critique a number of foundational assumptions about the legal requirements of markets reflected in neoliberal policies. The first is the optimality of particular forms of regulation of the market. Addressing this argument, Samuels observes that "there is no basis in economics for choosing between alternative rights systems. Regulation involves choices between alternative rules of the game and between alternative assignments of rights that are logically prior to economic analysis. Economics can no more tell us what rules and rights structures should be than what technology and tastes should exist. Thus for the economist to assert the substance of 'optimal' regulation, or the regulatory policy that will result in the optimal level or direction of control (which is distinct from predicting the behavioral and performance consequences of alternative regulatory systems) is to assert covertly the rules and rights structures and to reach beyond economic analysis to antecedent normative premises as to whose interests should count. The point applies to both regulation and deregulation".40

Samuels and others also target the pervasive suggestion throughout neoliberalism that regulatory questions are essentially technical matters best left in the hands of experts. Echoing critical legal theorists, institutionalists respond that in order for this to be plausible, regulation would have to entail merely questions of efficiency. However, this is not the case; rather, there are distributive consequences that need to be acknowledged as well. Redistribution through regulation is ubiquitous, and economic loss to one party or another occurs routinely as a consequence 37

Warren J. Samuels, "Some Fundamentals of the Economic Role of Government", in Essays on the Economic Role of Government, Volume /: Fundamentals, supra note 35, at 156. See also "The Legal-Economic Nexus", at 162. 38 W. Samuels, "The Nature and Scope of Economic Policy", in Essays on the Economic Ro/e of Government, Volume 1: Fundamentals, supra note 35, at 1,10. 39 Id. 40 W. Samuels, "Normative Premises in Regulatory Theory", Essays on the Economic Role of Government, Volume 1: Fundamentals, supra note 35, at 194.

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Kerry Rittich of legal or policy change. Moreover, it is apparent that such harms and costs, and the resulting welfare gains and losses, are only selectively recognized in neoliberal economic analysis. For example, Samuels maintains that "the [United States] Federal Reserve System has long been more sensitive to the 'costs' of inflation than to the 'costs' of unemployment".41 Nor do the concepts of wealth maximization and optimization include the losses or injuries that may result from the actions of others in the market, such as changes in demand and prices for particular services.42 Virtually every legal change imposes both benefits and costs; in the language of economics, it enhances the opportunity set for some and restricts it for others.43 By way of illustration, Samuels cites the following examples of policy and regulation decisions which affect the relative position of different groups: Federal Reserve monetary policies (losses and gains to either lenders or borrowers); zoning ordinances (owners vs. builders; owners vs. potential owners); tariff impositions (losses to consumers); tariff removals (losses to producers); anti-inflation policies (unemployment); unemployment policies (inflation).44 Like critical legal scholars, Samuels maintains that there is no analytic difference between rights and regulation. Moreover, (re) distribution through regulation and redistribution via income transfers are economically equivalent. This lack of economic distinction between rights and regulations invalidates the case for conceiving of regulation as a merely technical or administrative issue. "To conceive of legal regulation as a technical operation alone only makes implicit [thereby hiding] the choices that inform and channel regulatory analysis. If rights assignments preceded legal regulation, welfare maximization could in theory be a purely technical matter. But regulation is a func41

W. Samuels, "Ecosystem Policy and the Problem of Power", Essays on the Economic Role of Government, Volume 1: Fundamentals, supra note 35, at 229, 238. 42 For example, "Pareto-oprimal reasoning neglects the wide range of losses imposed upon opportunity sets through the operation of mutual coercion. Given the individual's preferences, the individual is subject to profound income effects resulting from the exercise of others' choice making". "Welfare Economics, Power and Property", Essays on the Economic Ro/e of Government, vol. 1, supra note 35, at 77. 43 Nicholas Mercuro and Steven Medema, "Schools of Thought in Law and Economics: A Kuhnian Competition", Robin Paul Malloy and Christopher K. Braun, eds., Law and Economics: New and Critical Perspectives (New York: P. Lang, 1995), 65, at 101. 44 W. Samuels, "An Economic Perspective on the Compensation Problem", Essays on the Economic Role of Government, Volume /: Fundamentals, supra note 35, at 247, 249.

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Law and Distribution in the Market tional equivalent of rights; regulation is one mode of the ongoing process of rights articulation and (re)definition; and rights determination is normative both per se and with regard to distributive considerations. Regulation necessarily makes distributive choices that compel allocative solutions".45 Wealth or efficiency maximization is defended on the basis that it is a normatively neutral objective that is compatible with a range of other social, political and cultural choices: "[tjhe Pareto-criterion is attractive in its apparent ability to avoid making both interpersonal utility comparisons and deep value judgements".46 However, institutional economists along with critical legal scholars emphasize a point that is not so much denied as ignored and downplayed in mainstream economics. Efficiency is particular; it can only exist with reference to a particular distribution of wealth, initial allocation of resources and assignment of rights. Consequently, there may be many possible efficient outcomes. "Because efficiency is a function of rights, and not the other way around, it is circular to maintain that efficiency alone can determine rights".47 From here, the institutionalist position largely tracks the conclusions reached by critical legal scholars. Wealth maximizing in terms of a particular set of institutions and legal rules is not neutral but necessarily assumes the following: the existing distribution of income; the existing distribution of wealth and endowments, including those which result from property rights; the existing set of legal rules; the existing distribution of power; and the social norms and rules which function to reinforce those rules, institutions and interests.48 In this way, the pursuit of efficiency and optimization through the existing configuration of rights serves to protect and entrench the status quo distribution of rights and powers,49 both at formal and informal levels. 45

Id.

46

W. Samuels, "Welfare Economics, Power and Property", supra note 42, at 56, 79. N. Mercuro and S. Medema, "A Kuhnian Competition", supra note 43, at 104. 48 W. Samuels, "Welfare Economics, Power and Property", supra note 42, at 62-64. 49 "[Tjhe Pareto-criterion does not rest upon simply the 'one fundamental ethical postulate' that individual preferences are to count, but upon a much more complex and elaborate, if subde structure of value judgements; that so far from being 'neutral' with regard to policy questions, the Pareto-criterion functions conservatively to re-enforce the status quo decisionmaking process, its incidents and results, whatever they are". (W. Samuels, "Welfare Economics, Power and Property", supra note 42, at 79); "The fundamental ethical subtlety of the Paretocriterion lies not only in its assumption of the status quo and its assumption of the propriety of 47

147

Kerry Rittich As do efficiency arguments, deregulatory and anti-interventionist arguments rest on an assumed, often implicit, baseline set of rules and institutions. However, institutionalists point out that deregulation arguments in themselves are fundamentally inconclusive.50 The arguments commonly marshalled in favor of deregulation - that it is perse beneficial, protects rights and promotes productivity and efficiency - and against regulation - that it is coercive and can only be justified on a costbenefit basis - cannot be maintained once the analytic distinction between rights and regulation collapses and the baseline, assumed set of legal rights is also brought under consideration.51 Arguments for deregulation are necessarily motivated; because both regulation and deregulation promote particular interests, it is not surprising that arguments in favor of deregulation and 'reregulation' are often deployed simultaneously.52 Neoliberal theory holds that when the state acts beyond a defined area or deviates from certain roles, the roles which it (always, already) plays in supporting a particular market structure, it is presumptively resource-wasting. In other words, such state action results in aggregate welfare losses and inefficiencies rather than productivity gains, due in part to rent-seeking by the various parties who are inclined to attempt to advance their interests through capture of state agencies, policies and regulations. The characterization of some types of state action as wasteful and rent- or interest-seeking suggests three conclusions. One is that rentseeking is avoidable. The second is that it is absent in certain types of state activities - those which do not attract the presumption of rent-seeking. The third is that rent-seeking did not play a role in the determination of the background rules and institutions against which current rent-seeking activities must be measured. All of these contentions turn out to be problematic.

the status quo, but in that it also functions conservatively to reinforce the status quo" (Id, at 83). Samuels notes that the Kaldor and Scitovsky compensation criteria - gains sufficient to potentially compensate the losers - rest on the same assumptions. 50 W. Samuels, "Deregulation: The Principal Inconclusive Arguments", Essays on the Economic Role of Government, Volume 1: fundamentals, supra note 35, at 220. 51 II, at 221. 52 Id. 148

Law and Distribution in the Market Institutional economists advance a critique of the entire concept of rentseeking on precisely these issues.53 Their starting points are ones shared by some neoclassical economists as well.54 The first is that there is no non-arbitrary, nonnormative way to distinguish rent-seeking, supposedly "non-productive" actions from other activities in which the state is involved or implicated, or from the ordinary profit-seeking which characterizes market activity in general. What is rentseeking to one person may be simply profit- or welfare-enhancing to another. Second, for the concept of rent-seeking to make any sense, it requires either the use of an obviously problematic production-based rather than market-based concept of value, or the injection of substantive ideas about utility. However, the specification of any particular social welfare function is precisely the sort of value judgment that reliance on the market and concepts of efficiency purports to avoid. Theorists of rent-seeking concede this and attempt to get around the problem by arguing for the presence of social waste, even if the actions are rational from the point of view of individual decision-makers.55 However, the problem is not easily avoided, because a critique which parallels the discrediting of production-based notions of utility is available at this point as well: even social welfare may well be enhanced by ostensibly wasteful, output reducing, "rent-seeking" activities.56 There are a number of observations that might be drawn from this critique. First, the normative tilt of the public choice critique is anti-redistributive: regulations or policies advanced solely or primarily on this basis would be rejected. Because redistribution is such a ubiquitous effect of regulatory and policy change, an enormous amount of regulatory and policy intervention could easily be characterized as redistributive and thus discredited. Second, the disapproval of rentseeking presumes there could be a situation in which there are no rents; alterna53

See Warren J. Samuels and Nicholas Mercuro, "A Critique of Rent-Seeking Theory", David Colander, ed., Neoclassical Political Economy: The Analysis of Rent-Seeking and DUP Activities (Cambridge, MA: Ballinger, 1984), 55. 54 See J. Bhagwati and Srinavasan, "The Welfare Consequences of DirectlyUnproductive Profit-Seeking (DUP) Lobbying Activities: Prices versus Quantity Distortions", 13 Journal of International Economics 33 (1982) 55 James Buchanan, Robert Tollison and Gordon Tullock, eds., Toward a Theory of the RentSeeking Society (College Station: Texas A & M University, 1980). 56 J. Bhagwati and Srinavasan, "The Welfare Consequences of Directly Unproductive Profit-Seeking (DUP) Lobbying Activities: Prices versus Quantity Distortions", supra note 54.

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Kerry Rittich tively, it must imply a notion of "normal" or "correct" rents. However, rents are intrinsic to the existence of legal rights and prohibitions in the following way. The value of a product - its price in the market, - is not simply determined by the physical qualities of the product or service; instead it is at least partly a function of the rights attached to it. Economic value is enhanced or lowered by the powers and prohibitions which come with the legal structure. If rent-seeking is defined as "the resource-wasting activities of individuals in seeking transfers of wealth through the aegis of the state",57 then it becomes clear that the presence of rents in the market is unavoidable. Legal entitlements are a mode of recognizing, creating, transferring or destroying wealth; all involve the use of the state. All rights then, by the above definition, involve rents. Whether at some mythic point in time at which entitlements were originally recognized or conferred, or as a consequence of judicial, administrative or legislative change at some later point in time, they involve either the endowment or transfer of wealth by the state to one party or another. Moreover, as the legal rights are infinitely variable and malleable, there is no way to specify ex ante the correct level of rent. As Samuels and Mercuro note, all prevailing prices are a product of the past use of the state, whether that process is visible or not.58 Prices are in part a function of the structure of rights, and all profit-making proceeds in terms of particular regulatory backgrounds, to the result that profit-making is indistinguishable from rent. "The genesis, structure, and distribution of economic rent is a function of power, rights, asymmetrical transaction cost systems, and other variables. There is no unique pattern of rent and no pattern of rent independent of law. Rights govern the realization and distribution of gains from trade, including rents".59 The upshot of the fact that rents are ubiquitous is that charges of rentseeking must be inevitably selective and arbitrary: "Whenever rent-seeking theorists conclude that certain law-related ... activities are wasteful because they do not lead to the creation of real assets, they

57 58

Buchanan et al., Toward a Theory of the Rent-Seeking Society, supra note 55, at ix. W. Samuels and N. Mercuro, "A Critique of Rent-Seeking Theory", supra note 53,

at 58. 59

150

Id., at 59.

Law and Distribution in the Market are placed in the position of assuming the propriety of all other laws governing the production of economic goods".60 How it is that these other laws remain untouched by or beyond presumption that they are also the product of rent-seeking is unexplained in rent-seeking theory. Consequently, either the preclusion of change or the defence of a certain structure of rights is an inevitable endpoint of rent-seeking theory, even though this substantive outcome is obscured in the analysis. In a Hohfeldian moment, institutionalists point out that the forbearance from regulation which rent-seeking theory seeks to justify is actually the political equivalent of legal change, for it amounts to the defence of a contingently produced structure of entitlements.61 Moreover, some elements of rent-seeking theory, such as the quixotic proposals to eliminate all existing differential advantages which have resulted from regulatory "interference", would involve massive redistribution. In the end, it is clear that beliefs and fears about rent-seeking, as with the deregulatory and anti-state arguments of neoliberalism, are connected to the defence of a certain vision of economic life that is deeply political, even if that vision appears in the guise of value neutrality and pragmatism.

60 61

W.,at61. at 66.

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5. RECHARACTERIZING RESTRUCTURING

A

post-realist legal analytic framework generates a range of insights and provides a number of techniques by which to analyze both the substantive proposals for economic development and restructuring and the style of conversation in which neoliberal analysis is conducted. These insights and techniques can also be productively employed to investigate the spectrum of contemporary debates surrounding the structure of the market and the role of the state. These debates include the future of the welfare state and the regulatory constraints upon the post-industrial state operating in a globally integrated economy. Since many of these ideas, paradigms, and conceptual turns have long influenced legal argumentation, such insights may seem commonplace if not banal from the discipline of law. Nonetheless, a post-realist legal framework moves the analysis of neoliberalism in a strikingly different direction, bringing the distributive dimension which is largely eclipsed in mainstream economic analysis to the surface. At the same time, it suggests new questions and renders some of the old dilemmas less interesting if not entirely moot.

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Kerry Rittich After the realist and critical analyses, the set of related binary distinctions such as state versus market, regulation versus deregulation and intervention versus nonintervention, which purport to structure neoliberal policy, collapse into each other, losing their analytic bite and capacity to either order social or economic relations or explain them after the fact. Yet despite the fact that as mode of analysis these distinctions turn out to be unpersuasive, attention can still be productively directed to the role that they do perform. While regulation versus deregulation, intervention versus non-intervention, and redistribution versus distribution do not operate as advertised in neoliberal policy, they are not entirely inert. Rather, to the extent that they are perceived to have substance and coherence, they function to enable, support and legitimate a certain structure of private rights on grounds which might otherwise appear arbitrary or biased. A post-realist framework also permits a reversal of the usual perspective on economic restructuring. Just as it is apparent that variations to the legal rules of property and contract inevitably generate distributive or economic consequences, so we can see that restructuring is not simply an exercise in promoting economic development but is itself a mode of engaging in legal and political reform. Because it necessarily operates through and with legal institutions, rules and mechanisms, economic reform is always also a project which impinges upon and reconfigures the power and entitlements of various actors. The attempt at separation of the economic and political falls apart, as the two projects, economic and political/legal transformation, are inextricably tied together in far-reaching ways. Through a post-realist lens, it becomes apparent that no specific legal regime is entailed simply by the turn to the market, nor is there one form or structure to market transactions to which states would thereby be bound.1 As both a prescriptive and descriptive matter, the idea of "best practices" both over- and underdetermines, saying too much and too little. Far from a set of obvious rules and institutions which can be determined simply by reference to efficiency or standard market practice, market structures turn out to be contingent, variable and highly contested. Restructuring options, then, are inevitably much broader than the terms of the debate tend to suggest. 1

This has been observed throughout the reform process from critics from diverse disciplines. For some legal analyses of this possibility diversity, see the set of articles contained within Gregory S. Alexander and Grazyna Skapska, eds., A Fourth Way? Privatisation, Property and the Emergence of the New Market Economies, (New York: Roudedge, 1994).

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Recharacterizing Restructuring By exposing the coercive and constraining force of legal regulations and demonstrating how economic power operates within a particular institutional framework, a post-realist analytic also suggests that restructuring is likely to engender conflict rather than a convergence of interests. Restructuring becomes about, in central and fundamental rather than minor or peripheral ways, the advantages to be enjoyed by different social groups and actors. Perhaps as important, however, is that it becomes evident how these rules do not operate in uniformly beneficial or detrimental ways, but instead generate complex, cross-cutting effects. This quality inheres in the rules themselves, and is increased exponentially through the inevitable process of interaction with other legal rules, social and cultural norms and historical contingencies. For these reasons, the appropriate rules of the market are not a subject upon which we should naturally expect agreement. Indeed, the attempts to suppress or displace the conflict engendered by restructuring and to promote the ideal of harmonization of interests themselves come to seem problematic. The role of property in the logic of restructuring ostensibly rests on the value of defined incentives. However, the legacy of realism is such that it is no longer possible to simply advocate clear property rights as if that adequately disposed of the matter of the appropriate rules. This rationale, no matter how often it is repeated and how much it is insisted upon, gives us no basis on which to resolve the outstanding questions, in particular, to determine which private rights should be protected or why some private interests should prevail over others. The pertinent restructuring issues that come into view then are the specific terms, permissions and restrictions attached to property and the entitlements granted to particular actors in different contexts. The use of efficiency as the basis of determining legal rules, while often problematic and sometimes circular, turns out to be a particularly incoherent and suspect way to proceed when an entire legal structure of the economy is in issue, as is the case in transition. All of the rules are in question and in flux; the very point of the exercise is to determine what those rules should be. Efficiency reasoning thus presupposes the very question which most needs to be answered, which is how to allocate resources and powers through law to different parties. Massive changes in entitlements and property holding are clearly contemplated; it is clear that redistribution is both inevitable and profound in such circumstances. It is a remarkable coup in neoliberal restructuring proposals that the fact that efficiency 155

Kerry Rittich can only be determined with respect to a particular set of entidements and a preexisting distribution of income is continually suppressed, and that efficiency itself is presented as sufficient justification for the massive shift in wealth and entitlements.

5.1 Rethinking Distribution Neoliberal reformers maintain that market design raises no profound distributive concerns or, in the alternative, that those concerns should be dealt with outside of the market, typically through limited income transfers funded through taxation. The result is that questions of distribution are continually deferred and avoided in the context of market reform. However, one of the most significant points to draw from the realist analysis for the purposes of restructuring is that fundamental decisions concerning the distribution of income and wealth occur through the institution and operation of the background rules governing economic transactions. Determining the rules of the game - establishing property rights and contract rights, deciding on the form and content of labor and employment regulations (if any), constructing a corporate code, setting environmental regulations, extending intellectual property protection - are occasions for allocating resources and power to different parties and groups. The laws and regulations which are chosen in each instance have the potential for deep distributional consequences. When these background rules are changed, whether through deregulation, regulatory harmonization or restructuring, pre-existing entitlements may be transformed and displaced in a way that is highly redistributive. Never is this a more likely prospect or a more salient concern than when the entire legal structure of the economy is at issue. In such a context, the distributional effects produced through the (reconstruction of the market may well be of greater magnitude than those created by overt redistribution through the mechanisms of taxation and income transfers. Despite the attempt to dissociate the market from distributive concerns, the question of redistribution of wealth and income cannot analytically be separated along the lines of market and state. The reason is simple: even in non-market economies there is no state of "nondistribution" of wealth from which a mere market-based, neutral distribution would be possible.

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Recharacterizing Restructuring The neglect of the market as a locus of distribution is significant for the following reasons. The implementation of the background structure of market rules itself serves to create economic interests which will be defended and protected from redistribution, simply because they are structured as rights or entitlements. Market-induced (re) distribution of income and wealth via rights recognition and "efficiency-enhancing" regulations has privileged status in neoliberalism. If it is even perceived at all, the (re)distribution that occurs as a consequence of this process will certainly be less visible than that which results from various forms of taxation and income transfers. Conversely, redistribution through taxation is highly visible and often resisted for this reason. In addition to the usual political forces which can be expected to resist after-market redistribution, neoliberalism provides an ideology which holds that excessive redistribution of wealth or profits impedes the operation of incentives to productivity. Thus, it seems likely that attempts to redistribute to particular groups via income transfers may well fall short of what is lost in the process of market-building. There is a highly predictable set of constraints, ideological and political as well as economic, limiting what can be achieved through redistribution on the basis of taxation and income transfer in neoliberal markets. Although this massive exercise in redistribution is suppressed, a consciousness of the distributional consequences of the chosen rule structure is reflected on some level within the arguments for reform. For example, it is maintained that "property rights are at the heart of the incentive structure of market economies. They determine who bears risk and who gains or loses from transactions...".2 Best practices, those laws and regulations which have canonical status in the agenda, are distinguished from other regimes not only because they are thought to be efficient, but because of the particular consequences which flow from them, specifically, their relative ability to attract and empower capital. It is worth repeating that, under this logic, the relative benefits conferred upon investors and capital holders as compared to other claimants are supposed to be the route to productivity and the source of welfare gains for all. It is also noted that "[d]eep distributional conflicts

2

See World Bank, World Development Report 1996: From Plan to Market (Oxford; New York: Oxford University Press, 1996), 48.

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Kerry Rittich and constraints embedded in state institutions are at the heart of the explanation for so many countries' failure to reform."3 The common neoliberal explanation is that any resistance to the distributional effects of reform is the result of special interests and factions who press particular ends and interfere with the greater good. While that is one possible explanation, a realist analysis suggests that more legitimate objections to redistribution are also imaginable. One response is that reforms do already privilege particular interests; whether those interests can be conflated with the general interest is highly contestable at best. Moreover, since it is impossible to judge the question of the legitimacy and desirability of reforms without looking at who gains and loses, there is no reason a priori to assume that, even if restructuring were otherwise entirely desirable, the losers are pressing interests that do not warrant protection.

5.2 Re-evaluating the Role of the State Although the reform agenda seems deeply informed by the view that we are now in an era in which the role of the state in economic life is in irretrievable decline, a post-realist analysis casts into doubt the idea that there could be any "end" to the state in a market economy. Nor does it seem plausible that the state could be a mere handmaiden of economic activity,4 playing a secondary rather than crucial ordering role in the market. There is no "before" the state or "outside" the state. Instead, market transactions are always already situated in some relation to the state. Because bargaining necessarily occurs "in the shadow of the law" which is backed by the state, the state is always a player in the game, and state regulation and policy are endogenous to economic decision-making. One consequence of imagining the economy as always already structured in some relation to the state is that no particular market or legal regime need be privileged or fetishized as a regime of law and rights. From this point, restructuring becomes not merely the implementation of the rule of law or the institution of a regime of rights and entitlements where none existed previously. Instead, it be-

3

World Bank, World Development Report 1997: The State in a Changing World (Oxford; New York: Oxford University Press, 1997), 13. 4 See Frances Olsen, The Family and the Market: a study of ideology and legal reform, 96 Harvard Law Review 1497 (1983), 1502-3.

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Recharacterizing Restructuring comes one of many possible regimes; at the same time, it involves the destruction and transformation of pre-existing regimes, norms, entitlements and expectations. The intense preoccupation with the state in neoliberalism signals nothing if not the importance of the state to the market. Yet the idea that the state "intervenes" in the market when it engages in certain types of activity remains a powerful tenet of the model. What lies behind this? The idea of intervention presupposes a situation in which there could be non-intervention.5 As this turns out not to be possible, rather than actual non-intervention, it can only refer to an idea of a "normal" market with a corollary role for state in its facilitation. This is the intuition behind the idea of a "free" market or natural form to the market or, in the parlance of economic reform, best practices. To put it another way, intervention does not, as might be supposed, describe a coherent, stable set of practices on the part of the state; nor does it describe a particular type of action with identifiable characteristics. Rather, it is an ideological term invoked both to stabilize a contingent set of market structures and to mark the occasion on which the state contravenes some norm or desired behavior. Rather than any actual absence of the state, what is at stake is a transformation in the role the state is expected to play and the particular interests it underwrites. In the neoliberal model, the state as a visible market actor, a source of industrial policy or a mechanism of redistribution through taxation and income transfers is demoted and discredited. However, this should not be mistaken for a reduction in the distributive role of the state, for the state's hand in allocating resources and generating wealth and income remains through its role in guaranteeing rights and entitlements. In the context of transition, concepts such as "privatization" and "deregulation" are often treated as if they have fixed, transparent meanings and as if one follows from the other in a determinate and inevitable way. The message of neoliberalism is that markets are intrinsically linked with a certain ownership structure - overwhelmingly private - and that those private rights must take a certain form.

5

Duncan Kennedy, "The Role of Law in Economic Thought: Essays on the Fetishism of Commodities", 34 American University Law Rev. 939 (1985), 960; F. Olsen, "The Family and the Market", supra note 4.

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Kerry Rittich However, while these concepts are often rhetorically and programmatically linked, they are analytically distinct operations which refer to quite separate elements of economic reform. Decisions to privatize, that is to dismantle parts of the state sector or change the locus or structure of ownership of assets are themselves separate from the decision to move in the direction from plan to market determination of prices and allocation of factors of production. Nor is one entailed by the other. Extensive state ownership of various assets can and does coexist with a market economy. Similarly, a significant degree of planning and administration of the economy appears to be able to coexist with private ownership of assets.6 The point worth emphasizing is that the different elements of the neoliberal agenda, rather than part of a seamless web, involve a series of decisions regarding the variable policy choices that might be made regarding the choice of regulatory structure of a market economy. There are numerous points and opportunities at which alternative regulatory and institutional possibilities present themselves for consideration. By separating these elements of the restructuring proposals from each other, it becomes apparent that the agenda is replete with choices that are grounded in unexpressed political and social visions. The particular program for market reform and reconstruction which is advanced cannot be supported merely by the rule of law or efficiency rhetoric alone. In the end, best practices turn out to involve not mere functionality and managerial effectiveness, but specific ideas about the proper organization of economic and social life.

5.3 The Rise of the Private What seems most undermined from a post-realist standpoint is the possibility of a sharp distinction between the state and the market and the elevation of the private and concomitant demotion of the public in economic life. Neoliberalism follows closely in the vein of the liberal tradition in its preoccupation with the boundary between the state and the individual. As we have seen, much of the reform program is articulated as a matter of determining the legitimate or proper sphere of the state, and policy dilemmas are understood to be an exercise in establishing the correct boundaries and responsibilities of different institutions.

6

For example, large sectors of the wartime economies of most if not all of the industrialized market economies were brought under centralized administration.

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Recharacterizing Restructuring Post-realism, such a focus seems misplaced if not entirely misconceived. Determining the structure of economic relations through the technique of boundary drawing between the state and private actors may have immediate attraction in the context of a move from a command to market economy. However, it quickly becomes a less and less satisfactory mode of conceiving of, let alone resolving, the issues at hand. As with concepts such as property, the assertion that something is or ought to be private tells us nothing about the substantive questions, such as the scope, type and structure of private interests that should be recognized or the manner in which such powers should be configured. Simply repeating the idea that something should not be "state" or "public" gives no indication of the actual nature and scope of the state role which must inevitably be played. The question is not so much state power versus individual power and autonomy, as how private power is organized. What is private power doing? Which private individuals or entities are empowered? Foreign, domestic, urban, rural, men, women, workers, managers? What did state power do before; what will it do now? As the state is reduced, who is newly positioned to step into the breach? For example, as the social welfare functions of the state are cut back, who benefits? Who now performs those functions? Who pays for them? Are they still needed in the new economy? Are they performed at all, or are some simply lost? For all of these reasons, the rise of the private signals nothing so much as a redistribution of the power among different social groups that the state is prepared to back. The massive reconfiguration of entitlements and access to social resources that characterizes restructuring will benefit some people in some ways, but make others, including some of those who benefit, worse off in other ways.

5.4 The Elimination of Subsidies Discussions about the need to eliminate state subsidies abound in the discourse of restructuring. Complaints are directed both at state practices which ostensibly interfere with "normal" pricing and those which impose extra costs in

161

Kerry Rittich the course of production. However, the idea that subsidies must be eliminated is dependent on the possibility of markets in which there are no subsidies. Herein lies the problem; as is evident in the field of international trade8 and the intense battles over the state policies which should be deemed to constitute non-tariff barriers to trade, there is no "natural" boundary demarcating legitimate state actions from production subsidies.9 For this reason, trade disputes involve the strategic deployment of claims and counterclaims about unfair subsidization of production on the part of states that allegedly imposes unfair disadvantages on others. Enormous resources are expended trying to determine whether the particular economic policies should be construed as subsidies, thus exposing those states to economic reprisals from those allegedly harmed by them. The reason for such disputes is that subsidies extend well beyond the practice of channelling funds to particular companies or industries through industrial policy and the selective allocation of credit. In almost all economies, subsidies to production are arguably present in everything from state provision of physical and institutional infrastructure and regional transfer payments to contributions to the health and education of workers. But contestation over subsidies also flows from the fact that, as is transparently obvious to entrepreneurs engaged in globalized production, the costs of production are a function of the legal environment. Thus, subsidies may be provided by the presence or absence of legal entitlements. In neoliberal market reform discourse, some of these very production subsidies form part of the framework for economic growth and development without being identified as such.10 For example, the absence of robust labor and employment or environmental regulation provides subsidies to enterprises vis-a-vis competitors in jurisdictions where they are present. Extended intellectual property protection which

7

Daniel K. Tarullo, "Beyond Normalcy in the Regulation of International Trade", 100 Harvard Law Rev. 547 (1987) 8

See John H. Jackson, The World Trading System: Law and Polity of International Economic Relations, 2d. ed. (Cambridge, MA: MIT Press,1997) 9

The problematics of the concept of "subsidy" in the context of trade disputes are discussed in B.A. Langille, "General Reflections on the Relationship of Trade and Labor (Or. Fair Trade Is Free Trade's Destiny)", J. Bhagwati and R. Hudec, eds., Fair Trade and Harmoniz-ation: Prerequisitesfor Free Trade? Volume 2: Legal Analysis (Cambridge, MA: MIT Press, 1996), 231. 10 James D. Wolfensohn, A Proposal for a Comprehensive Development Framework (A Discussion Draft) (Washington, D.C.: World Bank, 1999).

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Recharacterizing Restructuring states are now required to provide creates a massive subsidy or transfer of wealth to rights holders in areas such as pharmaceuticals. The concept of subsidy assumes what is unavailable in disputes about the regulation of markets, which is that there is a setded agreement about the proper role of the state in the economy and a similar agreement about the legal structure of a normal market. It also rests on the idea of a baseline set of legal entidements that are neutral in their effects. Moreover, it assumes that the boundaries of production and markets are unproblematic, a proposition which turns out to be contestable.11 The result is that the idea that subsidies should be removed fails to generate a clear set of policy recommendations. Normative claims against subsidization will always rest on some idea of normal subsidies as against deviant or extraordinary subsidies.12 As long as there is any variation in legal rules and institutions and social policy, there will be room to argue that either state action or the failure of a state to take a particular action constitutes a subsidy.

5.5 Restructuring and Regulation After realism, two other key elements of the neoliberal development paradigm, the characterization of restructuring as "deregulatory" and the protection of private rights from regulatory intervention, are also rendered incoherent. There can be no presumption "against" regulation as such or "for" the preservation of certain property or contract rights, either on the basis of non-intervention by the state or to protect against the redistribution of income. Instead, the market is an inseparable matrix of both. What is striking from a post-realist, critical vantage point is the suppression of the range of choices and problematics that beset adjudication and regulation in neoliberal descriptions of the role of legal rules in the market. Neoliberal theory is replete with mainstream economic assertions that the state interferes or intervenes in the economy when it operates in certain modes or at particular levels, but holds implicitly that policy and distributional decisions are absent in

11

This is discussed in Part II.

12

D. Tarullo, "Beyond Normalcy in the Regulation of International Trade", supra

note 7.

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Kerry Rittich others. As has been described, one of the axes upon which these arguments rest is the distinction between law and regulation, in which law represents the zone of the natural or neutral and regulation is figured as the locus of distribution, market correction and policy. The success of this distinction rests on twin pillars: the demarcation of a zone of legal/economic activity in which the state is absent, and the possibility of a policy- and value-free, or more minimally, universally acceptable, structure of private rights. However, neither will bear the weight that neoliberals seek to place on it. It follows from the role of the state in the determination of basic rights such as property and contract that the state is always and necessarily a presence in economic transactions. Moreover, the demise of conceptualist approaches to adjudication, namely the loss of faith in the capacity of concepts such as property and contract to autonomously generate answers to legal questions, is fatal to the type of political distinction between law and regulation neoliberals seek to maintain.13 The state is as present in "private" law as it is in "public" regulation; distribution occurs through both. Since it would be a mistake to conclude that privatization and deregulation could entail a regulation-free regime, or that this is actually what is promoted under the agenda, liberalization and deregulation must refer to the implementation of a particular set of rules and regulations and the absence of others. The avowed object of the agenda is to "get the state out" of activities which non-state actors are deemed capable of performing and to limit the role of the state to providing the infrastructure and public goods which market actors are either disinclined or unable to produce. However, this acknowledged aim does not capture the more precise object of the program, which is to ensure some types of legal entitlements and preclude or discourage others. The economies imagined under restructuring programs would not be so much deregulated, as regulated so as to further the overall objective of the agenda, which is the pursuit of growth through the empowerment of particular parties: investors, property owners, entrepreneurs and managerial personnel. Complex and layered regulations to enable and secure market transactions form a central part of the plan for restruc13

D. Kennedy, A Critique of Adjudication: fin de siecle (Cambridge, MA: Harvard University Press, 1997); D. Kennedy, "Law and Economics from the Perspective of Critical Legal Studies", Peter Newman, ed., The New Palgrave Dictionary of Economics and the Law (London: Macmillan Reference; New York, NY: Stockton Press, 1998).

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Recharacterizing Restructuring turing and economic development. However, other types of market regulations are suspect. The list of essential or fundamental economic laws in market economies does not include those governing labor relations and employment standards,14 despite the fact that such laws are an integral part of the regulatory structure of market economies. Instead, regulations securing benefits, determining working conditions and wages and guaranteeing social entitlements are targeted for confinement, reduction or elimination. This, too, comports with the preferred development strategy of low-wage, export-led growth. The priority of some legal rules, and hence of the interests they protect, is also signalled by the sequencing of reform.15 In first generation reforms, states must get the fundamentals in place, using such techniques as "deregulation", tax reform, drastic budget cuts and various forms of price, trade and investment liberalization.16 When the state does get around to other reforms, its role is to set the framework of production, including the terms within which workers operate, to ensure "positive contributions to growth."17 Two themes animate the discussion of legal reform. One is that market economies should be designed so as to harmonize interests and coordinate goals. When restructuring is discussed in this mode, the elements of coercion, redistribution, loss and conflict are effaced. The other is that increased economic incentives to productivity, leading to greater income dispersion, are necessary for growth. While both themes are evident at the rhetorical level, it is the second that is actually operationalized in policy and regulatory choices. Despite the language of cooperation, harmonization of interests and coordination of objectives, the result is a constellation of laws and an economy in which various classes of workers and social groups have comparatively fewer bargaining chips, legal entitlements and hence assets and resources. As a consequence, they will tend to carry more of the costs, bear more of the risk and reap a smaller percentage of the gains of productive activity than they otherwise might. The elimination or reduction of various benefits, minimum wages and employment regulations is advanced on the ground that it is necessary to promote

14

World Bank, From Plan to Market, supra note 2, at chapter 5.

15

World Bank, The State in a Changing World, supra note 3, at 152.

16

Id.

17

World Bank, From Plan to Market, supra note 2, at 77.

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Kerry Rittich "market" determination of labor rates. However, "market" solutions cannot simply be contraposed to "regulatory" solutions, as market solutions inevitably imply a particular regulatory backdrop. Nor are efficiency arguments adequate to defend these proposals, for efficiency does not, cannot, dispose of the question of how the initial endowments of rights and entitlements should be set. To reiterate, there is always a range of potentially efficient solutions, a fortiori when the entire legal framework of economic activity is at issue, as is the case in states in transition to market economies. The insistence on particular laws and institutions may simply reflect a naive fetishism about the function of law in market economies. However, the amount of energy expended in defending this regime and the varying levels of scrutiny to which different regulations are subject suggests that other factors are at work. For example, banking and securities regulations which benefit entrepreneurs and property holders by reducing or eliminating certain investment risks are not subject to any presumption that they interfere with a superior "market" allocation of resources. Nor do they tend to be subject to the same searching inquiry about the potential for perverse or suboptimal results. They are not even regarded as constraints on liberalization. Rather, through their very inclusion in the restructuring agenda and list of best practices, they become incorporated into the definition of the optimal free market structure. The opposite presumption operates with respect to labor standards, however. Whatever valid concerns might motivate their implementation, labor and employment regulations are presumed to be valuesubtracting to the economy as a whole, because they interfere with what would otherwise be a more efficient allocation of the labor force. In addition, they are rigorously criticized for their redistributive effects among workers. It has long been observed that no market economy actually functions, or has ever functioned for any length of time, in the absence of regulations governing labor and employment; in short, labor has never been treated as a commodity like any other. As Karl Polanyi describes, the earliest manifestations of industrial capitalism were immediately met by movements seeking to restrain the unrestricted operation of supply and demand in labor markets.18 Yet the starting point of the analysis must be this: even if such regulations were to be entirely absent as 18

166

Karl Polanyi, The Great Transformation (Boston: Beacon Press, 1957).

Recharacterizing Restructuring legal entitlements, labor and employment relations would remain regulated by the set of laws governing market transactions and production. To put it another way, property and contract rights would be effectively also labor laws. The effect of endowing property holders, entrepreneurs and managers with a certain structure of rights and powers is to create certain disabilities and prohibitions in other parties, for example consumers and workers, unless countervailing rights and protections that shift the balance of power are instituted. The fact that these rights, powers and disabilities are implicit in property and contract rules makes them no less operational or effective as a regulatory regimes. Moreover, the laws governing the economy and production function as a totality. What this means is that the adoption of a corporations law regime without, for example, the implementation of collective bargaining laws and employment standards, or accompanied by the elimination of various forms of social protection, results in an entirely different legal framework for production than would exist if they were present. For example, the absence of income guarantees or transfer programs may greatly strengthen the employer's hand in wage negotiations, because alternative forms of support have been eliminated. Consequently, it is simply incorrect to imagine that a particular market system is being implemented when some elements of the system are extracted for replication while others are discarded. The same observation obtains where reforms are sequenced. The bottom line is that the presence or absence of particular regulations, some of which may even appear remote from production per se, can have profound effects on the bargaining power and the distribution of income among different parties. From this vantage point, the neoliberal insistence on "getting the fundamentals right", prioritizing privatization, instituting a regime of property and contract while eliminating, deferring or delaying the implementation of numerous other entitlements simply cannot be read in the way it is sold, the implementation of the "basics" of a market economy. Instead, it amounts to the identification and promotion of particular interests among the myriad competing and conflicting interests at play within market economics. Yet even within the neoliberal paradigm and the particular logic of economic efficiency and wealth maximization within which it operates, the supposed contradiction between particular legal entitlements such as worker rights and efficiency is far from established. There are numerous empirical studies and counter arguments which could be, and have been, raised against the neoliberal account of the effects

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of regulation in labor markets.19 For example, the standard neoclassical model cannot explain why, if it is accepted that wages should be tied to performance for productivity reasons, a strategy of depressing (restraining) wage rates and eliminating entitlements is not likely to be anti-productive in the aggregate. Nor can it explain the well-established variations in work performance once wage rates become standardized,20 a phenomenon that calls into question any easy assumption about the relationship between remuneration and performance in the context of work. In addition, job security provisions may slow labor force turnover and raise productivity, while low wages and easy redeployment of labor may enable or encourage inefficiencies elsewhere, permitting managerial ineffectiveness and inhibiting the development of labor saving technologies.21 For such reasons, the relationship between labor and employment regulations and economic development may just as easily run in the opposite direction.22 As a matter of historical record, it seems unclear that major reformulations of property and contract rights, including those which shifted resources and power to workers, are necessarily associated with reduced economic growth.23 Implementing or increasing the minimum wage has not proved to be inevitably correlated with a rise in the number of unemployed, as the theory would predict, nor can other types or levels of regulations be connected to specific levels of employment. Instead, market economies have both thrived and languished under extensive and varied 19

For a classic account, see Richard B. Freeman and James L. Medoff, What do Unions Do? (New York: Basic Books, 1984). 20 See for example George A. Akerlof, An economic theorist's book of tales: Essays that entertain the consequences of new assumptions in economic theory (Cambridge [Cambridgeshire]; New York: Cambridge University Press, 1984), "Labor contracts as partial gift exchange", 145. 21 For a discussion of the reasons that employers do not rely primarily on market forces to increase the productivity of their labor forces, see Paul Weiler, Governing the Workplace: the Future of Labor and Employment Law (Cambridge, MA: Harvard University Press, 1990). 22 S. Deakin and K.D. Ewing, "Inflation, Economic Performance and Employment Rights",]. Michie and J. Grieve-Smith, eds., Managing the Global Economy (Oxford ; New York : Oxford University Press, 1995); S. Deakin and F. Wilkinson, "Rights vs Efficiency? The Economic Case for Transnational Labour Standards", 23 Industrial Law Journal 289 (1994) 23 A classic instance would be the reformulations of contract and property rights ratified by the U.S. Supreme Court during the New Deal. For a discussion, see M. Horwitz, The Transformation of American Lain, 1870-1960: The Crisis of Legal Orthodoxy (New York: Oxford University Press, 1992).

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Recharacterizing Restructuring types of employment regulations. The circumstantial effects of regulations are bound to vary immensely. Moreover, there may be significant differences even within regimes of property and contract as to how powers are allocated among different parties. For example, the existence of contractual rules requiring employers to give notice to employees upon dismissal or to establish just cause for dismissal shifts the allocation of resources and risk among employers and employees. At a bare minimum, the neoliberal position regarding the benefits of private rights and the drawbacks of regulation seems unpersuasive: the commitment to property and contract underdetermines the legal regime that neoliberals claim to desire, as the rights and powers of the parties can be internally "regulated", with distributive consequences, through private law rules themselves. But the incorporation of some of the very regulatory interventions decried by neoliberals may actually serve the ends they seek.

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PART II

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6. THE GENDER OF RESTRUCTURING

T

he states in Central and Eastern Europe and the CIS undergoing the transition from plan to market economies shared a number of traits with respect to the status of women and the organization of gender relations. First, they were notable for their very high levels of labor force participation among women. In virtually every country, participation rates significantly exceeded those in other industrialized countries. Education levels among women were also high, meeting or exceeding those achieved by women in other industrialized countries. Second, although the circumstances of the states in transition varied greatly in important ways, integral to the plan economies was a common mode of organizing production, economic life and social welfare. One of the distinctive, although quite contingent, attributes of the plan economies was the manner in which compensation for maternal, domestic and caregiving labor was integrated into production. This was done in various ways through a combination of family benefits, leave provisions, childcare subsidies and facilities, and subsidies to other basic goods and services. It is well known that the provisions for childcare and maternity leave and concessions for domestic and caregiving labor were instituted not only, or even primarily, in response to concerns about equality and justice for women. Instead, they were designed and instituted to draw women into the labor force in order to increase

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industrial production. Nonetheless, the result was, in addition to high labor force participation among women, compensation for caregiving obligations, the costs of which were absorbed by society at large. Relatively early on, however, it was noted that women appeared to be experiencing significant deterioration in status and declines in welfare in the transition to the market. In the privatization and restructuring of enterprises, a cornerstone and key to the transition process, services such as childcare which enabled women's participation in wage labor were among the first to disappear.1 In addition, transition created unprecedented levels of unemployment within societies in which work had previously been regarded as both an obligation and a right. As of 1997, it was estimated that over 26 million jobs had been lost in the region.2 In the early stages, women formed the ranks of the unemployed in disproportionate numbers in many countries in Central and Eastern Europe.3 They were also over-represented among the long-term unemployed and experienced greater difficulty than men in acquiring new jobs.4 The labor force participation rates of men and women in Central and Eastern Europe changed significantly since reforms began, with women in general experiencing greater drops in participation than men. Across the region, men now work more hours

UNICEF, Centra/ and Eastern Europe in Transition: Public Policy and Social Conditions, Regional Monitoring Report no. 1 (Florence, Italy: UNICEF International Child Development Centre, 1993); Monica S. Fong, "Gender Barriers in the Transition to a Market Economy", PSP Discussion Paper Series (World Bank, January 1996). UNICEF, Women in Transition, Regional Monitoring Report No. 6 (Florence: UNICEF International Child Development Centre, 1999). See United Nations, The Impact of Economic and Political Reform on the Status of Women in Eastern Europe, supra note 1. Exceptions appear to be Hungary and Slovenia. See Peter F. Orazem and Milan Vodopivec, "Winners and Losers in Transition: Returns to Education, experience, and Gender in Slovenia", Working Paper, World Bank, Policy Research Department, Transition Economics Division, August 1994; M. Fong, "Gender Barriers in the Transition to a Market Economy", supra note 2, at 15. However, even in Slovenia and Hungary, official unemployment rates can be misleading about the degree of labor force participation by women. When unemployment is indeed lower for women, it can be attributed to the persistence of extended paid leave provisions which provide an attractive alternative to unemployment for women. For example, in Hungary, about 8% of the female labor force is on child-care leave of up to three years. See M. Fong, "Gender Barriers in the Transition to a Market Economy", supra note 2, at 11. World Bank, Understanding Poverty in Poland (Washington, DC: World Bank, 1995), xxi. 174

The Gender of Restructuring than women do at paid labor.5 Many women do remain employed; however, the wage gap between men and women has widened in many countries.6 This may be at least partly attributable to the part-time and informal work that has burgeoned since reforms began; atypical work is reportedly distinctly feminized in some countries.7 In short, labor market disadvantage for women is a feature of the new regimes, and women have endured a disproportionate number of the overall job losses.8 In addition, for a variety of reasons, women appear to be positioned differently to men in the emerging private sector, having failed, declined or simply been unable to take advantage of the entrepreneurial opportunities in the new market economies.9 Women were under-represented in even middle management positions in the plan regimes, making it likely that the empowered entrepreneurs and managers in the emerging markets would be overwhelmingly men.10 The indicators suggest that, as predicted, the most lucrative new private opportunities tend to go overwhelmingly to men.11 However, even employment is no guarantee against poverty, as the mass impoverishment which has emerged in Russia demonstrates; it too has a gendered face. In Russia, 71% of the employed extremely poor are women, as are 67% of the employed poor. There are also very high poverty rates among the See International Labour Office, Yearbook of Labour Statistics (Geneva: International Labour Office, 1996 and earlier). See ILO, Yearbook of Labour Statistics (Geneva: ILO, various years). M. Fong, "Gender Barriers in the Transition to a Market Economy", supra note 2, at 8. UNICEF, Women in Transition, supra note 3, at chapter 2, "Women and the Labour Market". L. Paukert, Economic transition and women's employment in four Central European countries, 1989-1994, supra note 1; Dobrinka Kostova, "Similar or Different? Women in Postcommunist Bulgaria", Marilyn Rueschemeyer, ed., Women in the Politics of Postcommunist Eastern Europe, supra note 1, at 117; B. Einhorn, "Ironies of History: Citizenship Issues in the New Market Economies of East Central Europe", B. Einhorn and J. Yeo, eds., Women and Market Societies, supra note 1, at 217. See M. Fong and G. Paull, "Women's Economic Status in the Restructuring of Eastern Europe", V. Moghadam, ed., Democratic Reform and the Position of Women in the Transitional Economies (Oxford [England]: Clarendon Press; New York: Oxford University Press, 1993), 211, at 211,222. UNICEF, Education for All?, Regional Monitoring Report No. 5 (Florence, Italy: UNICEF International Child Development Centre, 1998). o

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Kerry Rittich mass intelligentsia, a category which includes doctors, teachers, engineers and technical workers employed by the state, 70% of whom are women; in recent years the poverty rate has reached 49%. In addition, women constitute the overwhelming proportion of those who have "dropped out" of the labor force, not even to be counted among the officially unemployed.12 By contrast, in Poland, there were no early indications that women were over-represented among the poor, even though women's employment has been disproportionately affected by reforms.13 However, the safety net remained relatively robust in Poland, with support provided at levels distinctly more generous than is regarded as economically prudent by reformers. 14 Lingering pre-reform policies and entitlements, including pensions, protected many who would otherwise have fallen into poverty, in particular women.15 Sectoral and vertical segregation of the workplace along gender lines was pervasive in the plan economies, as it is in all market economies.16 However women now commonly endure new forms of outright discrimination, especially in the private sector among joint venturers and foreign investors.17 While this

B. Silverman and M. Yanowitch, New Rich, New Poor, New Russia: Winners and Losers on the Russian Road to Capitalism (Armonk, N.Y.: M.E. Sharpe, 1997), citing Tatiana Zaslavskaia, "Real Incomes of Russians Through the Prism of Social Assessments", Obshchestvo i ekonomika, 1994, no. 3 and 4.

World Bank, Understanding Poverty in Poland, supra note 5, at 25. 1

" "Poland's extensive safety net plays an important role in equalizing the depth and incidence of poverty among male- and female-headed households. If all the major cash benefits provided by - the state - unemployment benefits, pensions, family benefits, maternity and child-care related benefits, and social assistance - were subtracted from household consumption, persons living in female-headed households would have a poverty incidence of 54.4 percent (as opposed to the actual incidence of 15.3 using the minimum pension as the poverty line), while those in male-headed households would have a headcount ratio almost 10 percentage points lower". World Bank, Understanding Poverty in Poland, supra note 5, at 117. 15

W, at 114.

" Equality of opportunity and treatment for women and men in employment has yet to be achieved anywhere". ILO, World Labour Report, (Geneva: International Labour Office, 1994). For a discussion of the pervasive nature of occupational segregation by gender, see R. Milkman and E. Townsley, "Gender and the Economy", Neil Smelser and Richard Swedberg, eds., The Handbook of Economic Sociology (Princeton, N.J: Princeton University Press, 1994), 600. M. Fong and G. Paull, "Women's Economic Status in the Restructuring of Eastern Europe", supra note 11; B. Einhorn, "The Impact of the Transition from Centrally Planned to Market Economies on Women's Employment in East Central Europe", Consultancy Paper, ILO, (Brighton: Institute for Development Studies, 1993).

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The Gender of Restructuring discrimination seems to affect older women in particular, women of prime child-bearing and child-rearing years are also at great risk.18 Job retraining is crucial to participation in the market, given the misfit between the skills of workers and the demands of the new economy. Yet women do not always experience its benefits. For example, in Poland, the training available to women appears to have had a negligible impact in rendering women more employable.19 Women have also apparendy been excluded or under-represented in active labor market programs such as public works programs.20 As these data suggest, new constraints and difficulties in labor market participation for women are emerging as an important site of potential long-term gender disadvantage. As some analysts have noted, women are not invariably worse off than men; in some states and sectors, men have experienced greater levels of unemployment.21 A focus on women's employment rates can only capture part of the effects of transition for women however; what matters more is how economic activity is institutionalized. Even if women continue to be employed at high rates, they may be disadvantaged due to a deterioration in the terms and conditions under which they now work. Employment barriers may result in women working longer hours for low pay. Nor, for reasons to be described, is labor market work the only work burden that is relevant. Many women also carry significant non-market obligations; whether or not these obligations are reflected in the organization of work and in the structure of employment compensation is crucial to women's mid- and long-term fortunes in the market. So is the level of social support that is available through the state. A neglect of these dimensions of transition may cause the disadvantage that women experience through economic restructuring in total to be seriously understated. Accounting for how this disadvantage might be a function of institutional reform organized around neoliberal market principles is the purpose of the analysis that follows. 18

See for example World Bank, Understanding Poverty in Poland, supra note 5, at 121.

Id., at 123; see also, D.C. Jones and T. Kato, "The Nature and the Determinants of Labor Market Transitions in Former Communist Economies: Evidence from Bulgaria", 36: 2 Industrial Relations 229 (1997).

Understanding Poverty in Poland, supra note 5, at 123. Guy Standing, Global' Femini^ation Through Flexible Labor. A Theme Revisited, 27:3 World Development 583 (1999). 21

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Kerry Rittich Important clues to the production of particular types of gender disadvantage can be found by focusing on the way that the Bank imagines the (re)organization of work and the reconfiguration of enterprises. The most salient fact for gender disadvantage is that reforms are modelled on ideas about the proper objects and concerns of the productive sector that diverge dramatically from the pre-existing status quo. Some of the central causes of women's displacement and disadvantage in the labor force are not difficult to locate, as it is the shared institutions and practices which deviate from the neoliberal model that are the target of restructuring efforts. A major source of disadvantage is the loss of compensation for reproductive labor, following the elimination of benefits and services from enterprises, the relaxation of regulations that compel cross-subsidies from workers and others, and loss of transfers from the state. However, tracing the effects of the proposed changes for women requires an analysis of the ways that the pre-existing administrative practices, regulations and institutional structures established benefits and entitlements and produced a particular distribution of resources to women. Determining how this distribution might be transformed through the reforms in turn requires attention to such mechanisms as the new legal relations which are to govern production and the market, as well as changes to various social policies and programs of the state.

6.1 Restructuring the Enterprise and the State The objectives of restructuring center around the streamlining of enterprise functions, in particular, the elimination of enterprise provision of services and benefits, the elimination of subsidies on consumer goods and services, the reduction in the size of the state sector, greatly reduced income transfers, costrecovery and privatization of services such as education and health, market determination of wages and labor market flexibility. While they may appear neutral in their impact, for reasons to be explored, the restructuring agenda can be expected to play out so as to generate a range of negative consequences for women in many circumstances. It is precisely the integration of productive and reproductive labor and the cross-subsidization of unpaid work which is undermined, directly and indirectly, through key reform concepts such as reduced reliance on the state, the privati-

178

The Gender of Restructuring zation or (re)individualization of responsibility for individual welfare, and the elimination of enterprise "social welfare" responsibilities. In addition, the idea that enterprises should be maximally efficient and competitive in order to survive global competition has led the Bank to conclude that labor and employment regulations which compensate for caregiving and domestic labor are incompatible with restructuring. The results for women may include: increased levels of non-standard or informal employment; disproportionate unemployment; and loss of income and earning power relative to men. These are due to: the absence of adequate and affordable childcare services; increased caregiving and domestic labor; reduced access to health and other social services; and a sharp separation between the market and family responsibilities. This list is far from exhaustive; however these are among the most foreseeable outcomes. In addition, women might be expected to experience a disproportionate degree of the disadvantage resulting from policies which are designed to empower capital holders, managers and entrepreneurs relative to workers and other groups. Contrary to the view commonly expressed, it is not plausible to suppose that market forces will automatically operate to ensure the provision all of services and benefits which would be desired and needed by women. Instead, there is a strong likelihood that many services might be lost or underprovided as a consequence of restructuring. To put it another way, there are numerous factors which might give rise to market failure. This is due to a variety of issues which are ignored in the restructuring plan, such as the gendered structure of reproductive responsibilities and the performance of unpaid labor, differences in consumption choices among women and men, and shifts in household power as a result of participation in markets. Despite the revolution which is envisaged in the realm of production, the impact of restructuring policies on the family and the household has largely fallen from view. The instability of the situation, the difficulty of obtaining relatively complete and comparable statistics, particularly from states that are in transition and often outright crisis, and significant inter-state variation in circumstances both pre- and post-reform have all complicated the question as to whether these are transient or long-term effects. In addition, the failure to disaggregate statistics, to deliberately search out and pay attention to the position of women despite

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Kerry Rittich

extensive statistical reporting, in effect means that much information about gender disparities does not exist in readily available form.22 It is not difficult to explain how the new difficulties in labor market participation for women might emerge as an important site of potential long-term gender disadvantage. In its analysis of poverty in Poland, the Bank itself describes how such constraints on continued participation for women arise: "In today's new economic structure, employers are far more alarmed at the prospect of productivity losses caused by women's family obligations, which puts women coming into the labor market now at a greater disadvantage than was true before reform. The expectation of protracted absences for maternity leave makes a female worker less appealing as a prospective employee than her male counterpart. Heavier household and child and elder care responsibilities also hinder women's efforts to find work. Women also tend to have less scope for pursuing training to enhance their job prospects, for commuting long distances to work, and for relocating to take advantage of a job opportunity...".23

There are also supply factors at work: "The opportunity cost of women's employment has been rising. Costs for childcare have risen dramatically over the last several years, and these fees now take up a significant share of the average wage. Given the low wage less-educated women with small children can command and the additional childcare costs associated with working outside the home, the gain from moving off of unemployment may be slight or even nonexistent."

The devastation of childcare facilities is particularly telling. Prior to reforms, childcare in various forms was highly subsidized.24 Between 1990 and 1992, when reforms took root, both municipal and factory institutions increased fees for such services. The number of municipal facilities declined 32 percent; more extreme is the disappearance of factory-run institutions, which declined from 286 to 14 as "enterprises undergoing economic reform divested

M. Fong, "Gender Barriers in the Transition to a Market Economy", supra note 2, at 7. f\-i

24

180

World Bank, Understanding Poverty in Poland, supra note 5, at 124. Id., at 125.

The Gender of Restructuring themselves of their non-productive operations."25 The potential for significant disadvantage for women emerges clearly:26 "Before 1990 women could mesh family responsibilities relatively smoothly with work, exiting and reentering the labor force. Now they find it difficult to rejoin the world of paid employment after having taken time off for family reasons. According to the Labor Force Survey for 1992 conducted by GUS (Central Statistical Office), 21.6 percent of unemployed women had ceased working for family or personal reasons, while only 2 percent of unemployed men had ceased to work for this reason. Even women returning from parental leave (the law guarantees women the right to get their old job back), are frequently laid off within months of returning to work."27 Women of prime child-bearing and child-rearing age are highly disadvantaged and most likely to be unemployed, making up two thirds of unemployed women although they constitute only 39 percent of those women who are economically active.28 To explain in a more systematic way how such disadvantage might come about, it is useful to resort to a model which envisages economic activity occurring in two different spheres, the productive and the reproductive economies, the first of which is formally valued for economic purposes and the second of which is not. To adequately assess the effects of economic policy and regulatory changes on different groups at the individual or household level, it is necessary to examine the interrelationship between these two economies and consider the possible strategies and responses that changes in one could engender in the other. Through this model, it becomes apparent how seemingly innocuous or even apparently beneficial changes to economic practices, institutions and regulation, some of which might seem to be only remotely connected to gender equity, can generate profound distributive effects. These effects, moreover, may be invisible and unanalyzable within the terms in which restructuring is normally discussed. Finally, the model suggests why these changes may be better

» Id. Id., at 112. The only exception is the noted increase in leisure time for women which has resulted from declining amounts of time spent standing in lines to obtain consumer goods. 27 28

Id., at 119. W., at 121.

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Kerry RiWch understood as changes in the allocation of risks and costs, rather than merely enhancements in productive efficiency.

6.2 Production and Reproduction 6.2.1 ANALYZING THE PRODUCTIVE AND REPRODUCTIVE ECONOMIES The reproductive economy29 is the term commonly employed to refer to the sphere of unpaid economic activity in which much of the provisioning and support of human life occurs. It typically encompasses such activities as child and elder care, food preparation, volunteer work, and large amounts of education and health care. It includes a broad range of services which are performed rather than purchased and home production which is consumed rather than sold, both of which obviate or lessen the need to buy goods or services in the market. By contrast, the productive economy refers to the economic activity which takes place in the market. What is distinctive about the reproductive economy, demarcating it from the productive economy, is the absence of payment: economic activity within it is not the subject of a monetary transaction. Because of the way that economic activity is observed, classified and measured, what goes on within the reproductive economy is normally excluded from the calculation of productivity and national wealth.30 As a result, reproduction includes all of the activities which are not directly remunerated but which contribute to the provisioning of human life and socialize and acculturate people to the performance of particular roles, including those in the productive economy. Apart from the independent value of such work, it also constitutes an indispensable support and precondition to all market activity. Thus, the reproductive sphere provides a means of conceptualizing the realm of economic

The term is used in a variety of different ways. It is used here in the sense in which it is employed by Marilyn Waring, If Women Counted: A New Feminist Economics (San Francisco: Harper and Row, 1988). That is, it refers to unpaid work, rather than 'care' work per se, or 'social reproduction' which includes both paid and unpaid work. A classic discussion is found in M. Waring, If Women Counted, id. See also: Julie A. Nelson, Feminism, Objectivity and Economics (London; New York: Routledge, 1996); Isabella Bakker, ed., The Strategic Silence: Gender and Economic Policy (London: Zed Books in association with the NorthSouth Institute, 1994); Symposium, "Gender, Adjustment and Macroeconomics", 23:11 World Development (November, 1995). 182

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activity which, though integral to other forms of production31 as well as an independent source of wealth generation,32 remains formally invisible in both the accounting of economic activity and discussions of economic policy. Within the industrialized economies, reproduction and production have historically mapped onto the two social institutions with which each is most closely associated, the family and the market.33 Because the reproductive economy has become a shorthand way of referring to the domestic sphere and the tasks which are typically performed by women on an unpaid basis,34 activities such as child-rearing and household work are often regarded as simply intrinsic to its structure. Along with this assumption comes the idea that certain forms of labor are naturally performed without compensation. The terms production and reproduction are often used in ways that suggest that each refers to separate domains with particular preoccupations. Production and reproduction are conceived as discrete sets of activities which are identifiable according to their functional characteristics. For example, such assumptions are pervasive in neoliberal discourse; indeed, the desire to distinguish productive from non-productive activities is a defining element of the logic of neoliberal economic reform. However, the idea that production and reproduction refer to fundamentally different spheres and activities is also common to Marxian economic analysis; there is a long history of analyzing production and reproduction in Marxian thought, and a sphere of economic activity which is The argument that reproductive labor has economic value has a venerable history in economic thought, beginning at least with the work of Margaret Reid in 1934. A survey of issues around the valuation of unpaid work can be found in the following symposium issue: 2(3) Feminist Economics (fall, 1996). There are, by now, numerous estimates of the value of unpaid labor to national economies; they suggest that if the value of unpaid work were included in the national income accounts, which attempt a valuation of productive output for a range of social and policy-based purposes, the estimates of total productivity would rise in the neighbourhood of 30%. Some discussions include: United Nations Development Programme, Human Development Report 1995, supra note 1; M. Waring, If Women Counted, supra note 29. One discussion of the reciprocal and interconstitutive relation of the family and the market is: Frances Olsen, "The Family and the Market: A Study of Ideology and Legal Reform", 96 Harvard Law Rev. 1497 (1983). It is uncontroversial that the bulk of unpaid labor in every society is performed by women. See United Nations Development Programme, Human Development Report 1995, supra note 1; United Nations Development Programme, Human Development Report 1999 (New York: Oxford University Press, 1999).

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both cross-culturally identifiable and separate from the rest of social life is central to Marxian economic theory.35 The claim relied upon and elaborated here, first in the context of transition but also as a proposition about the structure and organization of economic activity in general, is that there is no natural, necessary, non-normative or prepolitical division between productive and reproductive tasks. However common such assumptions are, neither the productive nor the reproductive sphere describe fixed social space, nor do they necessarily encompass the performance of particular tasks. Rather, the realms of production and reproduction are subject to enormous variation in character and size. It is the exclusion of certain activities and the externalization of their costs from the productive economy which places such activity in the reproductive sphere. If there is no simple or obvious division between productive and reproductive tasks or activities, what this means is that it is not at all clear which costs are costs of production, or costs of doing business, and which are not. Instead, such claims should be understood not so much as facts about particular activities but rather as decisions concerning how the various aspects of economic life should be organized. There are institutional, normative, ideological, cultural and practical dimensions to such decisions. They raise a host of questions concerning how resources are to be allocated, where particular tasks are performed, who performs them and which of the particular inputs and activities that are necessary to production will be paid for in the context of production and which will be externalized in whole or in part. The answers depend on the priority and weight which are given to different values and objectives, that is to say, how various options or institutional arrangements are thought to serve such ends as, for example, wealth aggregation, equity, efficiency, particular social and economic projects or cultural visions. See for example F. Engels, The Origin of the Family, Private Property and the State (London: Lawrence and Wishart, 1940). It is also a topic of socialist feminist analysis. See for example, H. Hartmann, "The Unhappy Marriage of Marxism and Feminism: Towards a More Progressive Union", L. Sargent, ed., Women and Revolution: a discussion of the unhappy marriage of Marxism and feminism (Boston, MA: South End Press, 1981); Gayle Rubin, "The Traffic in Women: Notes on the "Political Economy" of Sex", Rayna R. Reiter, ed., Toward an Anthropology of Women (New York: Monthly Review Press, 1975; Linda Nicholson, "Feminism and Marx: Integrating Kinship with the Economic", S. Benhabib and D. Cornell, eds., Feminism as Critique: essays on the politics of gender in late-capitalist societies (Cambridge: Polity, 1987). 184

The Gender of Restructuring The relationship between the two economies can be analyzed in the following way. The first thing to note about the productive and reproductive spheres is that they are inextricably intertwined. Any distinction between them is necessarily arbitrary from one perspective, as there is no productive activity which does not employ human capital as a factor of production. The labor supply itself must be produced; as is well known, much of this occurs through unpaid labor, normally that of women. Production thus depends on reproductive activity. However, reproductive activities are also intertwined with production. Particularly in late industrial economies, large numbers of goods and services associated with the care of people are purchased on the market. Indeed, a quintessential reproductive activity, care, is frequently bought and sold on the market. Second, the relation between the two economies extends beyond mere interdependence; the spheres should be understood as interconstitutive. In other words, the actual structure of each economy is in part a function of the other. The reproductive sphere, rather than a domain which necessarily encompasses certain activities and performs pre-established functions, is actually constituted and transformed by the functions and activities that either occur, fail to occur, or might occur in the productive sphere. The identity and concerns of one are to a considerable degree negatively constituted by the other; the activities each encompasses include what are, sometimes quite contingently, not performed in the other. Because of this, they are structuring elements of each other. It follows that there may be nothing that qualitatively distinguishes reproductive from productive work. It is not the essential character of the activity that determines its classification; rather, it is the conditions which structure its performance and the existence or absence of direct compensation for the labor involved. The very same activity may be, and often is, considered productive in some contexts and reproductive or non-productive in others, depending on whether it is the subject of a monetary transaction. The classic example is childcare; if it is performed gratis by a parent, or alternatively by a relative, neighbor or other volunteer, it is not considered productive. However, it becomes a productive activity upon payment for the service. This transformation from reproductive to productive work obtains in the case of other unpaid household services or voluntary activities that become subject to a monetary transaction. 185

Kerry Rittich Normally it is a market transaction that demarcates the productive from the reproductive economy. However, the presence of a monetary transaction is not an inflexible marker of the boundary between the productive and reproductive spheres, nor is the absence of a financial or market transaction an absolute barrier to inclusion in the sphere of production. Instead, when economic growth is measured through national accounting systems such as the gross domestic product (GDP), value is imputed to certain activities and assets in the absence of an actual market price.36 Production boundaries are established to determine the particular assets and activities to which value will be attributed, as well as those to which no economic value will be assigned. What the practices of establishing production boundaries and imputing value discloses is that determining the sphere of production is a judgment-laden activity, not a merely administrative or technical exercise. Moreover, it is a process that is replete with normative and ideological choices. Decisions to impute value would not and cannot be made without a prior assessment that particular activities and assets contain inherent worth or value to production or the economy as a whole; yet, at the same time, the determination of production boundaries would be unnecessary if what contributes to growth were entirely self-evident. There is a number of proposals to expand the ambit of this imputed value or to set up parallel systems of accounting, most notably in the area of household labor.37 As these proposals illustrate, the determination of growth and production is an inherently contestable exercise. Fourth, the boundary between production and reproduction is drawn differently in different contexts and cultures; moreover, it varies even within societies considerably over time. The sharp division between productive and reproductive activity is a product of a cultural and historic moment, the rise of

For a discussion, see M. Waring, If Women Counted, supra note 30. Work in this area ranges from conceptual critiques such as those of Waring, supra note 29, to technical reports on the collection and interpretation of data on economic activity. See for example United Nations, Methods of Measuring Women's Economic Activity: Technical Report (New York: United Nations, Department of Economic and Social Information and Policy Analysis, Statistical Division, 1993) and time use surveys (see for example liris Niemi, Time Use of Women in Europe and North America, United Nations Economic Commission for Europe and INSTRAW (New York: United Nations, 1995).

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The Gender of Restructuring industrial capitalism in Europe,38 rather than a necessary or inevitable feature of all economies or societies. The idea that labor such as housework is nonproductive is a product of this distinction and social context.39 There is a tendency to characterize certain types of labor as "domestic" and inherently nonproductive even in non-industrial contexts40 even though attempts to introduce such a distinction may be highly artificial. As the lack of functional differentiation of the two economies prior to industrialization demonstrates, there is no natural or necessary division between productive and reproductive activities. Fifth, even in modern industrialized societies, the productive and reproductive spheres are intertwined in such a way as to make it impossible to distinguish between them on some purely functional, non-arbitrary basis. The bifurcation of the two spheres remains, in any event, partial and incomplete; production remains necessarily connected to reproduction.41 For example, labor market work is necessarily structured and constrained by myriad non-market considerations such as workers' activities, needs and interests. Human beings have physical limits, we require time to eat and sleep, we become ill, we have various non-market desires and obligations, for example, to families and communities. The employment contract and the level and forms of compensation are always partly constituted by these demands and interests to the extent that the labor force has been successfully able to press them. Finally, the value of work depends on who performs it. The gender of the worker may be the very thing that determines whether an activity contributes to production at all.42 Paid work is also organized, crafted and compensated according to the real and perceived qualities of the groups of workers that 38

Karl Polanyi, The Great Transformation (Boston: Beacon Press, 1957); Linda Nicholson, "Feminism and Marx: Integrating Kinship with the Economic", supra note 35. The genealogy of "non-productive" work has been traced by such authors as Nancy Folbre, "The Unproductive Housewife: Her Evolution in Nineteenth Century Thought", 16:3 Signs 463 (1991) and Reva Siegel, "Home as Work: The First Woman's Rights Claims Concerning Wives' Household Labor, 1850-1880", 103 Yale Law Journal 1073 (1994). M. Waring, If Women Counted, supra note 30. This is not a new observation; discussions of the reproduction of labor in the context of production are to be found throughout the writings of Marx and Engels. See for example K. Marx, "Wage Labour and Capital" and excerpts from Capital, vol. 1 in R.C. Tucker, The MarxEngels Reader, 2d. ed (New York: Norton, 1978); F. Engels, The Origin of the Family, Private Property and the State (London: Lawrence and Wishart, 1940), 1-2. 42

See Marilyn Waring, If Women Counted, supra note 30.

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Kerry Rittich perform it. Women may be the preferred workers in certain types of work, whether or not they are formally part of the same labor market as men; the converse is of course also true. Some of these employer preferences relate to unpaid obligations of care. For example, the reproductive activities of women may make them less attractive workers because of the potential disruption they pose to paid employment. On the other hand, family obligations may make workers, including women, preferred workers if they are regarded as likely to make them more stable or responsible. Unpaid obligations may also impair women's access to alternative employment, making it possible to pay them less than men for the same work. The malleability of the two spheres can be usefully illustrated by considering what goes on and what sorts of activities are compensated or subsidized in the context of production. There is great variety in the costs that are internalized, the interests that are accommodated, and the goods and services that are directly provided in the context of employment in industrialized market societies. The terms that actually govern the performance of work may be specific to a particular region, workplace or industry. They may be negotiated through the employment contract or collective agreement or, less formally, they may emerge in the form of custom, norms or conventions of the trade. The recognition of certain demands may be enforced or regulated community- or nation-wide, as when working conditions or compensation levels are formally mandated through law. Or they may be intertwined with particular cultural and social conventions or historic practices. Whatever the source or mechanism, once they form part of the employment bargain, they become integrated into the process of production. One of the effects of implementing such arrangements may be to change the boundary between production and reproduction, transforming what would otherwise be unpaid time into compensated, "productive" labor. The operation of course can work in the reverse as well. Employment benefits in market economies typically compensate unemployment, retirement and disability. Provisions limiting working time and those providing holidays, minimum wages and pensions could all be regarded as recognition of the particular reproductive or non-productive interests of the workforce. However, the available benefits often extend to maternity and parental leave, and health care; they may even extend to subsidized housing. Moreover, there are a host of arrangements that could be implemented to

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The Gender of Restructuring subsidize the cost of labor in non-standard ways that are structurally homologous to existing forms of benefits such as pensions and unemployment insurance. These include the payment of maternity benefits through a payroll tax on all employers without respect to whether they employ women,43 or a direct tax on capital for the percentage of value added.44 The number of activities that might fall under the rubric of production expands even further when we consider the range of goods and services that were provided through employment in the plan economies.45 The provision of these goods and services in the context of production reflects a wider conception of what is necessary to production and what is reasonably included in the costs of production than prevails in most market economies. However, the productive sphere may also contract, and the reproductive sphere expand, as a consequence of changes in the organization of production. If employers choose to externalize labor costs, for example, by eliminating benefits or organizing production through independent contractors to avoid employment standards and payroll deductions, fewer activities and less of workers' time is likely to be compensated. Under these circumstances, time spent away from work, whether due to illness, disability, holiday, pregnancy or parental obligations is no longer compensated, and recognition of those aspects of workers' lives is severed from the context of market work. In response, workers may also be compelled to either lower their consumption levels or engage in more subsistence activities. The variety of existing arrangements and the change in norms, both legal and informal, governing employment benefits and compensation over time evidences both the arbitrariness of any rigid assertion about what is or is not a productive activity and the intense malleability and contestability of the production/ reproduction boundary.46 As national or local struggles over particular issues such as the provision of family leave47 and legal disputes over the deduc43

See for example S. Isacharoff and E. Rosenblum, "Women and the Workplace: Accommodating the Demands of Pregnancy", 97 Columbia Law Rev. 2154 (1994). 44 I. Palmer, "Public Finance from a Gender Perspective", 23:11 World Development (1995) 1981,1985. 45 See discussion in chapter 1. For a survey of labor market and welfare state arrangements among industrialized states, see G. Esping-Andersen, The Three Worlds of Welfare Capitalism (Cambridge: Polity Press, 1990). 47 Family and Medical Leave Act, 29 USCA s.2617 (1993). 189

Kerry Rittich tability of childcare expenses for business purposes reveal,48 the boundary is always subject to contestation. The contestability of the boundary also becomes apparent when we consider whose reproductive claims and interests are engaged in the processes of production. At first glance, the answer seems obvious: it is the workers'. But on closer consideration, it appears that such a conclusion would be only trivially or formally correct. Which workers? Past, present, or future? In both plan and market economies, it is not the claims and interests of the worker alone which are recognized. In market economies, firms, either through the explicit provision of a "family wage" or through the more covert practice of simply paying (especially married) male workers at higher rates than women,49 typically recognize and construct a social norm of the male provider or head of household. Through the medium of the male worker, they may also indirectly compensate the unpaid or reproductive labor of other family members. The fate of the family wage also suggests the dynamic nature of the boundary between production and reproduction even within societies over time. The entitlement of male workers to a family wage was an entrenched feature of the Anglo-American industrialized economies at the height of the Keynesian compromise and the New Deal welfare states. However, as wages have fallen in real terms in the past generation and the labor force has been feminized,50 the norm of the family wage has been seriously eroded if not effectively dismantled. The transformation of women from unpaid to paid workers in turn now encourages the commodification of previously unpaid activities such as domestic and childcare labor, and produces pressure for the subsidization of some of these activities previously performed by women "for free." In the plan economies, although entitlements to social benefits were largely tied to employment, enterprises often provided benefits and services to families

48

Sjmes v. Canada, [1993] 4 S.C.R. 695.

The wage premium paid to married men is a well-documented feature of industriali2ed societies. See V. Fuchs, Women's Quest for Economic Equality (Cambridge, MA: Harvard University Press, 1988), 60. G. Standing, "Global Feminisation through flexible labour", 17:1 World Development 1077 (1989). G. Standing, "Global Feminization Through Flexible Labor: A Theme Revisited", 27:3 World Development 583 (1999).

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The Gender of Restructuring and members of the local communities as well.51 From one perspective, such practices are simply a mode of ensuring the availability of resources to serve the interests and well-being of workers, and hence securing the quality of labor necessary to production, albeit in a much more extensive and comprehensive way than is conventional in market economies. However, there is nothing about the choice of either a plan or market economy per se which determines either the boundary between reproductive and productive activity or the extent of the services which might be attached to enterprises or provided through employment. A great variety of arrangements is compatible with market economies as well. Because they are inseparable from human welfare and economic development, both the cost and performance of many activities that are central to production have long been collectively assumed rather than borne privately by the individual or the household in industrialized states. Some degree of collective responsibility and provision is typically assumed in both industrialized and developing states in the areas of education, health care and welfare. The result is that such activities become funded in complicated ways by individuals, corporations and society at large. One effect of such practices is that production itself is inevitably subsidized as well. Worker training, an essential part of ensuring the supply of human capital to production is a good example. The training of the labor force could be, and is in fact, regarded as an individual responsibility, a state responsibility whether at the local, regional or national level - and an enterprise responsibility. In practice, costs and responsibilities are typically divided up among these parties and institutions. However, there is a great deal of variation in the arrangements even among market-based, industrialized states. Basic education is undertaken in the family, general education is usually borne by the community at large through the state up to a certain point, more specialized training might be paid for by the individual and/or the state; very specific job training is usually undertaken by the employer, sometimes with the aid of the state. But counterexamples could be cited for all of these conventional arrangements. L. Specht, "The Politics of Property: Soviet Property as a Bundle of Rights", S.J.D. dissertation, Harvard Law School, April, 1994, 108; M. Boycko and A. Shleifer, "Russian Restructuring and Social Benefits", A. Aslund, ed., Russian Economic Reform at Risk (London: Pinter, 1995), 110.

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Kerry Rittich Children or their parents may be responsible for school fees throughout, or individuals or their families may bear little or no part of educational costs, except for forgone opportunities and income, at any stage. The possibility of greatly varying arrangements suggests the malleability of the dominant pattern of responsibilities and the permeability of the production - reproduction boundary. Similarly observations can be made with respect to childcare. The costs associated with the care of children may be regarded as entirely an individual or family responsibility. Alternatively, childcare may be provided through the state or by the employer. Or it may be privately provided through paid caregivers, the cost of which is entirely or partly subsidized by the state or employer. Parallel observations could be made regarding health care and other concerns as well; in short, arguments can be advanced for funding or directly providing a wide range of services on a variety of different bases. To reiterate, there seems to be little if anything about an activity per se which enables us to determine whether an activity belongs in the productive or reproductive sphere. Apart from the decision itself, there is nothing about the inherent character or function of any activity which answers this question. If there is no identifiable logic governing the allocation of an activity to one sphere or another, what influences such outcomes? What is at stake in such decisions and why might it matter if something is a market or a non-market activity or whether it is subsidized or provided directly by the state or an enterprise? How are changes effected? It is clear that the family, the state and the market share certain overlapping preoccupations. The division of labor among them is not fixed: the performance of tasks and the responsibility for funding them move back and forth across the borders among these institutions, and there are constant controversies and disputes over where they should lie. The divisions between productive and reproductive tasks and responsibilities that obtain in specific contexts reflects myriad influences and considerations, historical, cultural, practical, economic, and ideological. One way to think of the boundary between the productive and reproductive spheres is simply as the sign or marker of the current political settlement over the organization of work and the assignment of costs and responsibilities to different parties. Nothing more necessarily turns on the appellation of an activity as "productive" or "reproductive". 192

The Gender of Restructuring Legal rules play an important role in the establishment of that boundary. In market economies, a key determinant of the organization of work and the allocation of tasks and responsibilities to the two spheres, in other words the actual constitution of the productive and reproductive spheres, is the matrix of laws and regulations which structure economic activity. As suggested by the above examples, they may play a crucial role in determining whether an activity, or elements of activities, are incorporated into the sphere of production. Apart from determining whether certain activities are compensated or not in the context of production, they also determine who bears what proportion of the cost, and whether those costs are individually or collectively borne. Moreover, the role of regulation and policy is not limited to those issues that are contested at the margins. Rather, legal rules and state policies profoundly influence how, when and to what extent particular activities become commodified. Classic examples are health care and childcare. For example, even in societies in which much childcare normally occurs on an unpaid basis, individuals are theoretically free to hire someone to perform it. In other words, childcare can become a "productive" activity as a consequence of the decentralized purchasing decisions of individual actors in the market. However, the institution of high quality, publicly funded, universally accessible childcare could be expected to vastly increase the amount of compensated childcare that is performed in its absence, as it will induce some women, perhaps many, who would not otherwise do so to enter the labor market; similarly, subsidies would enable those who could not otherwise afford it to purchase services. However, the practical ability of workers to purchase childcare, and thus the actual extent to which it occurs, is also influenced by myriad other legal rules, from tax codes, to minimum wages and collective bargaining rules. For example, tax laws that permit the deduction of childcare as a business expense effectively transform childcare, for those who can legally avail themselves of the benefit, into a cost of production. And employment regulations mandating paid maternity leave transform the reproductive labor that occurs during the leave period into productive, that is paid, labor. In addition, such laws often influence the rate at which such labor is compensated. In short, legal regulations help determine the boundary between production and reproduction in a variety of ways. First, they provide a complex and interlocking set of entitlements and incentives that structure behavior in the

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Kerry RiWch family and the market. Directly and by default, the powers and disabilities provided through those entitlements provide each party with a set of advantages and disadvantages that encourages the organization of tasks in particular ways and the allocation of responsibilities to different spheres. These entitlements also structure the costs to one party versus another. Different sets of legal rules governing economic transactions thus can be expected to affect the power and the resources of the different constituencies who have stakes in the outcome of productive activity. The specific types of activities, benefits and services which are incorporated into production, as well as the legal rules which encourage or require certain types of organizations and outcomes, may be a product of the interests and power of particular groups. For example, they may reflect the interests of workers or the relative power of workers vis-a-vis their employers. They may reflect the desire of enterprises to attract certain types of workers. Or they may reflect the relative power of investors and capital holders who threaten to exit, or simply fail to materialize in the first place, if they find a regulatory environment uncongenial to their interests. However, the perceived desirability of legal rules and institutions may be difficult to identify precisely or solely in terms of particular interests. Those rules may also reflect ideological shifts, such as a heightened interest in productivity or efficiency, a reconceptualization of the role of the state, or a transformation in the responsibilities that are assigned to the individual or to civil society. Whatever the forces at work behind regulatory or policy shifts, the effect of the exercise is often profoundly redistributive. Transformations in the size, structure and composition of the productive and reproductive spheres are not necessarily accompanied by commensurate shifts in resources. For a variety of reasons, there may be no, or inadequate, compensation to the parties adversely affected by the change. Indeed, alterations in the incentives, conditions and constraints under which production occurs, or the displacement of responsibilities to individuals or households, may be expressly motivated by the desire to shift costs to one party or another. But even if done for entirely different purposes, for example to enhance the efficiency of enterprises, large shifts in resources and power among different groups may be among the principal effects of regulatory and policy reform.

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The Gender of Restructuring Thus, the regulatory decisions governing production may matter enormously for distributive purposes. Decisions concerning the costs that enterprises bear and whether or not particular activities are compensated in some manner are intimately related to how the gains of productive activity are distributed among different groups. This is particularly true with respect to reproductive labor, for the reason that it is disproportionately performed by women. The privatization of childcare and the elimination of many benefits and services in the course of transition to the market economy is promoted as a means of reducing the operating costs of enterprises. For reasons to be explored in detail in the following sections, such decisions will typically have the effect of re-allocating resources and power among women and men, as well as among workers and capital holders. While the most pertinent forms of regulation may be the legal rules that set the framework of production, those that govern the employment relationship in particular, and family policies, it is important to note that the fact that a law or policy is not formally or directly "about" either the family or the labor market does not in itself determine whether or not it will generate consequences for the family or the household or affect the operation of labor markets and the relative power of workers. The effects of regulatory change in a market economy are routinely far-reaching. Almost all the legal rules that bear on the levels of disposable income or affect the costs of household expenditures might generate such consequences. But to the extent that particular spheres or institutions are either overlapping or quite clearly reciprocally constructed as are the family, the state and the market, we should anticipate that legal, policy or other structural changes intended to operate on one might exercise a deep effect on the other. Moreover, not only do changes to economic policies, rules and institutions affect the distribution of gains to those engaged in market transactions, such changes may alter the distribution of resources and power inside the family. Market reform policies typically assume a single household utility function; in other words, they assume that the welfare of individuals within the household can be captured by measuring the welfare of the household as a whole. However, it is apparent that such assumptions, however pervasive, are unsafe; resources are not necessarily shared, and income generation outside the family appears to positively influence the degree of control inside the family, especially

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for women.52 Hence, the alteration of a variety of legal rules may well affect the status of women in far-reaching ways, as the distribution of economic power outside the household and access to resources, decision-making power, parity in workload and leisure time within it appear to be deeply interlinked.53

6.2.2 RESTRUCTURING AND REPRODUCTION Because of the deep interconnection between the two spheres, all modes of economic restructuring need to be understood as sets of policies and actions which engender a range of strategies and responses in both the reproductive and productive economies.54 There is a continuous process of feedback between the two spheres. Even small shifts in the policies, laws or organizational structure of the formal economy can trigger an incredibly varied, complex and wide-ranging set of responses and adjustments in the informal economy and reproductive sectors. These in turn may alter the burdens and advantages that various social actors bear. This interconstitutive relationship between the productive and reproductive spheres suggests the need to examine how restructuring strategies intersect with other social and cultural formations which form no part of the official plan. In particular, it highlights the importance of attention to social institutions and norms which appear to remain untouched, remote or entirely outside the agenda for economic reform. One of the primary neoliberal objects of restructuring is to shift the division of labor between the family, the state and the market, so as to enhance the See Sen, infra; Bina Agarwal, "'Bargaining' and Gender Relations: Within and Beyond the Household", 3(1) Feminist Economics 1 (1997); A. R. Quisumbin and J. A. Maluccio, "Intrahousehold Allocation and Gender Relations: New Empirical Evidence", World Bank, PRR on Gender and Development, Working Paper Series, no. 2,1999. This phenomenon has been observed and explored by numbers of analysts. See, A. Sen, "Gender and Co-operative Conflict", I. Tinker, ed., Persistent Inequalities: Women and World Development (New York: Oxford University Press, 1990); D. Elson, ed., Male Bias in the Development Process (Manchester: Manchester University Press; New York, NY: St. Martin's Press, 1991); L. Beneria and M. Roldan, Crossroads of Class and Gender. Industrial Homework, Subcontracting and Household Dynamics in Mexico City (Chicago: University of Chicago Press, 1987). The complexity of this relationship, including some of the empirical and measurement conundra involved in developing an accurate picture of economic transformations, are described in Martha MacDonald, "The Empirical Challenges of Feminist Economics: The example of economic restructuring" in E. Kuiper et al, Out of the Margin: Feminist Perspectives on Economics (London; New York: Routledge, 1995), 175.

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The Gender of Restructuring role of the market and reduce that of the state in securing human welfare. Although the purpose is to increase growth and productivity, a major effect of restructuring is the redrawing of the existing boundary between production and reproduction, that is, paid and unpaid work. While the focus of neoliberal reform is on the transformation of production, restructuring will inevitably transform the operation and structure of the family as well. The reason is as follows: to change the structure of laws and entitlements so that enterprises are unlikely to provide certain benefits or services, and at the same time to institute policies expressly discouraging the state from providing those benefits and services, is, in the absence of compensating changes, to assign greater costs and responsibilities to the family or the community and, given current gender norms about the division of labor, more specifically to women. In neoliberal economic prescriptions, workers are positioned in labor markets differentiated only on the basis of individual skill, effort and talent. However, an appreciation of the way in which reproductive work operates on and intersects with market work suggests how particular populations of workers might inhabit different jobs for structural rather than merely individual or cultural reasons. Notwithstanding, restructuring proposals in the agenda proceed largely in the absence of any discussion of the expected impact on the household or the family or the position of individuals within it. In part this is a function of the macroeconomic indices that are employed to increase development and growth. With some exceptions, economic activity as measured by indices such as the gross domestic product (GDP) encompasses only productive activity in the market. The exclusion of household and other forms of reproductive labor from the calculus of economic activity creates incentives for enterprises and states to pursue "efficiency-enhancing" strategies that require households and individuals to absorb greater costs. At the same time, however, there is no mechanism by which to capture effects such as increased responsibilities and work intensification in the reproductive sphere that result.55 The neglect of the

As Diane Elson notes, "A macroeconomist could argue that he was justified in ignoring the costs of resource reallocation because these were absorbed by households in ways that had no repercussions for the monetary economy. In other words, an increase in unpaid labor in the household made it possible to treat the switching from one form of paid labor to another as costless." See D. Elson, "From Survival Strategies to Transformation Strategies: Women's

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Kerry Rittich impact on the reproductive sphere also renders it difficult, or impossible, to assess the effects of such decisions on production. There is no recognition, for example, that increases in unpaid work might have an adverse impact on people's ability to engage in paid labor, thus depressing productive activity in general. Despite the professed desire to promote greater market activity, supply of unpaid domestic labor appears to be assumed and relied upon in the course of restructuring. Despite their common use as proxies for general societal progress,56 it becomes clear once these measurement biases and deficiencies are noted that indices of aggregate growth such as the GDP by which the success of restructuring efforts is measured can be seriously misleading as standards of either material progress or human well-being. These are omnipresent problems which are by now well-recognized in development economics.57 However, these deficiencies are likely to be especially severe during periods of disruption in production or changes in the structure of the economy which lead to an interruption in the delivery of benefits or services, in short any time when there are changes which might produce significant shifts in the location of production or service provision. Paradoxically, these deficiencies may lead to errors in both directions, overestimations as well as underestimations in the decline in welfare. The links between the neoliberal agenda for economic restructuring and changes in the reproductive sphere, in particular the simultaneous operations of neglect and reliance on unpaid activity, can nonetheless be traced in particular policies and strategies. These illuminate some of the ways in which disadvantage might be created, particularly for women. Needs and Structural Adjustment", L. Beneria and S. Feldman, eds., Unequal Burden: Economic Crises, Persistent Poverty, and Women's Work (Boulder, CO: Westview Press, 1992), 26, at 31. The limitations of using macroeconomic indices such as GDP (gross domestic product) alone as proxies or indicators of development are well known. They have led to efforts to construct alternative indices, such as the United Nations Development Program's human development index. See United Nations Development Programme, Human Development Report (New York: Oxford, various years). These limitations also indicate the pressing need for the disaggregation of data to enable the effects of transformation on the status of distinct sectors and populations, such as women, to be determined. See for example, Special Issue: Gender, Adjustment and Macroeconomics, World Development, supra note 30; United Nations, Methods of Measuring Women's Economic Activity, supra note 37; United Nations Development Programme, Human Development Report 1995, supra note 1; World Bank, Toward Gender Equality: The Role of Public Policy (Washington, DC: World Bank, 1995).

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The Gender of Restructuring Current development strategies overtly and covertly encourage both states and enterprises to adopt a "core functions" approach to their operations and shed or diminish resources invested in peripheral activities or concerns. In both cases, this translates into a disinvestment in those activities that are deemed to be non-productive. The result is a devolution or displacement of certain tasks and responsibilities to households or individuals. This devolution is characteristically justified simply on the basis that certain costs or activities properly belong there, that is, that they do not contribute to production. Alternatively, it may be argued that the state or enterprise can no longer "afford" to pay for certain activities and benefits, as they constitute luxuries that will prove to be a burden in the context of a competitive market environment. Or it may be claimed that enterprise provision of services or involvement in particular tasks is simply inefficient. However, in light of the analysis of the productive and reproductive economies, claims that such activities are "non-productive" can be understood to involve normative evaluations rather than mere description which, furthermore, may be misleading in important ways. Rather than claims simply about the aggregate economic benefit to be derived from certain arrangements, they should be understood as conclusions about how resources and responsibilities should be allocated, how income should be distributed and what activities should be paid for in the context of production. Similarly, claims that certain services are "too expensive" may signal not that they should or even could be eliminated, but that the task of providing them should be shifted to the individual or household.58 This typically occurs without overt recognition of the element of redistribution involved or attention to the questions of compensation and adequacy of resources. Moreover, there is a necessary circularity to arguments that activities are non-productive as long as productive economic activity refers solely or even primarily to what transpires in the monetized economy. As is evident from the analysis of the two economies, the decision to re-allocate resources may itself "make" certain tasks unproductive. What is identified as an increase in productivity on the part of the individual firm or an improvement in the bottom line of the state budget through this 58

See also Elson, "From Survival Strategies to Transformation Strategies", supra note

55, at 34.

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Kerry Rittich shifting of costs, moreover, may simply mean a decline in the compensation of work or an intensification of unpaid work, especially if wages are inadequate to or do not in fact replace the services lost. However, it may also incidentally mean a decline in productivity. We have no means of identifying, and therefore it would be unsafe to assume, the degree of actual increase in the overall level of economic activity, except as is measured and understood in a particular, limited sense. Consequently, there may be no correlation between any such increase and improvements in welfare; instead there may have simply been a redistribution of income and an intensification of work. 6.3 The Gendered Effects of Enterprise Restructuring The positive scenario envisioned as a consequence of reforms is that people will be in a position to purchase on the market what they previously received as benefits or services instead of wages. Rather than simply accept what is available through enterprises, people will decide on the nature of the services that they require; along with greater consumer choice will come efficiency gains as well as a general improvement in the quality of services and the standard of living. It is assumed that the services provided through the markets are at least commensurable with and probably superior to those provided through the state and the enterprise under the plan system. However, there are numerous factors at work which suggest that some services might never be replaced or provided through the operation of market mechanisms alone. Given the contingent and variable effects of restructuring and the fact that reducing the costs of production is also a restructuring objective, it is entirely foreseeable in many cases that the result will simply be the loss of benefits or services, particularly if income is inadequate to replace them or it is allocated elsewhere. Another likely result is an increase in unpaid labor. Certain types of work that cannot be eliminated, such as childcare, may simply become informalized or decommodified.59

See for example the evidence discussed in M. M. Lokshin, "Effects of Child Care Prices on Women's Labor Force Participation in Russia", World Bank, PRR on Gender and Development, Working Paper Series, no. 10, 2000. 200

The Gender of Restructuring For a complex set of reasons, the performance of unpaid labor remains deeply associated with women.60 This suggests that any increased work that result from the spinning off of benefits and services provision from enterprises or the elimination of state services and subsidies is likely to be experienced differently by women and men. For this reason, an analysis of the explicit or implicit reliance on the reproductive economy in privatization and restructuring strategies can yield important clues about the disadvantage which may accrue to women, especially if unpaid labor increases without other compensating changes.61 It is important to be clear that these observations about the possibility of widespread gender disparity in the effects of restructuring, particularly with respect to work, do not rest on any investment in theories of natural sex roles, the essential gender differences or even the intractability of stratification of the labor force. Particularly for the purposes of a distributional analysis, attempts to explain such phenomena by reference to sources to which we necessarily lack unmediated access should be resisted. They divert attention from the specific task at hand, which is to investigate the manner and degree to which such differences and disadvantages might be produced or enhanced through regulation, policy decisions and other social and institutional structures. The risk of relying on concepts of "gender" or "culture" is a discounting of human agency, decision and complicity in the production of disparity and difference.62 Moreover, the chain of causation between unpaid labor or the loss of services and benefits and resulting disadvantage is neither direct nor inevitable. The important point is not whether all forms of labor are commodified or whether goods and services are provided directly through employment, but whether reproductive labor is compensated in some way so that those who perform it are not seriously disadvantaged, and goods and services are actually At this point, it is uncontroversial to note that most reproductive labor is performed by women. See UNDP, Human Development Report 1995, supra note 1; UNDP, Human Development Report 1999, supra note 34. See also, Joan Williams, "Privatization as a Gender Issue", G. Alexander and G. Skapska, eds., A Fourth Waj? Privatisation, Property and the Emergence of the New Market Economies, (New York:Routledge,1994),215. This in turn leads to a fallacious belief that double confirmation of the existence of such social phenomena is available. See E.A. Gellner, "Explanations in History", John O'Neill, ed., Modes of Individualism and Collectivism (London: Heinemann, 1973).

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Kerry Rittich available and affordable. Alternatively, if reproductive labor were to be shared relatively equally, not only between men and women but among different social groups as well, it is possible that the loss of benefits and services would not raise the equity and distributional concerns that they do in this context. As the neoliberal arguments themselves suggest, the loss of a benefit or service may not in and of itself constitute a net loss, if what is lost is made up in wages or the loss can be compensated in another way. This could be accomplished through an increase in the total household income, increased access to the income of other members of the household by the person directly incurring the loss, or by external support, for example, through the state, a nongovernmental agency or the unpaid labor of another party. In order to evaluate the issue of disadvantage and to consider the feasibility or likelihood of such responses, it is necessary to investigate such matters as the relative bargaining power of the parties, the ways in which resources might be re-allocated within the family due to external changes, the differing priorities and responsibilities of men and women, the varied effects, distributional and other, of not being the prime income earner, and the adaptive strategies in which the various parties are likely to engage. The possible interaction of all of these factors with shifts in the distribution of income significantly complicates the prediction of outcomes and greatly diversifies the potential results of restructuring. However, among the potential results are that the pre-existing configuration of family and domestic responsibilities may be changed, women's access to paid employment curtailed and figured as secondary, and workplace segregation and discrimination entrenched or increased. At the same time, women's responsibility for children and economic dependence on men may be increased, the exit option from a domestic situation reduced or foreclosed, and the entire structure of power within the family shifted in favor of men. There are a number of ways in which the proposals to reduce the role of enterprises in the provision of benefits and services might play out to result in such forms of disadvantage to women. The most obvious is the simple elimination of benefits without further compensation or any change to household structure or responsibilities. However, disadvantage may also result more indirectly from wage replacement of in-kind benefits and services. This transformation may result in the loss of the most efficient commodity or service 202

The Gender of Restructuring provider, loss of cross-subsidies and increasing wage differentials causing an increase in the gender gap in wages and/or a shift or intensification of the disparity in control over household resources. The proposed reductions in the role and size of the state could also be expected to have markedly gendered results. For a variety of reasons ranging from a disparity in reproductive responsibilities, priorities in state spending, gendered employment patterns and differences in consumption patterns, the loss of subsidies on consumer goods, general budget reductions, reductions in transfer payments and reduction in the size of the state sector are all likely to bear more heavily on women.63 In short, it seems important to stress that the disadvantage which will accrue to women is a result of the intersection of different social, economic, political and cultural structures and institutions. It is produced through their interworking, an effect of the combined and cumulative properties and activities of enterprises and the market, the state and the household, family and community. Moreover, it is an effect not only of what changes but what is permitted to remain the same. In many cases, it may be difficult to locate any one shift or move as the cause or source of the problem, for the simple reason that it might not produce the same result in the absence of other conditions or institutions. Consequently, a segmented analysis, for example one that focuses on the changes to the enterprise structure alone but neglects the transformation of the state, or one that considers the employment context apart from reproductive responsibilities in the family, is unlikely to disclose the way in which many of the most common and general forms of disadvantage are produced and maintained. However, apart from the contingencies inevitably produced by a mobile and fluid structure, there are also reasons to think that the nature of this particular economic strategy might make some forms of disadvantage particularly Characteristic gender differences in reproductive responsibilities and consumption patterns and the consequent relative or absolute disadvantage to women are well-known in the gender and development literature. See: E. Boserup, Women's Role in Economic Development (New York : St. Martin's Press, 1970); S.M. Charlton, J. Everett, K. Staudt, eds., , Women, the State, and Development (Albany: State University of New York Press, 1989); L. Beneria and S. Feldman, eds., Unequal Burden: Economic Crises, Persistent Poverty, and Women's Work, supra note 55; K. Ward, ed., Women Workers and Global Restructuring (Ithaca, NY: ILR Press, School of Industrial and Labor Relations, Cornell University, 1990). 203

Kerry Rittich difficult to estimate. This in turn may lead to an understatement of the degree of persistence or increase in disadvantage. This is due simply to the individualization or privatization of survival and coping strategies, a consequence of the displacement of distributional concerns from the public agenda and collective responsibility. 6.3.1

LOSS OF REPRODUCTIVE BENEFITS

In the "normal" market imagined in the restructuring agenda, neither the enterprise nor the state is expected to provide childcare; the likely effect is to cause it to revert to the family, and more specifically to women. Enterprises do not because childcare is not considered a cost of production. The state does not because it falls outside the identified list of core functions of the state. The social safety net which may accompany transition is not expected to include the provision of childcare; it is envisioned purely as a means of mitigating the most extreme cases of poverty and hardship, both during the transition process and afterward, not as a new form of social provisioning or a new "welfare state" by which to remedy the structurally produced disadvantages or income disparities of the new economic order.64 The disadvantage to women may be obvious, as in the cancellation or reduction of maternity benefits, childcare or other reproductive leave entitlements. The cancellation or reduction of maternity leave can be expected to induce a woman to adopt one of two strategies, assuming it does not cause her to forego the decision to have a child altogether.65 Either she may continue to work and, using that wage, pay someone else to engage in childcare. In such a case, the relative amount of labor she performs may remain constant; it may also increase, if some labor is just deferred because the paid caregiver does not perform all of the tasks she might have done herself. In any event, there is a cost incurred by paying someone else for what she was formerly paid to do

Jessica Vivian, ed., Adjustment and Soda/ Sector Restructuring (Geneva: Geneva and the United Nations Research Institute for Social Development (UNRISD), 1995). There is some evidence that this scenario in fact developed early on during transition, as dramatic declines in fertility were registered in the region. See UNICEF, Central and Eastern Europe in Transition: Public Policy and Social Conditions, supra note 2.

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The Gender of Restructuring herself.66 Or she may stay home and do the childcare herself, engaging in unpaid labor and forgoing the earnings she would otherwise have been entitled to. Either way, she seems indisputably worse off, unless in the second case there is an increase in household resources through which she can be compensated. However, in the second scenario, the aggregate family income is also reduced by the loss of benefits; it is also possible if not likely that she will absorb a disproportionate amount of that reduction, given that her access to the income is mediated through her husband. While her husband may pay her to engage in childcare, this also seems unlikely, given the power structure and the conventional division of roles and responsibilities within the family, and the common assumption that because of the elements of pleasure and altruism involved, such labor on the part of a mother is not truly "work". If the maternity benefit is a benefit that depresses his wage, for example because it is funded by all employers, its removal may cause his income to rise. However, the gain he experiences from the removal of the cross-subsidy is likely to be only a fraction of her loss. So even if he were disposed to pay his wife a replacement wage for her labor, there would be less income available in the household with which to do so. 6.3.2

CASH VS. IN-KIND COMPENSATION

There are a host of factors at work which might incline more women than men to prefer many types of benefits and in-kind services as part of employment compensation and which ensure that subsidies of basic goods will tend to be more highly valued by women than men. In brief, these are a consequence of the unequal division of reproductive responsibilities and disparities in household power. As is acknowledged in the reform agenda, it is women specifically rather than households or families as a unit to whom responsibility for the performance of many reproductive tasks defaults.67 Yet for reasons discussed

This payment for childcare or performance of childcare labor has been referred to as the "reproductive tax" which women must pay in order to engage in paid employment. See I. Palmer, Gender and Population in the Adjustment of African Economics: Planning for Change (Geneva: International Labour Office, 1991). 67

World Bank, World Development Report 1996: From Plan to Market (Oxford; New York: Oxford University Press, 1996), 72.

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Kerry Rittich below, it is unsafe to assume that family resources, especially those brought in by the male worker, would necessarily be available or allocated to provide the services and benefits which are lost. Employee compensation is negotiated and calculated as a package; there is normally a trade-off between receiving compensation through wages and receiving compensation in benefits or services such as childcare, maternity leave, health care, training, to list but a few of the possibilities. However, this process may not necessarily be transparent or visible. This is important to emphasize in the context of transition, as the references to the "free" or "subsidized" goods which workers received from the state often suggest mere paternalism or welfarism on the part of the state, obscuring the fact that these were alternate forms of compensation. Disinterest in the offered services, the ability to procure them by less expensive means or the presence of more attractive alternatives will incline workers toward compensation weighted in favor of wages. In the result, the value and desirability of the trade-off or compensation mix will be calculated or assessed differently by different people, depending on such factors as varying obligations, perceived need for the services and their availability through other sources. For these reasons alone, a transformation in the mode of compensation can be expected to generate distributive consequences among different groups. 6.3.3

EMPLOYER AS AN EFFICIENT COMMODITY PROVIDER

Although it seems to be assumed in the context of restructuring that this cannot be so, an employer may in fact be the most efficient provider of a particular service. This will be the case, for example, if the cost to an employer of providing a service is less than the cost to the employee of purchasing the service on the market, perhaps for reasons such as scale, if access to the service or benefit would be otherwise insecure, or if it is otherwise completely unavailable. In such a case, even if wages rise, there will be a net loss to the employee upon the removal of the benefit or service.

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The Gender of Restructuring 6.3.4

LOSS OF CROSS-SUBSIDIES

In the context of unequal responsibilities or needs, compensation through benefits and in-kind services operates as a form of subsidy, requiring those who would not otherwise demand the benefits and services to provide a subsidy to those who do. For example, when childcare is provided free or at subsidized rates, those who use the service, typically women with children, are subsidized by workers, both male and female, without such responsibilities who receive no extra compensation from their lack of use of such services. Similarly, assuming that at least part of their cost is passed on in the form of lower wages to employees, a requirement that firms provide certain benefits effectively requires all workers to underwrite their costs, even where they are unevenly incurred or where, as with maternity leave, they are entirely unavailable to some workers. If the provision of benefits is a factor in either higher prices or lower profits, the result may be to spread their cost among the firm's shareholders and the consumers of its services and products as well. Given the wage premium that men enjoy over women in the labor market and the configuration of power and reproductive responsibilities within the family, the presence or absence of childcare tends not to affect men's employment decisions, whereas for women, the availability of childcare or maternity leave might be a pivotal factor in the decision to accept employment. To the extent that they are free from reproductive obligations, men stand to lose under such arrangements, as their pay levels are depressed to some degree by the diversion of compensation into benefits and services which they would not individually or collectively demand. Unless there is a specific demand for the labor of women, the presence of a group of workers, men, who do not demand such services is likely to weaken the bargaining position of women on the issue and suppress market demand below the level which would exist if all workers had childcare responsibilities. This disadvantage could be mitigated if firms had to compete to keep skilled women or if employers discovered that the provision of benefits resulted in increased loyalty or productivity on the part of their employees.68 In the absence of these factors, however, the disparity in reproductive obligations will tend to C. Jolls and D. Rosenfeld, "Embracing Our Sisters: What Feminist Lawyers and Feminist Economists Can Learn from One Another", paper on file with the author, (19??), 35.

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Kerry Rittich lower the demand for childcare, in turn depressing the presence of women in the workforce. This reinforces still further the conditions which produce a lack of demand for such services, creating a situation in which market demand might never emerge.69 Alternatively, it may produce or increase labor market segmentation, with women consigned to certain sectors or types of occupations. This alone is likely to lead to a deterioration in compensation, as it is wellknown that the increasing feminization of sectors leads to a decline in wages and benefits,70 whereas increasing the share of women's employment raises the relative wages of women.71 With the removal of in-kind services, a source of benefits which women with children receive evaporates and a form of compensation for reproductive labor is lost. In addition, such a situation is linked to a series of other phenomena which themselves lead to a deterioration in the employment status of women.

6.3.5 INCREASING WAGE DIFFERENTIALS Benefits and in-kind services also lessen the absolute importance of the wage level to the extent that they remove the pressure to secure goods and services on the market. While they are said to create various efficiency and incentive defects, it is clear that they may also serve to reduce substantive levels of inequality among workers. As gender inequality, particularly in the form of wage disparities, proves to be a persistent, systemic feature of all economies, whether plan or market,72 and more women than men fall into the category of low-wage workers in most enterprises, we might expect the assured provision of services and benefits to be of greater value to women than men, as it serves to partly mitigate the gender gap in wages.

Parallel dynamics explain the lack of demand for other types of services which might be very high priorities for particular groups of workers. 70 G. Standing, Russian Unemployment and Enterprise Restructuring: reviving dead souls (Geneva: ILO, 1996),1,286. 286. 71 71 Id., at 298. Id., 72 United Nations Development Programme, Human Development Report 1995, supra note 1.

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The Gender of Restructuring Belief in the need to improve labor productivity in the economies in transition, including through the use of some wage incentives, is not restricted to proponents of the neoliberal agenda.73 However, whatever the effects on productivity, there are structural reasons to believe that men will be the major beneficiaries of flexible, merit-based compensation, receiving the bulk of higher wages, while women remain clustered at the lower end of the wage scale. A prime effect of the institution of incentive-based compensation is to better position those with relative freedom from reproductive responsibilities and the consequent extra time and energy to devote to paid work. Moreover, the promotion of merit-based compensation on its own promises to entrench and further strengthen the separation of reproductive from productive responsibilities, and consequently the division between those who perform them. This form of compensation creates an incentive for individuals to reduce their investment in unpaid labor or to shed it entirely because of the rewards offered in the context of employment; at the same time, it penalizes those who either choose or must continue to perform such tasks. Finally, because of obligations of care towards children and other dependants, women as a group may fare less well under a system that rewards and encourages labor mobility. The geographic mobility of workers is central to the transition strategy based on reliance on market forces to reallocate labor from state enterprises toward newly emerging firms and entrepreneurial opportunities. In addition, it may be a key individual or household strategy in managing the declining real wages, disruption in income and the strains posed by rising prices in transition. However, labor mobility is typically more restricted for women than men due to the gendered division of family and care obligations. Because of the complications of accommodating and integrating paid employment with reproductive responsibilities, those with such obligations may find it more difficult, or may be simply unable, to move easily to take up job opportunities. This is likely to result in the foreclosure of certain jobs; it may cause such persons to remain more frequently in lower-paid employment than they would if reproductive obligations were equally borne with others or, alternatively, subsidized by the state. For example, unemployed women appear to be more

See for example G. Standing, Russian Unemployment and Enterprise Restructuring, supra note 70.

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Kerry Rittich willing than unemployed men to work for low wages,74 which is partly related to limited employment options resulting from women's non-market obligations. Although increased wage and labor market flexibility is presented as an unqualified benefit or improvement in the restructuring agenda, it poses obvious difficulties as well.75 Particularly in situations of high unemployment or rising prices, it can provide an opportunity to "sweat" workers or shift economic risks to workers. It also encourages employers to pursue increased productivity through wage competition; this may become a substitute for other more pertinent or needed types of restructuring such as technological innovation or improvements in product quality,76 or managerial and enterprise governance restructuring. Flexibility also appears to mean different things for different groups in different contexts. Flexibility may be beneficial to elite groups of workers in hightechnology industries who possess specialized skills and are well-positioned to sell their services in a dynamic market.77 However, in most cases it simply results in reduced protection and income for workers.78 In any event, it appears to have a gendered valence; for women, particularly those with children, rather than greater opportunity, power and reward, labor market flexibility has tended to mean downward pressure on wages, increased risk and unstable and deteriorating working conditions.79

Monica S. Fong, "Gender Barriers in the Transition to a Market Economy", supra note 2, at 14, citing Poland, Central Bureau of Statistics, "The Social and economic Situation of Unemployment", January, 1994. Some of the potential drawbacks are discussed in G. Standing, Russian Unemployment and Enterprise Restructuring, supra note 70, at chapters 3 and 4. See A. Amsden, J. Kochanowicz and L, The Market Meets its Match: Restructuring the Economies of Eastern Europe (Cambridge, MA: Harvard University Press, 1994). This is the basis of the enthusiasm for the "next phase" of industrial production, putatively grounded in flexible specialization. See the literature spawned by M. Piore and C. Sabel, The Second Industrial Divide: possibilitiesfor prosperity (New York: Basic Books, 1984). 78

G. Standing, Global Labour Flexibility: Seeking Distributive justice (Houndmills, Basingstoke, Hampshire, UK.: Macmillan Pres; New York : St. Martin's Press, 1999). G. Standing, "Global Feminisation through flexible labour", supra note 50.

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6.3.6

CONTROL OF HOUSEHOLD RESOURCES

In addition to the disparity in reproductive obligations, the transition to wage compensation and the removal of assured benefits and services may produce gendered results due to differences in access to resources and power within the household. Household income is not necessarily pooled, and there are significant, sometimes dramatic, differences in men's and women's control over the disposition of household resources. This can result in different levels of well-being among family members, even though aspects of a household's standard of living are necessarily shared. It also not uncommonly results in a disparity in the resources allocated to fulfil each party's desires, expectations and obligations.80 Benefits, subsidies and services may be of particular benefit to women, as responsibility for the care of others and securing many of the basic needs of the household often defaults to women, particularly where children are involved.81 Moreover, there is evidence of gendered differences in consumption, savings and investment patterns.82 Women everywhere appear to exhibit a significantly higher propensity to invest disposable resources in their children than do men;83 men are much more likely to spend money on alcohol, tobacco and other forms of leisure and socializing.84

A. Sen, "Gender and Co-operative Conflict", supra note 53. 81

See World Bank, From Plan to Market, supra note 67, at 72.

0*5

N. Cagatay, D. Elson and C. Grown, "Gender, Adjustment and Macroeconomics: Introduction", 23:11 World Development (November, 1995) 1827, 1831; D. Elson, "From Survival Strategies to Transformation Strategies: Women's Needs and Structural Adjustment", supra note 55, at 26, 42; L. Beneria and M. Roldan, Crossroads of Class and Gender, supra note 53. 83

United Nations Development Programme, Human Development Report 1995, supra

note 1. R4

This datum is not advanced to assert either the moral difference or superiority of women; extreme caution should be exercised in the conclusions which are drawn from it. For one, it would be dangerous and subversive of feminist goals to assert the altruism of women, if that altruism in turn were to become the basis for redirecting resources to women. This merely entrenches an instrumental basis for concern over redistribution away from women, encouraging selfless behavior on the part of those who most need to become more selfish, and perhaps limiting transfers to the extent that they can be identified with the well-being of others. See also C. Jackson, "Rescuing Gender from the Poverty Trap", 24:3 World Development 489 (1996), 497. On a more problematic level, it naturalizes rather than inquires into the reasons that the disparity of behavior might persist.

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Kerry Rittich

Where more compensation is provided in the form of benefits and services than wages, there is less room to dispute its allocation and certain items are removed from contention all together. Conversely, the removal of services and benefits means that their provision is not ensured. Instead, they must compete for priority with other claims on resources, and will be subject to such factors as the relative bargaining strength and differing priorities of the parties. For this reason, it cannot be assumed that the replacement of subsidized services, such as childcare, with wages is neutral as between men and women.85 There is also evidence that the level of control over household decisions is lower when women are not employed in the labor market.86 It may also make a difference who brings in the wage and who makes more money. If it were to be the case that the transition from compensation heavily weighted in favor of benefits and services to pure wage compensation were accompanied by, or itself produced, disproportionate levels of female unemployment or a widening wage gap, as seems a foreseeable event, it should be expected that, notwithstanding the total level of resources available to the household, and even allowing that resources might have increased because of rising wages to the employed or better-employed spouse, women might end up with less say over the disposition of resources. In such a case, women would consequently capture fewer of the economic gains in the restructured economy than men.87

For a discussion, see M.M. Lokshin, "Effects of Child Care Prices on Women's Labor Force Participation in Russia", supra note 59. A. Sen, "Gender and Co-operative Conflict" supra note 53; L. Beneria and M. Roldan, Crossroads of Class and Gender, supra note 53. See also G. Hadfield, "Households at Work: Beyond Labor Market Policies to Remedy the Gender Gap", 82 Georgetown L.J. 89 (1993); Arlie Russell Hochschild with Anne Machung, The Second Shift: Working Parents and the Revolution at Home (New York, N.Y.: Viking, 1989). 87 This possibility has already been noted by researchers with respect to the process of transition. See: A. Posadskaya, "A Feminist Critique of Policy, Legislation and Social Consciousness in Post-socialist Russia" in A. Posadskaya, ed., Women in Russia: A New Era in Russian Feminism, supra note 1, at 175. In Soviet Russia, it appears to have been mainly women who controlled household income and expenditures. Posadskaya suggests that the gender asymmetry has to do with the fact that women also do valuable work outside the home; an increase in male decision-making is to be expected in the case of a reduction in women's outside employment.

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6.4 Gender and the Transformed Role of the State At least some of the disadvantage to women created by the changes in the form of compensation and enterprise structure and responsibilities might be mitigated or eliminated if the state were to assume a direct role in the provision of services or engage in new forms of redistribution on a broad scale. Indeed, a shift in the locus of service provision from the enterprise to the state might prove to be advisable for equity as well as productivity reasons, due to one wellknown drawback of enterprise-based benefit and service provision: disparity in quality and access to services. However, as part of the remoulding of the state and the institution of the correct relationship of the state to the market, state replacement of enterprise benefit provision is expressly discouraged. Instead, the following overlapping objectives are at work in the reform of the state: the elimination of subsidies; the reduction of expenditures, especially financial outlays that do not directly contribute to "production"; and the massive contraction of the state sector to make way for the operation of the private sector. In different ways, all of these shifts have an impact on the reproductive sphere and on women. 6.4.1

LOSS OF SUBSIDIES

Many of the factors which produce a disparity in the value of enterprise benefits and services between women and men are also applicable to state subsidies; hence, their loss might well hit women harder than men. When subsidies on basic services and commodities are removed, the effect is to make such goods relatively more expensive, and to make previously nonsubsidized goods relatively cheaper, leading, other things being equal, to a fall in the purchase of the former and a rise in that of the latter. Such changes may lower the allocation of resources for certain goods and services, leading either to a drop in consumption levels88 or a decline in the quality of basic goods such as housing, food and health care, especially where resources are tight. This

See Vaughan-Whitehead, supra note 162, at 38.

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Kerry Rittich obviously has the potential to affect the general level of well-being.89 However, it might also generate more uncompensated labor for women, if women attempt to make up the shortfall in purchasing ability by home production90 or through the provision of care that was previously provided by others for pay. These changes may also induce women to seek employment due to the need for more income. However, the loss of subsidies for childcare and the extra labor that results from restructuring is very likely to foreclose certain employment opportunities or lead to an increase in informal or unstable employment patterns. As a result, it may well be the case that a marked deterioration in women's employment status relative to men, rather than simply higher unemployment, proves to be the most enduring result of the loss of subsidies for reproductive labor and the erosion or elimination of income transfers. Women may be increasingly engaged in non-standard, informal or illegal types of employment or performing labor that is characterized by low pay, unhealthy work conditions, and increased risk and income insecurity. One reason is this: women's disproportionate representation in atypical or informal employment is frequently linked to the need for flexibility in order to combine paid labor with reproductive responsibilities.91 Indeed, prospective employers may assume this is the case even where it is not, and hire women for some types of work rather than others accordingly. The probability that women will see a deterioration in their employment status seems increased to the extent that the removal of subsidies is combined with an economic recovery strategy based on low-wage competition. The increased fragmentation of production processes which is typical of "global" production tends to be associated with growth in informal and contingent on

This is a well-known consequence of curbs on budgets following structural adjustment. See G. Cornia, R. Jolly and F. Stewart, eds., Adjustment with a Human Face (Oxford [Oxfordshire]: Clarendon Press, 1987). This possibility seems to have come to have already come to pass in Russia, where there has been a marked decrease in wages as a proportion of total income, an increase in other economic activities such as informal or illegal employment, and an increase in the nonmonetary share of income, marked by the consumption of more home production. See G. Standing and D. Vaughan-Whitehead, eds., Minimum Wages in Central and Eastern Europe: From Protection to Destitution, prepared by the International Labour Office Central and Eastern European Team (1LO-CEET) Budapest (Budapest: Central European University Press, 1995). See for example L. Beneria and M. Roldan, Crossroads of Class and Gender, supra note 53.

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The Gender of Restructuring work, especially part-time, casual, subcontracting and industrial homework.92 If experiences in developing countries are any indication, women may be increasingly positioned in the new market economies as low-wage, contingent workers rather than as core industrial or services workers, high skill knowledge or professional workers, or part of the new entrepreneurial class. In developing countries, export-led development characteristically exploits women's comparative low-wage advantage, draws more and more women into the labor force which in turn helps to suppress wage growth.93 Where, as in the transition economies, there is already a high percentage of women in the labor force, the result may be an overall decline in real wages or a more entrenched or increased gender gap in wages. However, it is also possible that an overall decline in real wages will cause the gender gap to decrease as a result of the "downward harmonization" of wages.

6.4.2 BUDGET REDUCTIONS A number of factors ensure that budget reduction strategies operate to reduce state expenditures unevenly, and that their effects fall more heavily on certain sectors of society, one such sector being women. From the outset, norms concerning the function and responsibilities of other social institutions play a role in the ordering of state fiscal priorities. One source of this ordering is gender hierarchy and perceptions of proper gender roles, particularly the norms of female economic dependence on male providers and the "natural" responsibility of women for domestic labor and caregiving obligations in the family and the community. As a consequence, some tasks, such as the maintenance of defence, tend to be defined as core, ongoing and indispensable and integral to the nature and functioning of the state while others, such as the provision of welfare, tend to be regarded as peripheral, "soft" or discretionary. Or the state may intend only to provide exceptional assistance where the "normal" resource channels prove to be inadequate and even then, only to the extent that it can be afforded. The result is that, in all states, some reduction 92

See S. Jacoby, "Social Dimensions of Global Economic Integration", S. Jacoby, ed., The Workers of Nations: Industrial Relations in a Global Economy (New York: Oxford University Press, 1995) and L. Beneria and M. Roldan, Crossroads of Class and Gender, supra note 53. See G. Standing, "Global Feminisation through flexible labour", supra note 50. 215

Kerry Rittich strategies are always easier to perform than others, and certain budgetary items prove to be far more elastic than others.94 While hierarchies in spending priorities may be omnipresent features ofal states, and funding or subsidies for tasks considered to be reproductive may generally vulnerable, these tendencies are exacerbated by the policies promo under the reform agenda. It is precisely "excessive" expenditures on health an., social services which are targeted for elimination, as a central tenet of the agenda is the repudiation of the idea of the state as a source or guarantor of broad-based social entitlements. Women, for a variety of reasons, including lower levels of income and the responsibility for children, are everywhere heavier users of social services such as health and welfare services than are men.95 Common responses to a squeeze on the state budget are the decentralization and devolution of social benefits and service provision to local authorities, often without parallel or adequate transfers of resources or taxing powers, or the devolution to commercial providers.96 This can lead, at minimum, to a wide variation in the levels of available services; while some groups or communities may benefit, other groups are certain to be worse off as a consequence, finding services to be out of reach or perhaps simply unavailable. These effects are exacerbated by the introduction of user fees and other cost containment techniques, which diminish the use of the services, as they are intended to do. Diminished access to services is especially likely to occur if wages do not rise sufficiently to meet costs or, for the reasons discussed, household income is not allocated to those services even where it might theoretically be available. It also

Military expenditures, for example, may be more protected than social services such as health and education or welfare. See: J. Kornai, The Socialist System: The Political Economy of Communism (Princeton, N.J.: Princeton University Press, 1992), 171-180, who notes that within the classical socialist systems, there was a priority of the "productive" over "non-productive" sphere, here referring to the distinction between material goods vs. services. Priority expenditures lay in the area of investments, heavy industry, arms, capital installations and, in general, the means of production rather than the provision of consumer goods; consequently, the care of the children, sick, and elderly was often underfunded (Id., at 457). 95 UNDP, Human Development Report 1995, supra note 1. See M. Mackintosh, "Competition and Contracting Selective Social Provisioning" in J. Vivian, ed., Adjustment and Social Sector Restructuring, supra note 64, at 43.

216

The Gender of Restructuring commonly leads to an increase in unpaid community, "volunteer", read "women's" labor.97

6.4.3 REDUCTIONS IN SOCIAL PROVISION AND TRANSFER PAYMENTS One effect of the repudiation and discrediting of broadly-based income transfers is that various schemes to fund reproductive responsibilities through social transfers are unlikely to be instituted or, where they already exist, may face imminent downsizing or dismantling. Such policies foreclose the adoption or even exploration of a range of programs that could shift the costs, if not necessarily the performance, of certain reproductive tasks. This is proposed at the very point that reproductive responsibilities are likely to be increasing. Because women are much more likely to be in a position of economic dependence or need, the attempt to limit social provision and redistribution through transfer payments operates to the detriment of women and the benefit of men. However, it is not a simple case in which formally neutral policies generate unequal results. Even within the category of income transfers and social expenditures, there are further distinctions and classifications which in general serve to place men in a more protected position than women. For example, unemployment and old-age insurance are entitlement-based and linked to participation in the wage economy while other forms of provision, such as welfare, are need-based.98 These categories are deeply gendered; women are disproportionately the recipients of "welfare" and men the recipients of "entitlements".99 97

Id.

98

There is a considerable body of literature touching on the gendered structure of welfare and social provision generally in market economies. Some sources include the following. The evolution of the different forms of entitlements and social provision in the United States is discussed in T. Skocpol, Protecting So/diers and Mothers: the political origins of social policy in the United States (Cambridge, MA: Belknap Press of Harvard University Press, 1992) and Linda Gordon, Pitied but not Entitled: Single Mothers and the History of Welfare, 1890-1935 (Cambridge, MA: Harvard University Press, 1994). A summary of the ideological bases of different forms of social provision and their connection to ideas of charity and contract can be found in N. Fraser and L. Gordon, "Reclaiming Social Citizenship: Beyond the Ideology of Contract Versus Charity", P. James, ed., Critical Politics: from the personal to the global (Fitzroy, Melbourne: Arena Publications, in association with the Politics Dept., Monash University, 1994). 00 N. Fraser and L. Gordon, "Reclaiming Social Citizenship", supra note 98. 217

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Under the logic of the restructuring, entitlements such as unemployment insurance are envisioned in order to promote labor mobility. However, welfare dependency is stigmatized and discouraged. Even when compensatory measures such as safety nets are instituted to specifically target poverty, the result is a drastic reduction in the available funds for social services of benefit to women.100 So while both social insurance and social protection programs are mechanisms of redistribution and the element of public subsidy is often present in both cases, the forms which tend to be of particular benefit to women are targeted for reduction in the neoliberal order. Similar problems occur with the pension reform proposals, a major target in the project to reduce mounting social expenditures in the states in transition.101 The pressing need for pension reform is articulated as follows: "The public sector's role as provider of transfers to households has swollen with the transition. Much of the social protection implicitly performed by state enterprises before has been made explicit by the abolition of subsidies, and those burdens have shifted to public finance. Spending has substantially increased for pensions, unemployment benefits, and social assistance. Because of its size and its potential for explosive growth the pension system is clearly the main threat to the long-term health of public finance."

As the majority of pensioners are women,103 reductions in pension levels perse risk putting women at a disadvantage. But the general approach to pension reform and the proposed techniques to manage the fiscal burden on states are as important as the mere fact that pension levels might be reduced. One of the 100

See Jessica Vivian, ed, Adjustment and Social Sector Restructuring, supra note 64; G. Standing, "What Role for the Minimum Wage in the Flexible Labour Markets of the 21st Century?", G. Standing and D. Vaughan-Whitehead, Minimum Wages in Central and Eastern Europe, supra note 90, at 7. Extensive discussions of the perceived problems and reform proposals can be found in: N. Barr, ed., Labor Markets and Social Policy in Central and Eastern Europe: The Transition and Beyond, World Bank (New York, NY: Oxford University Press, 1994); World Bank, Understanding Poverty in Poland, supra note 5; World Bank, Poland: Income Support and the Social Safety Net During Transition (Washington, DC: World Bank, 1993); N. Barr, "On the Design of Social Safety Nets" (World Bank: ESP Discussion Paper Series, 1995). World Bank, Poland: Policies for Growth with Equity (Washington, DC: World Bank, 1994), 29. 103 Monica S. Fong, "Gender Barriers in the Transition to a Market Economy", supra

note 2, at 30.

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The Gender of Restructuring linchpins of all reform proposals is that pensions should move from defined benefit schemes to those increasingly linked to individual contributions.104 This would mean, among other things, that the levels of pensions would vary to a greater extent among recipients than at present and the role of the state in guaranteeing and subsidizing pension levels would decline. To put it another way, the state would no longer function to maintain income levels to the same degree. Because of persistently lower wage levels for women than men, pensions based on contributions can be expected to produce systematically lower payouts to women relative to men, unless the differential is compensated in some way. Whatever its attractions in terms of incentives to efficiency, pension reforms will also increase the disparity in pension levels generally. While they allow individuals to engage in "income smoothing", that is, to redistribute income to themselves over their lifetimes, they lessen the redistributive role that pensions play among individuals and different groups. Moreover, the potential for ongoing or increased disadvantage to women by such proposals can only be appreciated by also taking into consideration the ways in which women are likely to be positioned in the newly-emerging labor markets. As described, women seem likely to experience relatively lower wages than men, more gaps in employment due to the unavailability or loss of benefits such as maternity leave and childcare, and either lower labor force participation rates or an increase in non-standard, informal or even illegal work. All of these circumstances are likely to result in lower pension contributions. Pension reforms also include the abolishment of early retirement schemes, other than those which result from increased individual contributions, and the elimination of the retirement age differential between men and women which was common in the plan economies. Part of the plan is to raise retirement ages to the level that is normal in market societies in order to reduce "excessive pensions".105 The "equalization" of retirement ages between men and women also eliminates a benefit, by removing a source of deferred compensation for reproductive labor performed by women along with paid employment.

See World Bank, Poland: Polities for Growth with Equity, supra note 102; From Plan to Market, supra note 67, at 80. See From Plan to Market, supra note 67 at 78, 80. 219

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6.4.4 REDUCTIONS IN THE SIZE OF THE STATE SECTOR Contractions in the size of the state sector, either through privatization of state services or closure or downsizing of departments, have a stronger impact on women's employment levels than on men's, as women everywhere are disproportionately employed by the state.106 Moreover, women dominate employment in the areas of health, education and social provision in Eastern Europe,107 precisely those sectors which are targeted for expenditure reductions in the agenda. But the impact goes beyond this. As one analyst has put it, "The trend toward 'the rolling back of the State' and the withering away of the redistributive, welfare state has major implications for women. Throughout the world women have sought employment in the public sector for its affirmative action-policies, generous social policies, and implementation of labor codes, which have made the public sector - both administration and state-owned factories - a more 'woman-friendly' employer than the private sector".108

State departments and agencies are more disposed than the private sector to hire women; they are often in the vanguard in actively countering employment discrimination against women. This is important, because even in countries in which gender parity in income and waged employment participation by women far exceeds the average, vertical and horizontal discrimination against women in the workplace, particularly in the private sector, remains prevalent.109 Second, the state is typically a "better" employer on average than the private employer in a market economy, usually providing higher wages and benefits for comparable types of employment. Because women tend to be clustered in low-pay and low-benefit employment in the private sector, the loss of state jobs for women often means the

106

UN, World's Women 1995: Trends and Statistics, supra note 1. M. Fong and G. Paull, "Women's Economic Status in the Restructuring of Eastern Europe", supra note 11, at 211, 222. V. Moghadam, "An Overview of Global Employment and Unemployment in a Gender Perspective", paper for UNU/WIDER Conference on the Politics and Economics of Global Employment, Helsinki, June 17-18,1994,6-7. 109 UNDP, World Development Report 1995, supra note 1. 1 AQ

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The Gender of Restructuring loss of an important source of better-paying employment.110 However, the deterioration of public sector jobs can also be expected to represent a particular threat to women, as the following section describes. 6.5 Wage Suppression in Transition The idea behind the elimination of most enterprise benefits and state subsidies is that wages should be the sole form of compensation and most if not all services are to be purchased by individuals or households on the market. Consequently, in assessing the effects of restructuring, it is important to focus on the wage policies that form part of the transition agenda. In the transition to a regime in which prices are liberalized and benefits and subsidies of goods and services by both enterprises and the state reduced or eliminated, rising wages are key: they must be sufficient to purchase on the market the basic goods and services that were provided and subsidized through enterprises and the state. In the absence of wage increases, it would be difficult to avoid extreme hardship and precipitous declines in the standard of living due to a massive reduction of total resources available to workers. But wages must also rise to compensate for the reduction in benefits which played a significant role in total family income in the plan economies, as "family allowances played part of the role which in industrial countries [i.e. industrialized market states] is played by wages".111 The obvious risk of the restructuring strategy is that many people will not be in a position to procure crucial goods and services if wages do not rise to compensate for price increases and the loss of other income, benefits and services. The success of the strategy also rests on the assumption that functioning markets for most commodities will emerge within a relatively short period of time. Continued access to basic services is such as housing, childcare, education and medical care is not something that could be regarded as marginal to the definition of successful reform. For these reasons at least, it would seem

110

UN, The World's Women 1995: Trends and Statistics, supra note 1. Sandor Sipos, "Income Transfers: Family Support and Poverty Relief, N. Barr, ed., Labor Markets and Social Policy in Central and Eastern Europe, supra note 101, at 226.

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that higher wages would be politically and strategically necessary to successfully delinking benefits from enterprises. It is acknowledged that rising wages are ultimately necessary to allow workers to meet expenses."2 And, according to the underlying principles governing restructuring, wages should be liberalized along with other factors of production. "The transition to a market economy would require, in principle, the withdrawal of the government from the wage determination process, thus giving room to decentralized wage setting, a widening of wage differentials and the inclusion of non-tariff elements in the actual market wage.113

It is also central to the idea of restructuring based on labor flexibility and mobility, as well as to efficiency and productivity arguments, that there should neither be upward nor downward constraints on the price of labor. However, it turns out that other objectives are also at work; the result is the demotion and displacement of rising wages by concern about inflation. "[Tjhe urgency of the macroeconomic stabilization goal and the need to cushion social hardship during the transition period require the government to regain some control over wage determination. At least in the short term, there is a need to set a ceiling for wage increases in order to prevent a wageprice spiral and to maintain minimum wage floors in order to protect the economically weak against inflation."

In other words, at least at the outset, prices but not wages are to be decontrolled in order to control inflation. As it has been put, "the whole purpose of the incomes policies which normally accompanied the early transition was to ensure that wages were not fully protected against inflation".115 Notwithstanding the concern expressed about protecting the economically weak from inflation, the reduction of real wages has been described as a "pillar" of transition poli-

112

World Bank, From Plan to Market, supra note 67, at 76. International Monetary Fund, World Bank, Organisation for Economic CoOperation and Development and European Bank for Reconstruction and Development, A Study of the Soviet Economy, vol. 2, (Paris: OECD, 1991), 182. 114 Id. N. Barr, "Income Transfers: Social Insurance", N. Barr, ed., Labor Markets and Social Policy in Central and Eastern Europe, supra note 101, at 192. 222

The Gender of Restructuring cies.116 The Bank has consistently advised states to institute incomes policies as a means of controlling the threat of inflation through a wage-price spiral. The production of unemployment as well, at least in the short term, was regarded as crucial to reducing the pressure for rising wages.117 One of the techniques by which real wages were reduced was control of the minimum wage. Although labor and employment regulations are low on the priority list in restructuring where they are not in outright disfavor, the minimum wage nonetheless proved to be a convenient mode of controlling wage growth and, as a result, became part of the incomes policies that were promoted by the IMF and the Bank. Ironically, wage controls proved to be the only acceptable heterodox economic policy,118 as other price controls were consistently ruled out in aid of "getting prices right" or equalizing domestic with world prices. The effect of controlling wages while prices rise exponentially has been devastating to some segments of the population, a result which is unsurprising given the concurrent elimination of benefits and services. As one commentator puts it, "To appreciate the full extent of the deterioration, one must recognize that the falls in the minimum wage in most countries occurred at a time of severe cuts in free or subsidised services, such as education, housing and health, which characterised the old collectivist system, thus making life even more difficult for people in the poorest categories".119

The purpose of a minimum wage rate is to provide a floor below which wages, at least in the formal economy, do not fall, ensuring a wage adequate to a basic standard of living. It may or may not prove adequate to its task, depending on a host of factors, foremost of which is the level at which it is set. However, once instituted, if it is not indexed or otherwise adjusted to the cost of

The Market Meets its Match, supra note 76, at 6. Michael Bruno, Vice President, Development Economics and Chief Economist, The World Bank, "Foreword", Simon Commander and Fabrizio Coricelli, eds., Unemployment, Restructuring and the Labor Market in Eastern Europe and Russia (Washington, DC: World Bank, 1995). 118 The Market Meets its Match, supra note 76, at 31. D. Vaughan-Whitehead, "Minimum Wages in Central and Eastern Europe: Slippage of the Anchor", G. Standing and D. Vaughan-Whitehead, eds., Minimum Wages in Central and Eastern Europe, supra note 90, at 15. 223

Kerry Rittich living or the rate of inflation, it can be turned against this purpose to become a mode of controlling or suppressing wage costs. This outcome becomes more likely to the degree that the minimum wage also functions as an anchor or benchmark in the economy, that is if other wages, salaries or benefits are linked to it on a formal or informal basis. Yet despite references to cushioning the shock of transition for the economically weak, the regulation of wages has functioned not as an anti-poverty device, but as a tool to lower wages relative to prices.120 In particular, holding down the minimum wage and linking social transfers to it has been used to suppress inflation, cut social benefits and control labor costs. Consequently, the minimum wage has actually become a way to "impoverish the victims of structural adjustment";121 as it has become increasingly divorced from prices, it has fallen well below the poverty or subsistence level in most countries.122 De-indexation of the minimum wage combined with the express linkage of social benefits to the minimum wage are the very uses of the minimum wage which have been advocated in transition economies. Social benefits were linked to the minimum wage, to control not only rising inflation but also pressure on the state budget which was increasing due to the number of unemployed and destitute people. Linking social benefits to a declining and increasingly inadequate minimum wage ensures a drop in the value of unemployment benefits and childcare as well. The result has been increasing wage dispersion, not simply by rewarding productivity and increasing incomes at the top, but by anchoring those at the bottom. However, the decline in value of the minimum wage affects not only those at the bottom of the wage scale or dependent on social benefits. In Russia, for example, public sector salaries are calculated as multiples of the minimum wage. Consequently, as the value of the minimum wage has fallen, the gap in pay between the public and private sectors has widened dramatically too.

G. Standing and D. Vaughan-Whitehead, Minimum Wages in Central and Eastern Europe, supra note 90.

G. Standing, "What Role for the Minimum Wage in the Flexible Labour Markets of the 21st Century?" in G. Standing and Vaughan-Whitehead, Minimum Wages in Central and Eastern Europe, supra note 90 at, 7,14. D. Vaughan-Whitehead, "Minimum Wages in Central and Eastern Europe: Slippage of the Anchor" in Standing and Whitehead, supra note 90, at 15. 224

The Gender of Restructuring Reductions in real wages are also a predictable consequence of a range of other restructuring policies. Unprecedented levels of open unemployment, a collapse in aggregate demand, and a sharp contraction in productive output, all of which exert downward pressure on wages, resulted from the devastation of domestic industries throughout the region following the liberalization of trade and the opening of markets to imports. Unemployment and reductions in real wages, in other words, flow from privatization and enterprise restructuring strategies which result in de-industrialization rather than re-industrialization.123 The pursuit of enterprise restructuring through low-wage strategies has been criticized on the ground that wages were already low and because the viability of firms was not related solely or even primarily to wage levels or even total costs but instead to other issues such as product quality and production technology.124 Low-wage strategies also raise efficiency concerns because downward pressure on wages itself is likely to lower productivity.125 The lack of attention to these concerns is striking, given the importance placed on economic incentives such as rising compensation and increasing wage dispersion to efficiency and productivity throughout restructuring policies in general. Yet however problematic wage suppression policies may appear to be from the perspective of successful enterprise restructuring and overall macroeconomic growth, at least some of the effects such policies are likely to generate are entirely compatible and consistent with central reform objectives. First, in the context of price liberalization and privatization, minimum wage deindexation creates a huge disincentive to continued public sector employment as controlled wages in the public sector plummet in relation to those in the private. Contraction of the public sector is a cardinal tenet of reform. Second, 123

For a discussion of this issue, see A. Amsden et al., The Market Meets its Match, supra note 76. The authors argue that such policies were biased toward liquidation and bankruptcy because they relied solely on price levels, to the neglect of microeconomic issues, the creation of necessary institutions and other positive interventions to achieve restructuring. Id., at 124. See also P. Gowan, "Neo-liberal theory and practice for Eastern Europe", 213 New Left Review 3 (September, 1995). For other discussions arguing that analysis of economic development and restructuring in terms of price levels alone is inadequate, see G. Standing, Russian Unemployment and Enterprise Restructuring, supra note 70, at 357; Robert Boyer and Daniel Drache, eds., States Against Markets: The Limits of Globalisation (London; New York: Routledge, 1996). The Market Meets its Match, supra note 76, at 54-60. G. Standing and D. Vaughan-Whitehead, eds., Minimum Wages in Central and Eastern Europe, supra note 90, at 15, 30.

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control of the minimum wage creates disincentives to reliance on social benefits, because when linked to a declining minimum wage, they are increasingly tokenized and undercut as a viable means of income support. Increased personal responsibility for welfare and reduced income security by the state are central reform goals. Third, the decline in real wages creates a powerful incentive to reliance on the preferred neoliberal development strategy for so-called developing and transitional economies - integration into the global economy through low-wage competition. At the same time, productivity increases via low wages are rendered more attractive than improvements in technology, quality or managerial efficiency, even if they are arguably more pressing and might generate superior economic returns. The employment of the minimum wage to restrain inflation in the context of transition is a stark example of the perverse and unexpected results that can be generated by employment regulations. It is also a particularly clear illustration of the distributive shifts which can attend the regulatory and policy changes which are instituted for macroeconomic goals such as inflation or budget deficit control. Its use in the context of transition also adds a novel and illuminating dimension to the argument, reiterated throughout restructuring literature and neoliberal economic analyses, that employment regulations can hurt those they are intended to assist. Wage suppression and minimum wage policies, although they appear at first cut to be simply an issue of worker disempowerment, actually operate unevenly on different sectors and different populations of workers. In practice they are likely to have profoundly gendered implications, as women are consistently over-represented among low-wage workers and make up two-thirds of minimum wage workers in market economies.126 Consequently, any policy that by design or effect reduces the prospects of those on a minimum wage has a disproportionately heavier effect on women. Women are traditionally more dependent on the state than men for employment. This appears to remain true in the states in transition. Women are less likely than men to be the recipients of rising wages, and more likely to be in marginal situations in private employment or the informal sector, or simply unemployed. However, the fate of those who do remain in state employment 126

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W, at 169.

The Gender of Restructuring may not be significantly better, if what was, at least in relative terms, "good" employment is transformed into "bad" because of the wage policies in the public sector.

6.6

GENDER DISADVANTAGE THROUGH THE LENS OF POST-REALISM

In Part I, it was suggested that some of the distributive effects of market reforms could be captured by analyzing their legal underpinnings through the lens of realist and post-realist legal scholarship. This analysis permits a number of phenomena - the possibility of winners and losers in the transition process, the shifting of costs and risks, and the likelihood of conflict over the structure and direction of reforms - to be explained not merely as contingent or transitory restructuring phenomena, but as the surface manifestation of the properties of reforms themselves. This analysis also suggests that there is a range of choices and other possible paths for market reforms, some of which are suppressed, discredited or simply fail to materialize in the discussions of transition. First, little in the way of specific legal reforms and regulations can be attributed to the shift to the market alone; since a broad number of laws, policies and programmes are compatible with market societies, other factors must be at work in the selection process. Nor can different rules and policies be distinguished on the basis that some represent the "free market", while others constitute state "intervention" in that market; all private power is ultimately intertwined with decisions about the interests which should be protected with public resources and powers. Second, we saw that the rules and policies proposed for transition cannot adequately be explained by reference to their efficiencyenhancing properties alone. Nor are they neutral or uncontroversial with respect to the values and interests they promote. Rather, because legal rules are mechanisms for allocating the risks, costs and benefits of productive activity among the parties involved, even those rules advocated in the name of "efficiency" necessarily have distributional consequences for different social groups. These consequences are unusually evident in the context of transition. The particular rules and polices advocated by the Bank permit employers and capital holders to externalize significant costs and shift risks to individuals, consumers and workers. These are costs and risks that they might otherwise bear; moreover, these rules allocate costs and risks among the parties in very different

227

Kerry Rittich ways than did the previous regimes. Finally, despite the idea of the market as a quintessential zone of private activity, the state is not absent in this new regime. Rather, it remains a crucial presence, standing behind and protecting this particular set of interests rather than others. Here, we can apply these insights directly to reflect on the disadvantage of women in the course of restructuring. To recapitulate the conclusions of the discussion on production and reproduction, it is clear that transformations in legal rules can significantly affect the organization of productive activity and spheres of production and reproduction themselves. In particular, changes that attempt to reduce the costs and responsibilities of enterprises and exclude "unproductive" activities from the realm of production can be expected to expand the sphere of reproduction. Absent compensating changes, they are likely to induce increases in the amount of unpaid work. Directly or indirectly, they contribute to the disadvantage of women. However, production is inevitably reliant on much of this labor, whether it is compensated or not. Despite the move to characterize enterprise activities such as the provision of childcare as inherently unproductive, the conclusion is arbitrary and misleading. The argument is no more sustainable than the idea that employers should not have to contribute to employment insurance or provide time and pay for vacation. Such claims are decisions, rather than facts, about the costs which enterprises should be compelled to bear. Indeed, to the extent that unpaid labor remains integral to productive activity, such activity is necessarily "subsidized", that is, dependent on factors or inputs whose costs are not reflected in the cost of production. The self-conscious attempt to re-organize production and compensation by shifting from mixed compensation in the form of wages plus cash and inkind benefits and services to pure wage compensation too turns out to be a distinct policy decision which is not entailed simply by the transition to a market economy. Markets themselves do not mandate particular forms of compensation or preclude certain types of benefits. Rather, benefits are common parts of employment contracts in market economies, particularly where workers have considerable bargaining power. At minimum, such questions could be worked out in the course of the negotiations between the parties most directly involved. Nor are market economies incompatible with a robust system of employment 228

The Gender of Restructuring regulations mandating the provision of benefits and compensation for maternity and parental leave. Rather, existing market economies serve as examples of the variety of options that are available.127 The arguments about the existence of considerable regulatory and policy diversity among market economies might be conceded by reformers, yet parried with the response that "redistributive" regulations and policies are too expensive for both states and enterprises in the current economic context and risk rendering them inefficient and uncompetitive. Yet what such justifications actually reveal is not the absence of redistribution but the redistributive dimension of efficiency- based policies and regulations. The object of the elimination of in-kind benefits and services, whether through strategies pursued at the level of the firm or through "deregulated" labor markets, is to reduce costs to capital holders by permitting them to externalize a range of costs associated with production. This provides a number of advantages to owners and managers of enterprises; constraints are removed on the displacement of labor and the types of claims that enterprises are required to entertain from their workers are limited. However, to the extent that the benefits and services lost are either not compensated by wage increases or not compensable by wages alone, such changes also succeed in redistributing income away from workers. In addition, reforms would largely dismantle or preclude the use of regulatory mechanisms for cross-subsidizing certain tasks and activities. The costs of these activities then fall largely on the individual or household, and the resulting income is diverted and redistributed in complex ways to owners, entrepreneurs, managers, consumers and workers without those costs or obligations. As a result, the effects of reforms extend well beyond enterprises: a direct consequence of "deregulation" and the privatization of services is not simply a shift to the market, but the creation of freedom from certain productive costs and obligations for some and an increase in their cost for others. Here the doublesided quality of the turn toward 'individual responsibility' in neoliberalism for women emerges. The assumption, or imposition, of obligations of care towards others is likely to systematically reduce one's prospects in the market. Because these obligations are unevenly by men and women, the institution of these

For a classic discussion, see G. Esping-Anderson, The Three Worlds of Welfare Capitalism, supra note 46.

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Kerry Rittich reforms arguably replicates the worst set of market possibilities for women, disadvantaging women in the market at the very moment when they are compelled to rely more on the market. However, the bias against the cross-subsidization of reproductive labor cannot be explained simply in terms of the explicit goal of unburdening enterprises and rendering them more competitive. As discussed in chapter 5, subsidies are not self-defining but rest on a concept of normal institutions, normal legal rules and enddements, and normal productive arrangements. Because all legal rules allocate resources conclusions that some rather than others amount to subsidies to producdon are inevitably arbitrary or contestable. Subsidies imply a concept of the normal market and a normal distribution of benefits and burdens among the players involved. However, it is precisely this contestable distribution of benefits and burdens that is naturalized when the transition to markets is said to require the exclusion of legal rules and benefits that compensate women for care work. Moreover, although the argument against enterprise involvement in services such as childcare is that they impose costs that are unrelated to production, neoliberal reformers do in fact envision some forms of subsidies from employers and cross-subsidies among workers. For example, unemployment benefits are promoted (and have been implemented) on the basis that they are necessary to facilitate labor mobility and enable the re-allocation of labor resources. Benefits like employment insurance necessarily involve risk-sharing and contributions from parties other than the ultimate beneficiaries. Typically they involve employer contributions; if the employer succeeds in recouping those contributions by holding back on other parts of the wage bill, they compel cross-subsidies from workers too. However, they might also involve contributions from the state. To reiterate, even in the limited sphere of worker entitlements, it is simply not the case that all subsidies and cross-subsidies are regarded as incompatible with market economies or impediments to efficiency. There is no reason to assume that unemployment benefits exhaust the range of cross-subsidies that are appropriate in the context of transition, or in market economies in general. Childcare and maternity leave could also be crosssubsidized; moreover, they could be designed so as to avoid negative incentives on women's employment. For example, the cost of the services or benefits could be imposed on all employers, without respect to whether they hire 230

The Gender of Restructuring women or whether the particular women they hire end up availing themselves of the various services and leave provisions. Or, they could be funded out of general taxation revenues. Arguments that the costs of childcare cannot be "subsidized" are arbitrary and unsustainable for the reasons advanced. Given the relationship of continuity that exists between reproduction and production, the attempt to rule out some forms of compensation and benefits while permitting or encouraging others simply privileges certain demands and interests over others. There is no reason that the argument could not be made that, just as unemployment insurance is crucial to the efficient redeployment of the labor force, the maintenance of subsidized childcare is crucial to the continued participation of nearly half the labor force in the emerging markets and the ability of female workers to take advantage of the best opportunities and use the very high levels of training and education which they possess. Indeed, it is such an obvious and readily available argument that its absence indicates the presence of other motives and concerns. Although provisions such as childcare or extensive maternity and parental leave provisions are characterized in the restructuring agenda as special and "generous" benefits and are identified as the cause of high unemployment among women,128 they are simply a particular mode of structuring the costs of production and distributing the resulting income. They reflect a particular settlement of the conflicting interests and demands at play in the context of production. Their effect is to significantly reduce to the affected women and generalize among employees and society as a whole the cost or "reproductive tax"129 that one class of workers, women with children, would otherwise bear in order to engage in paid employment. Such arrangements ensure at least partial compensation for labor which, apart from its intrinsic importance, must be performed if production is to continue. They also mitigate the effects of manifestly unsafe assumptions that women are either fairly or adequately compensated for unpaid work through their (male) partners' wages. Similar arguments could be made with respect to early retirement schemes for women and family leave provisions. Whether by design or by accident, early 128

World Bank, From Plan to Market, supra note 67, at 73. See I. Palmer, "Public Finance from a Gender Perspective", supra note 44.

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Kerry Rittich redrement serves as a form of deferred compensation for the double and triple workload women carry while engaging in reproductive activities at the same time as they are employed in the paid workforce. Entitlements to days off work for family responsibilities too are a way of partly compensating reproductive labor, even if they do nothing to shift the locus of the responsibilities and arguably normalize a still unbalanced division of labor. However, to structure production without some form of compensation for unpaid labor privileges some workers at the expense of others. Without some form of compensation or time in lieu, in the restructured economies, women are expected to labor for free, either in addition to or instead of their paid employment, and compelled to absorb a cost that might be shared among workers as a whole. The general conclusion to be drawn from these examples is the following. The use of market convention as the basis upon which to allow certain employment benefits and disallow others, whether through best practice or efficiency arguments, is the normalization or naturalization of a contingently produced set of employment demands. This normalization process causes a reinscription of the compensation and benefits packages that have traditionally been geared to the demands of men, and more particularly, men with only limited, specific, reproductive obligations. This will inevitably benefit those who continue to be able to fill those roles, at the same time disadvantaging those who cannot. In addition, restructuring proposals end up according legitimacy to employment regulations, benefits and social programs that are conventionally provided in "model" market economies such as the United States, rather than those that obtain in other market economies, including the European states.130 As these benefits and programs become incorporated into the idea of the normal market, different constellations of benefits, including but not limited to those that might be demanded by women or male workers with reproductive responsibilities, are foreclosed. One of the results is that the division between productive and reproductive tasks and responsibilities is frozen and the space for reconfiguration of roles and responsibilities is simultaneously compressed. In short, restructuring encourages certain types of role performances, including market work modeled on the ideal of the worker unencumbered by family 130

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See G. Esping-Anderson, The Three Worlds of Welfare Capitalism, supra note 46.

The Gender of Restructuring obligations. Despite the rhetoric of gender equality, restructuring is likely to encourage the entrenchment rather than any revision to the gendered valence of production and reproduction. Neoliberal reforms turn out to be highly political in the following sense. To the extent that they enshrine a canonical set of arrangements in the form of wages, benefits and employment entitlements, they operate to construct and defend a particular set of existing or idealized social practices and the configuration of social power it produces. This forecloses rather than opens up any of the latent possibilities for (restructuring market economies. However, this status quo is itself recursively justified by reference to normal market practice, which is in part the product of the very thing to be determined, the structure of rights and entitlements which allocates costs and benefits to different parties in different social contexts. In spite of the relative absence of discussion about the impact of reforms outside the market, it would be a mistake to think that non-market institutions are merely incidentally affected by the process.131 The (re)construction of the neoliberal market occurs in tandem with calls for more "volunteer" work and involvement on the part of non-governmental organizations. It also rests on the virtues of "community responsibility" and "local solutions".132 However desirable for some purposes, in reform and restructuring, these phrases are code words for termination or reduction in state support and resources, increased local costs and an increase in unpaid community labor. The results are often either a reduction in available services and, to the extent that any of the shortfall is made up, more uncompensated work from women. Whatever increases in growth or efficiency occur as a result, they rely on strategies to decrease compensation or increase labor to certain groups and even partly decommodify certain sectors of the economy.

As many scholars have now noted, neoliberal reform efforts seems to be informed by a presumption that the reproductive sphere has infinite capacity to absorb what is displaced from the productive sphere. See for example, D. Elson, "Micro, Meso, Macro: Gender and Economic Analysis in the Context of Policy Reform", I. Bakker, ed., The Strategic Silence: Gender and Economic Policy (London: Zed Books in association with the North-South Institute, 1994), 42. 132

For example, the World Bank suggests that NGOs, all of which rely heavily on volunteers, can play a valuable role by providing shelter for the homeless. From Plan to Market, supra note 67, at 81.

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Kerry Rittich Restructuring thus necessarily impinges deeply on the resources and preoccupations of other institutions such as the family and the local community and places considerable constraints on policy options in virtually all areas. If only unintentionally or consequentially, it is impossible to confine the effects of economic reform. For such reasons, the attempt to secure a boundary between market or workplace issues and other social and political concerns, a matter with which the agenda is intensely concerned, should be understood as an intrinsically important matter. The boundary fight itself may function as a proxy for other distributive disputes. Alternatively, the successful defence of a proposed limit of enterprise responsibility, for example through the characterization of an issue as a matter of individual responsibility, or a "family" rather than a "workplace" problem, might prevent consideration of other available arrangements with different distributive consequences. So while it is clear that the boundaries between reproductive and productive activities and economic versus other concerns cannot be defended in the unproblematic manner proposed in the agenda, it would be a mistake to regard the effort itself as without significance or effect. Rather than a strategy for promoting the harmonization and convergence of interests in the name of economic growth, the externalization of costs and individualization of risks is likely to produce increased inequality, especially between workers and entrepreneurs, capital holders and employers, and a fragmentation of the labor force. Because these strategies inevitably increase the disparity of advantage among individuals and groups in the context of the market, it should not be surprising then if they are accompanied by a resurgence of group conflict of various types. New interests, identities and class fissures are likely to emerge in the wake of restructuring, as old ones are transformed and strengthened in myriad ways.

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7. GENDER EQUITY IN THE WORLD BANK: THE CASE OF RESTRUCTURING

I

n recent years, a host of critiques has been levelled at the Bank with respect to its lack of attention to gender issues. The sources of these critiques range from non-governmental organizations advocating on

behalf of women to development economists working outside the analytic paradigms embraced by the Bank.1 Some of these critiques concern the impact of the Bank's project and policy-based lending on women. Others concern the economic and theoretical assumptions that govern the Bank's approach to development. Both raise questions about the degree to which women can expect to benefit from the mainstream approach to economic growth. The Bank has been taken to task for the fact that its development projects have rested on unexamined and often mistaken assumptions about the roles of men and women in economic production and household decision-making. Early critiques centered around the fact that development strategies often channelled the bulk of development resources toward men, despite the profoundly important, if not crucial role, of women in local economies. Moreover, women did not A representative sample of such critiques can be found in the Special Issue, "Gender, Adjustment and Macroeconomics", World Development, vol. 23, no. 11 (November 1995).

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Kerry Rittich simply fail to benefit from these efforts; often their position was worsened. For example, as resources were diverted to productive activities for export, women typically remained responsible for ensuring the basic welfare of the household and often saw increased workloads as well. The upshot of these critiques and analyses has been to reveal that the benefits of development aid are uneven at best. What is "good" for women may turn out to be vasdy different than what is "good" for men or society at large, although what is good for men and society at large also often turns out to be some distance from mainstream development strategies too. Moreover, gender-blind analyses and the lack of attention to the position of women in development and market reform projects may subvert economic development even according to the conventional parameters of success. Among the outcomes of these critiques was a call to move from the traditional "women and development" approach to a "gender in development" analysis. One of the greatest provocations proved to be the Structural Adjustment Programs (SAPs) that were implemented in response to the debt crises in SubSaharan Africa and Latin America. These efficiency-enhancing programs grew out of the standard set of policy and institutional reforms that were attached as conditionalities to the adjustment loans. They typically included the elimination of subsidies, price and trade liberalization, fiscal austerity programs designed to reduce budget deficits, public sector reductions, and an increased role for the private sector. While the programs have been subject to criticism on a number of grounds, including impairment to long-term growth prospects and disproportionately heavy effects on the poor,2 as repeated experiences with these programs demonstrated, the programs routinely worsened the position of women in developing countries relative to that of men.3 In addition, there is now an extensive body of empirical and theoretical work investigating gender bias in economic modelling. The result is a significant amount of information concerning why such disproportionately bad effects of reform and adjustment for women might recur and what their connection is to neoliberal assumptions about efficiency and the G. Cornia, R. Jolly and F. Stewart, eds., Adjustment with a Human Face (Oxford [Oxfordshire]: Clarendon Press, 1987). For a general discussion of the impact of Structural Adjustment Programs on women, see United Nations, The World's Women 1995: Trends and Statistics (New York: United Nations, 1995).

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Gender Equity in the World Bank path of growth.4 However, this research has yet to be seriously incorporated into neoliberal development theory, nor has it significandy altered the reigning development paradigm. However, references to gender equity now surface regularly in the Bank's policy statements. Largely as a result of external pressure, gender has become an object of attention and a subject of research. The pursuit of gender equity has been added to the list of official development objectives.5 The Bank has endorsed the view that investing in women is good for development,6 while continuing gender inequality can impair efforts to promote growth.7 Gender equity is even sufficiendy well-established as an ideal to evoke calls to end the era of rhetoric by replacing empty words with action and move toward "mainstreaming" or integrating gender concerns in development policies.8 The result is, at least on a rhetorical level, increasing acknowledgement of the value of gender equity to economic development. However, the embrace of gender equity within the Bank has been equivocal. Unanimity or agreement about the role and importance of gender equity within the Bank, including the positive links between gender and development, still appears elusive.9 Instead, gender is often treated as a special consideration rather than a concern that is relevant to the initial design of all development and restructuring policies. Moreover, gender equity research is but one of many projects undertaken within the Bank. Nor are the findings of gender research automatically integrated into the Bank's overall

This issue is canvassed in: "Special Issue: Gender, Adjustment and Macroeconomics, World Development, supra note 1. World Bank, Advancing Gender Equality: From Concept to Action (Washington, DC: The World Bank, 1995). "Experience from around the world shows that supporting a stronger role for women enhances the quality of their own lives, and also contributes to economic growth, improves child survival and the health of all members of the family, and reduces fertility, helping slow population growth. But while investing in women is central to sustainable development (the returns can be enormous, generation after generation), women still face many barriers in benefiting from development - and in contributing fully to it." Id, at 1. "The persistent inequalities between men and women lead to lower levels of productivity and growth...". Id. See M. Buvinic, C. Gwin and L.M. Bates, Investing in Women: progress and prospects for the World Bank (Washington, D.C. : Overseas Development Council in cooperation with the International Center for Research on Women: Overseas Development Council, 1996), 1. 9 Id 0

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Kerry Rittch development policies; indeed, the Bank routinely distinguishes the research that takes place under its auspices from its official stance on development policy.10 Consequently, it would be a mistake to assume that the new focus on gender has fundamentally transformed the approach of the Bank to development and market design, even with respect to issues and policies that might seem to be most directly or overtly about women. This is unsurprising in one sense; even if gender equity were to be accepted unequivocally as an important and appropriate development goal, what it means to advance it is a complicated and deeply contested project. Gender equity can be pursued in a variety of ways; different conceptions of gender equity have vastly different effects. Institutional differences, inertia and conceptual disputes aside, an important source of the ambivalence about both the role of gender equity in economic development and the pursuit of gender equity as an independent objective resides in the following. Advancing gender equity consistently puts in question many of the market-centered policies currently advanced by the Bank. Indeed, despite the Bank's commitment to the idea of gender equity, the Bank's policies concerning the appropriate role of the state and the proper regulatory structure of markets themselves frequently threaten to undermine the status of women. As a result, tracking the progress on gender equity and the production of gender disadvantage is not something that can be accomplished merely by looking at what the Bank says about women or by focusing on its gender projects alone. Instead a different process is required. While development policies, including the reform and reconstruction policies for the states in transition, need not be interpreted as deliberate attempts to affect the fortunes of women, the various components of reform projects need to be evaluated for their potentially gendered effects.

For example, a typical caveat is the following: "This report is a product of the staff of the World Bank, and the judgments made herein do not necessarily reflect the views of its Board of Executive Directors or the countries they represent" (World Bank, Toward Gender Equality: The Ro/e of Public Policy (Washington, DC: World Bank, 1995), iv). While World Bank, World Development Report 1996: From Plan to Market (Oxford; New York: Oxford University Press, 1996), carries a similar caveat, that report is a broad synthesis of the current orthodoxy on economic development, carries the imprimatur of the President of the Bank and is intended and widely understood to reflect the current position and rational of the Bank on development.

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Gender Equity in the World Bank As significant as the number of times that "gender" or "women" appear in development discourse is the way that gender issues are conceptualized and the manner in which the Bank imagines that gender might or might not be relevant. In other words, the way that gender issues are characterized, the way that concerns are recognized as gender issues, the aspect of issues which attract attention and the process of prioritizing claims and concerns are all central to the project of gender analysis. Often, gender analysis is foreclosed and disadvantage ignored simply because the issue at hand is not conceived as being relevant to women in particular. Consequently, it is important to look at the areas and aspects of economic reform from which references to gender are entirely excluded or neglected. This is particularly important in the context of transition, as the issues which promise to generate the most far-reaching effects for women turn out not to be a small, closed list of easily identified "women's concerns". Instead, they lie at the heart of enterprise restructuring and the turn toward a particular model of the market economy. The likely outcome of restructuring for women is at odds with the positive projections of the Bank regarding the outcome of "successful" transition. Moreover, this remains the case even if the best-case scenario envisioned by the Bank comes to pass. The question arises, what makes it possible to imagine that gender equity could be seriously pursued while policies that appear to run counter to the institutional requirements of gender equity are implemented? How does the concept of gender equity actually operate in the discourse of restructuring? What can be said about the conception of gender equality held by the architects of economic development such as the Bank? One way to approach these questions is to begin with the general discussion of gender and economic development and to examine the ways in which women appear as objects of attention in the Bank's development policy. The characteristic approach to the question of gender and development does not account for the disappearance of gender analysis in the design of the transition policies as a whole. However, it does suggest how it is that market design issues become separated from gender issues. Two of the contexts in which concerns about women as a class arise are the fields of education and health. Among development organizations, there has long been an obsession with women's maternal functions and fertility levels. Control of population growth has always been regarded as fundamental to development.

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Kerry Rittich Consequently, much of the Bank's research on women has been devoted to issues such as fertility control and safe motherhood, the role of women in household health and nutrition levels, and reducing child mortality.11 In recent years, concern over reproductive issues has been supplemented by increasing attention to women's educational levels and the disparity of access to education between women and men. Theorists of development, neoliberals included, have concluded that there are positive economic spin-offs and externalities such as greater overall household welfare which result from increasing the access of women to education.12 The result is that what might seem intuitively obvious has now been embraced as a development nostrum: increasing the education levels of women is key to improving the welfare of children and families as a whole. However, while the Bank has always emphasized the importance of investing in women's reproductive and maternal functions,13 it less commonly promotes efforts to further women's labor market participation.14 And despite the fact that wage labor is central to the project of increasing economic development, there has been surprisingly little attention on the part of the Bank to the impact of development reforms on patterns of women's labor market participation.15 As some researchers have noted, particularly striking is the lack of attention to the shifts in economic participation which occur in the course of restructuring.16

A representative list of the Bank's work on gender issues can be found in World Bank, Advancing Gender Equality, supra note 5. See for example World Bank, World Development Report 1991: The Challenge of Development (Oxford; New York: Oxford University Press, 1991), 55. M. Buvinic et al., Investing in Women, supra note 8, report that the Bank has consistently supported women as mothers rather than as workers. See however, G. Psacharopoulos and Z. Tzannatos, eds., Case studies on women's employment and pay in Latin America (Washington, DC: World Bank, 1992). This is, however, a long-standing concern of feminist and development economists. Representative discussions of such transformations can be found in E. Boserup, Women's Role in Economic Development (New York : St. Martin's Press, 1970); L. Beneria and M. Roldán, Crossroads of Class and Gender. Industrial Homework, Subcontracting, and Household Dynamics in Mexico City (Chicago: University of Chicago Press, 1987); L. Beneria and S. Feldman, eds., Unequal Burden: Economic Crises, Persistent Poverty, and Women's Work (Boulder, CO: Westview Press, 1992). Kathleen Cloud and Nancy Garett, "A Modest Proposal for Inclusion of Women's Household Human Capital Production in Analysis of Structural Transformation", 2(3) Feminist Economics 93 (1996), at 94.

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Gender Equity in the World Bank Similarly, the Bank has neglected the role of private investments, especially the unpaid work of women, in the creation of human capital. All of these questions surface as important issues in Central and Eastern Europe, where a relatively long-standing pattern of high labor market participation for women is at risk. Exceptions to this can be found. For example, the Bank has recently developed an enthusiasm for promoting micro-credit lending programs for women modelled after those developed by the Grameen Bank in Bangladesh.17 Recent efforts to directly assist women's labor market participation include ventures such as the multi-donor Consultative Group to Assist the Poorest (CGAP), announced at the Beijing Conference. However, while such ventures might appear to signal a new interest in the economic position of women, the vast amount of attention given to these efforts paradoxically merely underscores the silence in other areas. Where, for example, given the centrality of markets, is the analysis of women's labor market constraints? The particular focus of the Bank's gender policies raises a number of questions. How has gender analysis found a niche in the Bank's development policy? In what ways is attention to the issue of gender cabined or deflected? What are the points of resistance to its use? How does the promotion of gender equity mesh with or fail to mesh with other development objectives? What happens when gender equity conflicts with other goals? Some of these questions can be explored by comparing the Bank's gender research with its approach to economic reform and restructuring. In 1995, the Bank released a report surveying the role of gender inequality in development. The report, Toward Gender Equality™ stakes out a clear position linking gender equality with improved economic growth. It states that, "[inequality between women and men limits productivity and ultimately slows economic growth".19 Since there is "not necessarily a tradeoff between inequality (sic) and growth", the report suggests that it is essential that public policies compensate for market failures in the area of gender equality.20

S. Khandker, B. Khalily and A. Khan, Grameen Bank: Performance and Sattainability, (Washington, D.C.: World Bank, 1995). 18 19 20

World Bank, Toward Gender Equality, supra note 10.

Id., at 22. r, . Id., at 1.

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Kerry Rittich Few, if any, of the many forms of gender disadvantage which appear to be predictable outcomes of restructuring proposals are unknown to the Bank. For example, Toward Gender Equality notes the high degree of non-wage work that women perform, the importance of intrahousehold resource allocation21 and decision-making, and the role of social norms, including gender norms, in the household division of labor.22 Household resources are not necessarily pooled, nor is the welfare of the household synonymous with the welfare of individuals within it.23 Moreover, decision-making mirrors the relative bargaining power of household members; bargaining power in turn is a function of social and cultural norms, as well as external factors such as the opportunity for paid work and the degree of legal control over assets.24 Circumstances exist in which men disclose a strong preference for cash wages, while women are attracted to in-kind benefits and wages.25 Tellingly, it is acknowledged that "an increase in household income may benefit some household members but leave others unaffected or worse off'.26 There is even an economic cost exacted by violence against women.27 Finally, it is observed that "safety nets are not a substitute for a more integrated approach to economic and social policy that includes appropriate levels of investment in social services and infrastructure".28 "The main issue for public policy" according to the report "is to ensure that fair and equal employment laws exist and are enforced".29 Labor market safeguards are of two types: the first ensure pay equity and outlaw occupational segregation by gender; the second "protect women in their roles as mothers", among other ways, by requiring employers to pay the full cost of maternity leave and provide childcare services.30 Measures which are proposed to increase women's chances of entering the labor force include the creation of an appropri21 22 23 24 25 26 27 28 29 30

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Id., at 2. Id., at 4. Id., at 22.

Id. Id., at 62.

Id. Id., at 26. Id., at 55. Id., at 47. Id., at 47.

Gender Equity in the World Bank ate regulatory framework that encourages the establishment of childcare, private nursery schools and kindergartens in both the formal and informal sectors.31 A prime consideration in labor market standards is crafting the provision of benefits in a way that does not restrict women's participation by making women relatively more expensive than men to employ. This is the risk of "generous" maternity and childcare benefits.32 For this reason, "employment legislation should avoid having employers pay benefits directly. Maternity benefits should be funded through general revenue taxes or social security systems...".33 However, in the context of Central and Eastern Europe, it is observed that "this method of funding benefits has imposed a significant cost on the treasury, raising the question of how much should be paid and for how long".34 The report also contains a discussion of the ways in which price signals in the labor market may generate gendered responses: "Social norms affecting decisions within the family about occupational choices or migration can also lead to differential patterns of male and female earnings in informal markets. Family responsibilities hinder women's geographic mobility, constraining their ability to command high wages and limiting them to certain areas or industries. The concentration of women in certain sectors ... intensifies competition between women entrepreneurs and wage workers and lowers the returns to female labor. These effects are compounded by women's lack of access to credit, training, and technology."35 Finally, it is acknowledged that constraints on female employment arising from social norms can be compounded by institutional norms in the market. Because of this, "[p]ublic policy can address inequalities in the household division of labor by supporting initiatives that reduce the amount of time women spend doing unpaid work".36 However, this is typically envisioned as an increase in labor-saving technologies for women rather than a broad effort to change gender norms.37 31 32 33 34 35 36 37

Id., at 48. Id., at 46. Id., at 48-49.

Id., at 49. Id., at 34-35. Id. Id.

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Kerry Rittich In short, there are numerous observations and recommendations in Toward Gender Equality which disclose points of convergence in the two agendas, development and gender equity. Toward Gender Equality also reflects some of the concerns around the intersection of market-centered development and equality. Notwithstanding, the pursuit of gender equity turns out to mean something substantially different in practice. A number of general observations can be made about the place of gender equity in the framework of development. First, the Bank exhibits a largely instrumental interest in both women and gender issues;38 attention to gender equity surfaces primarily in order to further other development objectives, rather than as an end in itself. This is not surprising, given that the Bank has, at least until recently, oriented its projects and lending primarily toward economic development. However the limitations of this approach are clear; to the extent that the pursuit of gender equity conflicts or is perceived to conflict with development ideology or practices that are otherwise considered desirable, it remains at risk.39 One such example is the labor market policies for Central and Eastern Europe; even those engaged in analyzing the elements of gender equity equivocate about the extent to which regulations and policies ensuring women's labor market participation should be pursued once concerns about cost enter into the equation. The second and related point is that the Bank operates with a limited set of policies with which to address issues of inequality, including gender inequality. There is a large number of rules, policies and institutions that might be relevant to the production of gender inequality. However, responses to gender inequality are subject to a set of limitations arising from the belief that private provision is superior to public, that income transfers should be targeted rather than universally available, or that "excessive" labor and employment regulation will impede growth. Third, despite this increasing attention to the deleterious effects of gender inequality on productivity, there is less attention to the way in which the opera

38

See also C. Jackson, "Rescuing Gender from the Poverty Trap", 24:3 World Development 489 (1996). For example, in M. Buvinic et al., Investing in Women, supra note 8, at 19-20, the authors found that the Bank staff "have yet to be convinced" that investing in women's productive capacity has a direct impact on development or the Bank's own portfolio investments.

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Gender Equity in the World Bank tion also works in reverse. There is no systematic analysis of the ways in which economic development or market reform policies, including those which appear to have nothing to do with gender, might have disparate effects on men and women. However, if women are indeed key to successful development, the Bank risks subverting its own objectives by pursuing projects and policies that undermine the position of women. To the extent that it fails to engage in gender analysis, however, the Bank is not in a position to assess the extent to which this is occurring. One of the things which is missing from the Bank's development prescriptions is a detailed consideration of the effects of different economic policies on household activities. This would necessarily require attention to shifts in the power of various household members, changes in the division of labor within the household, and changes in the allocation and expenditure of resources. This is the case even though in the Bank's own gender research it is recognized that "[hjouseholds do not makes decisions in isolation...; their decisions are linked to market prices and incentives and are influenced by cultural, legal and state institutions."40 Nor is there an examination of the ways in which disadvantage inside the workplace might be generated by structures of disadvantage and disparities outside. Finally, there is no demonstrated awareness that market structures and incentives may actually reconstitute and reconfigure other social institutions, such as households, families and communities. Instead, the Bank's approach to gender equity can be seen as an outgrowth of its general approach to equality and distributional issues. The basic approach to such concerns is to categorize them as social or political issues and to differentiate them sharply from questions of appropriate market policies. The underlying theory is that the market should be structured to maximize growth and efficiency alone;41 distributional concerns come later. Although distributional effects may be among the most important institutional consequences of reform,42 because of the

Toward Gender Equality, supra note 10, at 21. World Bank, Poland: Income Support and the Soda/ Safety Net During Transition (Washington, DC: World Bank, 1993), xiii. See Part I. This is a major theme in literature on globalization and trade as well as development. See for example, D. Rodrik, Has Globalisation Gone Too Far? (Washington, D.C.: Institute for International Economics, 1997); A. Wood, North-South Trade, Employment and Inequality: changing fortunes in a skill-driven world (Oxford Clarendon Press; New York: Oxford University Press, 1994).

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Kerry Rittich importance placed on efficiency and growth, policies and regulations which are thought to be consistent with those goals are shielded from scrutiny. Efforts to remedy any resulting inequality then fall to the state, to the extent that they can be afforded and do not themselves impede the efficient functioning of the market. The result is constant deferral and demotion of distributive concerns. When concern over gender equity or poverty does arise, the solutions tend to be remedial in nature. They are applied after the fact, to ameliorate the worst effects of a market and production structure which is regarded as otherwise optimal, inevitable, determinate, or simply essentially "correct". Solutions to distributional problems, including gender disadvantage, are thereby separated from what produces the disadvantage in question; redress of the inequality is limited to a subset of the potentially relevant strategies and policies. The net result is that overall legal and institutional framework of production often escapes examination. It is perhaps not surprising then that the equity and redistributional policies which tend to be favored by the Bank are those which may be accommodated with minimal disruption of the general framework of market reforms. The gender equity policies that the Bank adopts tend to supplement rather than challenge the central neoliberal tenets about the policy and regulatory structure which should govern enterprises and the market. Alternatives are often either ignored altogether or dismissed on the ground that they conflict with other development objectives and are therefore undesirable. For example, classic gender equity policies advocated by the Bank include improved access to basic health and education provided by the state, especially where there is an existing differential between men and women; such investments are thought to generate significant productivity gains. Also favored are labor market non-discrimination policies such as legislation prohibiting hiring and layoffs on the basis of gender. Discrimination on gender, racial or other bases is regarded as inefficient and regulation to eliminate such practices congruent with economic development objectives. Safety nets or social funds may be proposed or instituted to (partly) offset the effects of structural adjustment.43 While hardly unimportant, such policies fail to touch the differentials which are generated by the disparity in reproductive responsibilities between men and women and the enormous amount of unpaid labor on the part of women which M. Buvinic et al., Investing in Women, supra note 8, at 7.

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Gender Equity in the World Bank result from the gendered structure of the productive and reproductive economies. It is this disparity which is an enduring source of disadvantage to women, persisting even where all of the gender policies suggested by the Bank are in place. Part of what is required to deal with gender inequality rooted in such disparities are labor and employment regulations that mandate paid family and maternity leave, as well as policies and employment regulation to subsidize childcare. However, such strategies are discouraged to the extent that they are perceived to burden employers and create fiscal burdens for the state. This is not because the Bank is unaware of their significance to women who work. On the contrary, the Bank is completely cognizant of the dual roles or "double burden" of women and the wrench it throws into women's employment prospects. For example, it has this to say about the plight of poor women in the urban, i.e. developing, sector in Bolivia: "While most women are required to work to help support their families, they still remain the main caregivers for their children. This dual role is made all the more difficult in urban areas, where the extended family arrangements common in rural areas cannot usually be reproduced. In some households, a vicious circle operates: low-paying jobs prevent mothers from having access to adequate childcare [i.e. childcare purchased on the market], and the absence of adequate childcare prevents mothers from seeking more stable, higher-paying employment. Providing low-cost, easily accessible daycare that meets women's needs could break this circle, raising earnings and productivity and benefiting both women and children"...44 It is impossible to make sense of the distance between the Bank's gender analysis and the policies it promotes without considering the Bank's overall position on the proper division of labor between public and private responsibilities. The Bank sometimes advances the argument that many social expenditures simply do not generate sufficient economic returns to justify them. However, the Bank is also of the view that some expenditures simply "are" private and should not be subsidized by the state.45 For example, higher education, "curative" as opposed to preventative health services and pensions have been identified as essentially private goods and services that have "somehow wandered into the

World Bank, Advancing Gender Equality, supra note 5, at 29. World Bank, From Plan to Market, supra note 10, at 110.

247

Kerry Rittich domain of public provision".46 This investment, however unexplained or contestable, in this basic division between public and private responsibilities influences the strategies the Bank is prepared to adopt or promote, shaping and constraining its "interventions" in markets.47 For example, the Bank's policies with respect to gender equity in the workplace tend to mirror approaches found in industrialized market economies such as the United States.48 In general, this is to allocate issues to particular fields or spheres, such as enterprise and household, market and state, public and private. However, public and private responsibilities cannot be conceptualized independently if the object is to deal with persistent gender inequality, especially in labor markets, because much of the inequality resides in the relationship between the two. And despite the propensity of the Bank to imagine the household and the market as discrete entities, as described in Chapter 6, they are each deeply dependent on each other and affected by what goes on in the other.49 Intimations of these connections are reflected throughout the discussions of gender equity. They are particularly evident in the recurring references to the external sources of external workplace disadvantage for women: as the Bank notes, women's educational and mobility options, investments in human capital and ultimate employment prospects are all constrained by their roles and obligations within the reproductive sphere. Yet, at the same time, the Bank also seems to regard these roles as either natural phenomena or cultural practices which are unrelated to legal and political choices, economic institutions and social policy. What is missing in the analysis is an exploration of the ways that such "non-market" sources of disadvantage might be affected, either worsened or ameliorated, by the chosen strategies of adjustment, reform and economic development.

46

Id.

47

This issue is discussed in G. Hadfield, "Households at Work: Beyond Labor Market Policies to Remedy the Gender Gap", 82 Geo. L.J. 89 (1993), 95. For example, efforts at explaining the wage gap between men and women are typically focused on the differences which cannot be reduced to disparities in education levels and work experience. See J. Friesen, "Alternative Economic Perspectives on the Use of Labor Market Policies to Redress the Gender Gap in Compensation", 82 Geo. LJ. 31 (1993), 42-43. 49

F. Olsen, "The Family and the Market: a study of ideology and legal reform", 96 Harvard Law Review 1497 (1983).

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Gender Equity in the World Bank

1.1 Gender Equity and Restructuring from Plan to Market In light of its prior experience with SAPs, the Bank was well-positioned to foresee at least some of the adverse consequences for women which could result from the adoption of restructuring policies in the transition to market economies. Although the transition from plan to market was an unprecedented venture, many of the central reform policies were not. SAPs provided the template for many reforms in the context of transition. Key elements of economic restructuring notably, fiscal austerity, the retrenchment of the state and the "deregulation" of markets, especially labor markets - bear a strong family resemblance to the policies advocated in the course of structural adjustment. For example, cutbacks in services disproportionately used by women, increases in the unpaid work of women and downward shifts in women's employment status are but some of the well-known effects of earlier programs modelled on similar lines.50 However, economic restructuring in transition economies has its own gendered particularities. Many of these can be attributed to the massive disruption of industrial production51 in conjunction with changes to policies that had previously enabled high labor force participation rates among women. Yet despite the history of gendered effects of neoliberal economic reforms, to the detriment of women and arguably the success of economic development as well, gender analysis apparently played a marginal role in the formulation of restructuring plans. In all the exhortations to implement reforms, few comments are ventured about how different populations, including different groups of women, might fare in the course of reforms. Although declines in the position of women are noted, there are few suggestions that such disadvantage might be directly produced by the types of reforms the Bank promotes. In short, there is no specific analysis of the production of gender disadvantage as a consequence of enterprise restructuring and regulatory reform. Even if measured only against the Bank's own gender research, restructuring policies diverge significantly from what would be expected if gender analysis had 50

Sally Baden, "The Impact of Recession and Structural Adjustment on Women's Work in Developing and Developed Countries", working paper, (ILO, 1993); United Nations, The World's Women 1995: Trends and Statistics, supra note 3. For a discussion, see A. Amsden et al, The Market Meets its Match: Restructuring the Economies of Eastern Europe (Cambridge, MA: Harvard University Press, 1994).

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Kerry Rittich centrally informed their development or gender equity had become a significant operational concern. Instead there is equivocation around the significance of emerging disadvantage to women. For example, in From Plan to Market, the Bank concedes that the transition has resulted in more burdensome domestic responsibilities for women.52 However, these negative effects are also downplayed or denied outright; elsewhere the Bank insists that the situation of women in the region "is clearly not as gloomy as is usually portrayed".53 Despite moments of acknowledgement, gender analysis has remained a peripheral issue in the general discussion about restructuring.54 Nor does it figure significantly in specific issues such as poverty relief, despite the fact that most of the risk factors for poverty which the Bank identifies tend to be disproportionately associated with women. These include: belonging to a single-parent family; being out of work; being old; and lacking access to assets.55 In short, there is little attention to the ways in which specific forms of disadvantage to different groups of women might be produced in the process of restructuring. Given the profoundly gendered structure of household responsibilities, caregiving labor and other forms of unpaid work, it would be surprising if the dismantling of an economic structure that partly integrated productive and reproductive work and provided some compensation for labor that would otherwise remain unpaid did not generate negative effects for women; such an outcome is almost unavoidable. However, in the neoliberal plan for the market, compensatory mechanisms are not recommended because they impose costs on enterprises without providing productive returns.

See for example, World Bank, From Plan to Market, supra note 10, at 72. See World Bank, World Development Report 1995: Workers in an Integrating World (Oxford; New York: Oxford University Press, 1995), at 108. The Bank reports that it has approved "seed" financing for inquiry into the following areas: Women in the Labor Market in the former Soviet Union; Changing Patterns of Childcare and Reproductive Health in Eastern Europe; and Gender and Property Rights in Transitional Economies: A Focus on Women and Agrarian Reform. See Josette Murphy, Gender Issues in World Bank Lending (Washington, D.C.: World Bank, 1995), 66. Monica Fong, "Romania: Gender in the Transition", World Bank, 1996; Monica S Fong, "Gender Barriers in the Transition to a Market Economy", PSP Discussion Paper Series (World Bank, January, 1996). 55 World Bank, From Plan to Market, supra note 10, at 71. 53

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Gender Equity in the World Bank From Plan to Market holds that in the move to the market, "policy should focus on increasing choices for women [i.e. to engage in paid employment] so that they can contribute to productivity growth".56 Yet, although it seems to be regarded as a good thing for women to be in the labor force, market reform proposals are notable for the absence of institutional supports that would make it less costly for women to do so. Women are welcome to buy childcare services through the market to the extent that they can afford them and succeed in creating a market demand. But these are private decisions to be determined by individual or household income and purchasing priorities, matters that should remain uninfluenced by subsidies from other workers or the state. In the absence of resources adequate to purchase care, labour market work must supplement rather than replace unpaid work. Nor, under the logic of restructuring, are there any incentives for private enterprises to provide childcare services, despite the fact that this is identified as a key gender equity policy. Indeed the opposite is true: enterprises have been actively encouraged to divest themselves of such "peripheral" activities and unproductive benefits to reduce costs and improve efficiency. Although the Bank has on occasion advanced the idea that municipal governments might take over the provision of childcare, regulatory initiatives or tax incentives to encourage the provision of private childcare appear nowhere in the official restructuring policies promoted by the Bank.57 Neither does the Bank's plan for restructuring provide basic protections to women such as paid maternity leave. Instead, such regulations are regarded as problematic, a source of labor market disadvantage for women. The Bank is, however, cognizant that maintaining labor market participation by women requires maintaining childcare. Referring to one of its projects in Kazakhstan, where labor market participation for women aged 20-44 exceeded 95%, the Bank suggests that transition has created "challenges for the government to meet the needs of women in the labor market, in particular the need to keep up the support services that enable women to take up paid work..." where "services were free and coverage rates were high".58 Yet in trumpeting the virtues 56

Id.,at72.

The need for these regulatory initiatives is discussed in Monica S. Fong, "Gender Barriers in the Transition to a Market Economy", supra note 54, at 28. CO

World Bank, Advancing Gender Equality, supra note 5, at 38 -39. 251

Kerry Rittich of its plan to bridge the gap in services that have resulted from privatization and closing of services by enterprises, there is no mention of the fact that this divestiture and devolution of services is precisely what the Bank itself recommended, nor that the plan will fail to provide childcare to many who previously obtained it. Behind the language of "cost-recovery" and "protecting vulnerable groups", the Bank envisions a fundamentally different sort of service, one that is targeted rather than universally available, that will provide resources to far fewer persons, and even fewer for free. The trade-offs between fiscal austerity and enterprise restructuring versus labor market access for women are explicit. Rather than ensure fully-funded childcare leave and maternity benefits through, for example, general tax revenues in order to ensure continuity of service and hence labor market access for women, benefits and services are to be reduced to ease the strain on the budget. To the extent that it is considered at all, the underlying assumption seems to be that the demand for childcare is a matter that is adequately left to the market, even though the risk of market failure is high. Continuing subsidies to childcare, whether on the part of enterprises or states or local authorities, are regarded as luxuries which cannot be afforded. The Bank parenthetically observes that "with services such as child care being withdrawn, family allowances are likely to be particularly well-targeted";59 here, there are clear indications that the end to secure provision and subsidies of childcare are foreseen and accepted, if not actually intended. Yet despite the suggestion that family allowance payments might substitute for the loss of childcare services and subsidies, family allowances are another target of restructuring; following the same logic, such payments are also regarded as too generous. Hence, it seems fanciful to imagine that the lost subsidies for childcare could be more than partly made up in this manner. These cutbacks raise obvious concerns around both equality and efficiency. In discussions about the situation in Poland during transition, analysts note that paying family allowances to women both empowers women and improves the targeting of benefits to children,60 hence insuring investments in human capital. Such observations clearly reflect an awareness of the disparities between men and

World Bank, From Plan to Market, supra note 10, at 81.

Poland: Income Support and the Social Safety Net during the Transition, supra note 41, at 78.

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Gender Equity in the World Bank women in access to family resources and gender differences in reproductive responsibilities. Yet when it is concluded that family allowances are too high and should be reduced,61 there is no acknowledgement that such a policy may redistribute resources away from women, even assuming that household income replaces the lost benefits. In addition, the reduction may well reduce investments in human capital, undermining overall productivity and development goals as well. For reasons that are unexplained, the reductions in these benefits do not appear to require comment or justification. The proposed reduction of maternity benefits along with sickness and disability benefits, for the purpose of reducing costs and removing disincentives to work, raises similar issues. Lowering maternity benefits requires women in particular to bear the brunt of the drive to efficiency; it also aggravates gender inequality in the context of employment. However, pregnancy is a condition that is of defined duration and not normally in dispute. It is not clear what role increased work incentives could be intended to play in this context, especially given that any incentives to reduce the rate of pregnancy are hardly uncontentious. What the scheme creates is a system in which there are greater incentives for women to either avoid pregnancy altogether or go back to work earlier after the birth of a child. In short, it simply imposes a greater cost on pregnancy. Raising women's retirement age to that of men is defended for equity reasons.62 While the exact nature of the equity concern is left unspecified, the perception seems to be that women receive some gratuitous or unfair benefit because they are entitled to retire earlier than men.63 However, equalizing retirement ages could only seem to unequivocally advance the cause of gender equity if the question of retirement age is isolated from the other gendered aspects of work. Early retirement may function to women's detriment in certain respects and later retirement ages may result in increased income for women and hence higher

61

Id., at 56.

62

World Bank, Poland: Policies for Growth with Equity (Washington, DC: World Bank, 1994),

at 35.

"[T]he typical woman pensioner in the Czech Republic enjoys five more years of retirement than her American counterpart, and seven years more than her German counterpart. For men the difference is closer to one year". World Bank, Yrom Plan to Market, supra note 10, at 78.

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Kerry Rittich pensions.64 However, the elimination of the early retirement for women ignores the fact that whether intended or not, these provisions function as deferred compensation for the oft-noted double or triple work burden that women in these economies carry,65 as well as compensation for the unpaid labor, such as childcare, these "retired" women often undertake. The previous chapter detailed a range of ways in which the reform proposals can be systematically expected to undermine the conditions in which women engage in paid employment. Why this is not a cause of concern, when the whole idea is to improve productivity through participation in the market, is not a straightforward matter. For example, if this strategy is to be economically rational, it should rest on evidence that no significant adverse effects on women's capacity to work, and adverse effects on human capital formation in general, results from the removal of benefits and services. From Plan to Market holds that the "real test" as to whether reforms have increased the welfare of women is whether or not they have left women freer or more constrained.66 In the view of the Bank, the answer is the latter;67 women no longer have the choice to work due to the loss of childcare, but women are also not free to stay home because their families need the income. Notwithstanding, women appear to retain a vast preference for working outside the home even under less favorable conditions, a fact explained by such factors as "personal satisfaction", "social interaction" and "connections to the informal economy, vital for coping during transition".68 However, the analysis discloses a certain ambivalence about female labor force participation and indifference to its decline. For example, women are reported to have "shifted out" of the labor force at higher rates than men during the transition.69 The language employed to describe this phenomenon emphasizes Monica S. Fong, "Gender Barriers in the Transition to a Market Economy", supra note 54, at 30. This feature of the plan economies has been observed by the Bank itself, both as a general characteristic of women's work profiles and with respect to the economies in transition in particular. See World Bank, Toward Gender Equality, supra note 10, at 30, 32; World Bank, From Plan to Market, supra note 10, at 72. World Bank, From Plan to Market, supra note 10, at 72. 67 Id. 68 Id. Workers in an Integrating World, supra note 53, at 108. 254

Gender Equity in the World Bank the exercise of agency and choice on the part of women, rather than the presence of external factors, coercion or constraint; women "choose" to leave, they are not forced or pushed out. What is problematic is the emphasis on choice and freedom at the very moment when the regulatory and institutional supports which enabled women's labor market participation are being withdrawn. Also absent from the analysis is any suggestion that desire or need for income is likely to be a primary consideration governing the employment decisions of women, as it is for men. There is no analysis of women's growing reliance on informal work. Nor, despite the Bank's usual preoccupation with the effects of incentives on work, is there any suggestion that women's "choices" are not exercised in the air but are affected by the nature of the employment opportunities which are available to women. There is no explanation as to why it is necessary to explain why women in particular want to work, how such a desire might differ from that of men, or why choice is relevant to women but not men. The reader seems invited to make sense of this by participating in a tacit understanding that women do not necessarily want or need labor force employment and therefore do not constitute part of the primary labor force. This seems to indicate that a norm of female engagement in unpaid domestic work and economic dependence on male providers is operating in the background in restructuring plans. The change in the gender composition of the labor force is also explained by reference to the very high labor force participation rates for women in the plan economies as compared to the industrialized states of the West.70 This introduction of the comparison between East and West helps allay concerns which might otherwise arise about the decline of women's labor market participation. One of its effects is to remind the reader of the norm; there may be no cause for alarm, if women in the economies in transition are merely moving toward the situation occupied by women in market economies in general. Any change should be understood as a reversion to a more normal state of affairs that had been artificially interrupted by the socialist experiment. However, the decline in women's status, particularly with respect to labor markets, and its relation to transition is not always an easy issue to negotiate for the Bank. Commitment to gender equity requires that at least ritual notice be 70

Id. 255

Kerry Rittich taken of any differential effects of economic reforms on men and women. Yet commitment to the path of a minimal state and relatively "deregulated" markets provides a powerful incentive for the Bank to avoid concluding that any decline and disadvantage to women is actually produced by its restructuring strategies. Certain rhetorical postures are adopted to manage and distance this problem; strategies of admission, omission and denial are all at work. For example, it is reported that "economic hardship and uncertainty during transition" render it more difficult for women to fulfil their duties.71 A neutral descriptive tone is employed; there is no reference to the relationship between this hardship and declines in power and material resources. Nor is it observed that the hardship for women in particular might result from the priorities and choices made in the context of restructuring. Yet outcomes such as the loss of childcare and increased need for income result directly from the reform policies advocated by the Bank. The elimination of social benefits through the workplace, the emphasis on increasing the flexibility of labor so that it can be more easily and costlessly redeployed, and the constellation of policies which, by design and effect, create significant declines in real wages all contribute to the observed phenomenon of hardship for women with labor and responsibilities beyond the workplace. Freedom plays a central role throughout the discourse of economic restructuring in securing support for reforms. Implementing the infrastructure of the market is often represented as co-extensive with ensuring the conditions for freedom and democracy. Individual participation in the market is figured as an important aspect of the actualization of freedom; much is made of the opportunities that market reform will bring. Yet the analysis of gender equity sits uneasily with the conception of freedom through markets. Not only is freedom defined differently for women and men - freedom for women in the context of restructuring comes not from participating in the market but in the freedom to refrain from engaging in paid employment in the market - but access to the zone of freedom is unequal too. If participation in the market is central to freedom, an important part of women's freedom would seem to be contingent on her ability to choose on this matter. But if women's choice to engage in paid employment is itself heavily contingent on the regulatory structure of the market and the subsi-

World Bank, From Plan to Market, supra note 10, at 72. 256

Gender Equity in the World Bank dies and transfers through the state, women's access to freedom is already subject to constraint by the proposed reforms.

7.2 Gender Equity and Human Capital One of the unresolved issues in development theory and policy concerns the economic value of investments in human capital to productivity. As with the role of gender equity, there is considerable ambiguity, equivocation, conflict and maneuvering about the role of human capital investments in development. Because of the distinctive and disproportionately large role that women perform in the maintenance and development of human capital, both in the market in health, education and various forms of care work, and outside the market through unpaid work in the home and community, decisions about the support of human capital are inevitably also important decisions for gender equity. How this ambivalence and conflict is resolved around human capital then bears directly on the benefits or disadvantages that women can expect to experience from development policies and programs. To summarize briefly the dilemma, the Bank swings back and forth between characterizing human capital expenditures as social costs and characterizing them as productive investments; as the Bank acknowledges, the line between the two is not clear.72 If they are characterized as costs, they are subject to confinement and slated for reduction in the name of increasing efficiency and growth. However, if they are characterized as investments, they can be analogized to expenditures such as infrastructure investments which should be secured and expanded if economic growth is to be encouraged.73 The basic position of the Bank is that "social" investments as a rule generate less in the way of economic returns than do investments in physical and institutional infrastructure. There is increasing acknowledgement of value of particular investments in human capital such as primary health care and basic education.74 However, this remains in tension with the commitment to contain fiscal costs. 72

Id.

73

World Bank, World Bank, World Development Report 1997: The State in a Changing World (Oxford; New York: Oxford University Press, 1997), at 33. 74 See for example, World Bank, World Development Report 1999/2000: Entering the 21" Century (Oxford; New York: Oxford University Press, 2000). 257

Kerry Rittich Consequently, they tend to be subject to cutbacks; alternatively, the Bank may promote private rather than public sector delivery of such services. There is no acknowledgement that welfare expenditures or income support to families are anything but net losses. In other words, there is no recognition that such expenditures compensate time spent on unpaid labor, that such labor may contribute to the human capital of others, and that it might ultimately contribute to growth and productivity. By contrast the role of human capital investments in both increasing growth and reducing inequality is defended by gender analysts within the Bank. For example, Toward Gender Equality maintains that "[b]oth theory and evidence point to the importance of human capital in creating the necessary conditions for productivity and in reducing aggregate inequality in the future".75 Moreover, it is now broadly accepted by the Bank that important gains in the creation of human capital can be realized by investing in women's human capital, especially through education.76 There is at least a limited amount of common ground, then, on this issue. However, as elsewhere, the gender analysis diverges from the development policies promoted by the Bank with respect to the economic value of unpaid labor. For example, Toward Gender Equality observes that the unpaid work of women may contribute as much as one-third to a country's GDP.77 In addition, when a large percentage of women's time goes unrecorded, which occurs when unpaid work is not valued for economic purposes, false evaluations of the costs and benefits of economic policies may result.78 The conclusion that unpaid work contributes to GDP could only result from either an imputation of the independent economic value of this work or a recognition of its value to other "productive", income-generating activities. While the gender analysis points clearly to the value of unpaid work, as well as the ineluctable nexus between the productive and reproductive economies, these insights are yet to be reflected in development analysis and policy.

78

258

World Bank, Toward Gender Equality, supra note 10, at 21. See World Bank, The Challenge of Development, supra note 12, at 55. World Bank, Toward Gender Equality, supra note 10, at 29. Id., at 30.

Gender Equity in the World Bank For example, as mentioned, the Bank now pays great attention to investing in women's education; "investing in women" has become a watchword of contemporary development efforts. Although women themselves may benefit from the increased value of their labor in the market that can be expected to result from higher levels of education, this is not the reason that so much attention is devoted to women in particular. Instead, the Bank's main interest appears to be the benefits that are generated for the household and future generations.79 There are a number of crucial links in the process that remain unexamined and ultimately unexplained. The Bank does not explain the route by which investing in women's education increases the well-being of a household. Nor does it expressly attempt to link the improved well-being and human capital of household members to women's unpaid labor.80 How investing in women results in the improved human capital of others if not through women's unpaid labor remains mysterious. The failure of the Bank to acknowledge and value this labor could lead to a number of paradoxical results. For example, the expenditure of public resources or payments to third parties to enhance women's human capital might appear be justified, as long as they contribute to enabling women to perform their maternal roles more efficiently and effectively. At the same time however, income transfers to women or cross-subsidies and compensation for the labor itself might still appear unjustified, because the contribution to enhanced productivity of the labor itself is unacknowledged. Moreover, because neither the value of the unpaid labor, nor the constraints it places on paid labor are directly addressed, there is no obvious reason to consider the ultimate impact on women's economic activity. This seems a serious lacuna for a development strategy centered around the market. Its relevance for transition is as follows. If labor is unpaid, it is definitionally without value as long as productive value is measured by what circulates in the market. A strategy of development through the decommodification of work would be counterproductive if pursued as a general policy, as it would lead to a measurable contraction in economic output and subvert the goal of aggregate economic growth. The mainstream position is that the way to increase productivity is through participation in markets; for most people, this means participation in waged labor. Development under the neoliberal paradigm is supposed to occur

Id., at 3, 28. See also K. Cloud and N. Garrett, "A Modest Proposal", supra note 16, at 100.

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Kerry Rittich through the incorporation of greater and greater numbers of workers into the paid labor force at rising levels of productivity, leading to the increased purchase of goods and services on the market. However, in the context of transition, it is clear that much childcare that was previously compensated is likely to be transformed into unpaid work as a result of the externalization of costs and activities from production. Reforms will almost certainly result in more women doing more childcare unsupported by maternity leave, childcare services or other forms of compensation. Similarly, there will be increased reliance on home production and more "voluntary" or free provision of services by the community or civil society. What the restructuring strategy does then is incorporate significant amounts of uncompensated labor into the plan to transform these economies into market economies. When the Bank advocates cutting costs by removing expenditures related to the creation and support of human capital from the books of enterprises and the state, it necessarily displaces them into the invisible, unpaid economy. In other words, the Bank hopes to jumpstart these economies in part by increasingly the level at which some of the activities which are crucial to production are provided for "free". The move to the market then turns out to be completely consistent with maintaining and even increasing certain types of unpaid work. In spite of the fact that neoliberal development is defined by the expansion of the size of the productive economy, economic development can also co-exist with the expansion of unpaid work. Restructuring policies thus should be expected to produce very uneven or bifurcated development, through the continued or increased reliance on un- or under-compensated labor, in order to register what are perceived to be greater productivity gains for enterprises in the market. The result may be a society increasingly divided between those who are compensated and those who are ill- or un-compensated for their work.81 However, it is also possible that economic growth as a whole might be slowed or undermined. If, however, the economic value of unpaid work, its contribution to human capital and the constraints it places on the ability to engage in other economic 01

This scenario parallels the observations by Sassen that high-growth and high technology regions and industries tend to produce at the same time growth in informal sectors in which workers are very poorly paid. See Saskia Sassen, The Global City: New York, London, Tokyo (Princeton, NJ: Princeton University Press, 1991).

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Gender Equity in the World Bank activities were recognized, then the policy options would also appear in a different light; prospects for gender equity might well be improved at the same time. Despite the fact that enterprises are likely to continue to prefer a regulatory and policy environment which permits them to engage in production at the lowest cost, societies as a whole might well decide on options that better reflect the total benefits and costs involved. This might result in a focus on such issues as compensation for unpaid work, the conditions of its performance and the incentives to do it better, all questions which seem krelevant under the current understanding of "productive" work. The burden of unpaid work might decrease simply through the increased ability of women workers to purchase services in the market. However, this is far from automatic given that few women themselves earn enough on the market to purchase services through their wages. Even if this were to change, it is not clear why women, in addition to doing market work, should continue to bear the cost of work that benefits not only themselves, but other members of the household, enterprises and society at large. Both equity and efficiency suggest that part of the solution lies in providing compensation and subsidies to those who now do the work for free. This can be done either through market regulations which require cross-subsidies from other workers or through income transfers from the state. While this strategy is now decried by economists on the grounds of costs and impairment to productivity, these objections lose some of their force once the value of unpaid work, its impact on engagement in other productive work and the costs to women are included in the calculus. Once they are acknowledged, the main differences among the various options lie in their distributional effects.

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8. POVERTY VERSUS EQUALITY

T

he World Bank increasingly attempts to link economic growth with

greater equality between men and women. As described in the previous chapter, its official position is that gender equality contrib-

utes to development. However, in its view, the process also works in reverse: "growth also tends to reduce poverty and inequality, including inequality between men and women".1 Feminists, and gender scholars too, increasingly insist on the economic returns that can be realized by investing in women due, for example, to the increased labor force participation by women that can result.2 In short, there is some degree of overlap in the projects of development and greater gender equity. However, despite the possibility of synergies in the simultaneous pursuit of gender equity and economic development,3 the relationship between them remains uncertain and complicated. Economic development is no automatic route 1

World Bank, World Development Report 1995: Workers in an Integrating World (Oxford; New York: Oxford University Press, 1995), 3. V. Moghadam, "An Overview of Global Employment and Unemployment in a Gender Perspective", paper for UNU/WIDER Conference on the Politics and Economics of Global Employment, Helsinki, June 17-18,1994,2-5. 3 Id, at 491.

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Kerry Rittich to gender equity;4 indeed, economic growth has proved to be perfectly consistent with persisting and even growing inequality of various types. Moreover, because of the systematic disadvantage that women experience in labor markets, the feminization of work simpliriter cannot be regarded as an unequivocal sign of greater gender equity.5 One of the first elements of reform in the states in transition was the elimination of most subsidies on goods and services, both for consumers and producers, in aid of "getting prices right". At the same time, there was a dramatic decline in public investment of all types in order to reduce public expenditures; expenditures on social goods such as health and education declined in particular.6 Among the results has been a sharp increase in both poverty and inequality. One of the fundamental questions for women is what relationship, if any, might exist between gender equality and rising levels of economic inequality. This inquiry is especially relevant in the economies in transition, where greater dispersion of wages and income is expressly promoted as a device to increase productivity. The increase in inequality is not unique to transition countries; the last two decades have been marked by growing economic inequality both between and among countries.7 There are myriad factors that might bear on increases in social and economic inequality. However, at least some analysts suggest that the phenomenon cannot be attributed merely to the technological and informational dimensions of globalization. Instead, it is linked to the adoption of liberalization policies promoted by institutions such as the Bank: the financialization of the economy; privatization; changes in labor institutions; and an erosion of the redistributive role of the state as a result of fiscal austerity and changes to the tax

Gender inequality as measured by a range of economic factors persists in all developed economies. See United Nations, The World's Women 1995: trends and statistics (New York: United Nations, 1995); United Nations Development Programme, Human Development Report 1995 (New York: Oxford University Press, 1995). See for example G. Standing, "Global Feminisation Through Flexible Labour", 17:1 World Development 1077 (1989); Guy Standing, "Global Feminization Through Flexible Labor: A Theme Revisited", 27:3 World Development 583 (1999). See UNICEF, Education for All?, Regional Monitoring Report No. 5 (Florence, Italy: UNICEF International Child Development Centre, 1998). G. Cornia, "Liberalization, Globalization and Income Distribution", United Nations University, World Institute for Development Economics Research, Working Paper no. 157, (March 1999), available at. wvw.wider.Hnu.edu/publications/wp157.pdf fast visited 11/08/01). 264

Poverty versus Equality system.8 The relationship between inequality and poverty and policy and regulatory reform seems particularly clear in the context of transition. Whatever the causal relationship between inequality and neoliberal reforms in general, neoliberal reforms have transformed the focus concerning the appropriate attitude to social provisioning and poverty alleviation. It is worth trying to reconstruct the direction of thinking on this issue to imagine what effects this shift in focus, and the policies it generates, might portend for gender and other equality initiatives. The most salient feature of neoliberal social policy is the focus on poverty and the displacement of equality. This is not accidental, in light of the claims made about the relationship between inequality, poverty and growth in mainstream development theory. An important strand of thought holds that inequality is necessary for growth, as differential rewards are necessary to spur productivity. Another holds that inequality is relatively constant over time; therefore, a focus on growth rather than redistribution is the way to alleviate poverty.9 Both assumptions are clearly at work in the Bank's transition policy.10 This emphasis on poverty rather than equality is particularly significant in the context of transition, given the relatively low levels of social inequality in the plan economies as compared to other industrial states.11 Within the Bank, this is described as an artificial product of factors such as severely compressed wage scales which resulted from the absence of a market in wages, as well as low returns to education and experience.12 Relatively low levels of inequality also resulted from universal access to cash benefits and the widespread provision of a broad range of in-kind goods and services. Despite the well-known problems with supply and quality, and the differential access to benefits and services among different industrial sectors and between the nomenklatura or elites and the general populace, the system in the 8

Id.

K. Deininger and L. Squire, "A New Data Set Measuring Income Inequality", vol. 10:3 World Bank Economic Review (1996). 10 See World Bank, World Development Report 1996: Frvm Plan to Market (Oxford; New York: Oxford University Press, 1996), 66. UNICEF, Education for All?, supra note 6; Farced M. A. Hassan and Roland K. Peters, Jr., "Social Safety Net and the Poor during the Transition: The Case of Bulgaria", Policy Research Working Paper 1450 (Washington, D.C.: World Bank, 1995). See for example, World Bank, Understanding Poverty in Poland (Washington, DC: World Bank, 1995). 265

Kerry Rittich aggregate greatly contributed to securing a basic standard of living as well as a distribution of resources within these societies that was much more equal than obtains in most market societies. Concerns about poverty and inequality typically appear as linked concerns in discussions of economic restructuring. Indeed, even commentators who are critical of the direction of mainstream reform proposals often merge the two issues.13 Yet although many of the social concerns generated by economic restructuring are articulated as questions about growing inequality,14 when it comes to policy formulation, equality drops out as a pressing objective and attention is typically focused on the question of poverty alone. Despite occasional references to distributional objectives such as income, gender or ethnic equality as potential bases for state intervention,15 the alleviation of poverty, not inequality per se, is continually identified as the proper object of income transfers, social welfare, and other redistributive programs. To reiterate, not only is economic equality neglected, greater inequality of wages, income and wealth is expressly envisioned as an integral part of restructuring.16 In policy and regulatory terms, this transformation emerges in the turn toward poverty relief and away from universal entitlements. Despite the fact that in transition widening wage and income disparities are general phenomena and more people have been losers than winners in the economic reforms, market reformers argue for the targeting of benefits toward the poor17 along with the reduction of expenditures on those who are "not poor".18 General entitlement programs, including the eradication of poverty through guarantees of social minima, are discouraged for economic reasons without respect to their distributive impact; they are regarded as disincentives to work and in any event, too expensive for the states in transition. And, in general, eligibility for income transfers, with the Enrique Carrasco and M. Aylan Kose, "Income Distribution and the Bretton Woods Institutions: Promoting an Enabling Environment for Social Development", 6(1) Transnational Law and Contemporary Problems 1 (Spring, 1996). See for example, the World Bank, Poland: Policiesfor Growth with Equity (Washington, DC: World Bank, 1994). N. Barr, "On the Design of Social Safety Nets" (World Bank: ESP Discussion Paper Series, 1995), 3. World Bank, From Plan to Market, supra note 10, at 66,144. World Bank, From Plan to Market, supra note 10, at 78. 18

266

See for example World Bank, Poland: Policiesfor Growth with Equity, supra note 14, at xii.

Poverty versus Equality exception of unemployment insurance or pensions, is to be calculated according to household rather than individual income,19 notwithstanding that individual members of a household may have suffered dramatic declines in their economic status. This displacement of equality is evident in two arguments. One argument, already mentioned, concerns the need to target the appropriate objects of social expenditures and avoid or minimize any "leakage" of benefits to those who fall outside the category of the needy. The other concerns the desirability of strengthening the link between contributions to social insurance and any benefits received and breaking the entrenched culture of dependency on the state. The argument for targeting particular social groups is conventionally made in the context of a number of background assumptions. The first is that economic growth is the only true route out of poverty; consequently, there is only a limited amount that a state can do to ameliorate it other than promote economic development. The second is that priority must be given to macroeconomic stability over other objectives such as full employment or the maintenance of demand and production; this is primarily obtained through budget reductions, typically in the area of social expenditures.20 Third, there is a belief that increased income inequality is needed to support market reforms. Finally, there is a strong presumption that the era of the welfare state has passed, and that universal programs are no longer feasible because of the unsustainable financial strain they place on states. One of the most pervasive themes in the restructuring of social benefits is the insistence on differentiating social insurance benefits, which are cash benefits organized on the basis of compulsory contributions, from social assistance paid only to needy individuals on a means-tested basis.21 States are advised to strengthen the relationship between benefits received and contributions paid in, as such linkages create desirable economic incentives.22

N. Barr, ed., Labor Markets and Social Policy in Central and Eastern Europe: The Transition and Beyond, World Bank (New York, NY: Oxford University Press, 1994), 207. 20

-

Economists express enormous concern that pressures for rising social safety net expenditures will threaten macroeconomic stability. See for example, Fareed M. A. Hassan and R. Kyle Peters, Jr., "Social Safety Net and the Poor during the Transition", supra note 11.

N. Barr, Labor Markets and Soda/ Policy in Central and Eastern Europe, supra note 19, at 206-208. 22

Id.

267

Kerry Rittich In market economies, it is well established that the distinction between social "insurance" and social "assistance" is a characteristic mode of demarcating the receipt of entitlements from charity and distinguishing those who are independent and productive from those who are in a state of dependency.23 Moreover, the distinction between social insurance and social assistance often carries a valence of moral desert versus moral unworthiness, despite the fact that elements of economic subsidy and redistribution are typically present in both social programs. Because the two categories of social transfers are also deeply gendered,24 the promotion of the culture of enterprise and the associated desire to break the culture of dependency can have deeply disadvantageous effects for women. Women, rather than men, are far more likely to be adversely affected by the emphasis on tying benefits to earnings. What falls out of the equation through the process of differentiating insurance benefits from social assistance or "welfare" are universal social transfers and programs which are not linked to contributions. This reduces the pool of persons who will receive income transfers, a result which is consistent with the logic of targeting. In the process, it may well redistribute resources away from broad numbers of people who are not defined as poor. However, a consequence of the combined operation of the different elements of restructuring and reform, is that those who are excluded from social provision are likely to include many who have suffered significant real declines in income. The same result obtains where universal benefits are reduced rather than eliminated entirely. There are broad classes of persons who can be expected to be left out of such a scheme.25 Moreover, the beneficiaries of this redistribution are not necessarily those who are defined as poor, especially where the objective is to reduce total social expenditures and the result is a lower tax burden. The insistence on the linkage of contributions to benefits received is important for the following reason: the higher the priority which is given to the linkage

N. Eraser and L. Gordon, "A Genealogy of 'Dependency': Tracing a Keyword of the U.S. Welfare State", N. Fraser, ed., Justice Interrupts: Critical Reflections on the "Postsocialist" Condition (New York: Routledge, 1997), 121. 24 Id. See Crescy Cannon, "From Dependence to Enterprise", B. Einhorn and E. Janes Yeo, eds., Women and market societies: crisis and opportunity (UK: Aldershot; Brookfield, VT: E. Elgar, 1995), 160.

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Poverty versus Equality between benefits and contributions, the lower the redistributive effects.26 Those who earn less, whether because they work part time, because their wages are lower or because they have a less secure attachment to the labor force, in general contribute less and will accordingly benefit less from such social programs. This is much more likely to describe women's rather than men's experience in the labor force. To the extent that this linkage is promoted, we can expect these policies to contribute to widening social inequality, and to greater gender inequality in par-

ticular. Apart from adverse effects on gender equality, such an approach to social provisioning is subject to critique on a number of grounds relating to the political economy of targeting.27 For example, there are strong indications that, in general, universal rather than targeted social benefits enjoy better political fortunes.28 Relatively higher levels of taxation may be tolerated to fund universal programs because they create a broad, middle class constituency that benefits from them and is consequently invested in their protection and continuation. However, discussions of social expenditures tend to proceed as if the funds available for such purposes are fixed and that expending revenue for one purpose automatically means less available revenue for other purposes. Moreover, "a single-minded concern for minimizing the proportion of benefits received by the non-poor can obscure the evaluation of alternative interventions";29 the program with the lowest errors of targeting does not always have the best record for poverty reduc30

tion.

N. Barr, Labour Markets and Social Policy in Central and Eastern Europe, supra note 19, at 206-208. A. Sen, "The Political Economy of Targeting", D. van de Walle and K. Nead, eds., 'Public Spending and the Poor. Theory and Evidence (Baltimore, MD: Johns Hopkins University Press, 1995), 11. 28 See Carol Graham, Safety Nets, Politics and the Poor, (Washington D.C.: Brookings, 1994). However, some economists regard this relationship as unproven and contestable; see N. Barr, "Designing Systems of Poverty Relief: Cash versus Kind" (World Bank: ESP Discussion Paper Series, 1995), 15. 29 D. van de Walle and K. Nead, Public Spending and the Poor, supra note 27, at 347. Id. at 348. See also Martin Ravallion and Gaurav Datt, "Is Targeting through a Work Requirement Efficient? Some Evidence for Rural India", Public Spending and the Poor, supra note 27, at 413.

269

Kerry Rittich An important effect of the shift to targeting is a significant eclipse of the redistributive function of social transfers and programs. This claim requires clarification lest it be misread. The proposed changes will certainly have profound redistributive effects in the sense of altering the composition of the beneficiaries of social programs and income transfers. It will also benefit higher income earners, if they are also released from the obligation to subsidize some of those with lower incomes. But at the same time, the elevation of targeting as both the technique and objective of social transfers goes a long distance to displacing and undermining the legitimacy of income redistribution from well-off to less well-off persons and the provision of basic income security as appropriate social goals. Even though it is acknowledged that the degree of redistribution which states undertake through social insurance is fundamentally a value choice rather than an economic issue,31 the insistent drive to organize policy around incentives to economic productivity suppresses the fact that there have always been objectives other than poverty relief to income transfers and social expenditures. These include redistribution, solidarity and mutual support.32 Despite the promise of widespread gain to all as a consequence of restructuring, the Bank is clearly concerned with the potential clash of egalitarian social visions with market reforms. "Too much social solidarity" can be a problem, as "it can be difficult to develop political consensus for the income differentiation necessary for wages to perform their efficiency function in a market system".33 The normalization of growing inequality, the naturalization of a certain structure of inequality, and warnings about interfering with either are pervasive throughout neoliberal policy documents. Statements such as the following are common: "[tjhe old system is unsustainable ... because the move to private markets by definition implies a reduction in the role of the state, with less emphasis on its role as a public provider and more on its role as an enabler of private activity".34

37

World Bank, From Plan to Market, supra note 10.

Anthony B. Atkinson, "On Targeting Social Security: Theory and Western Experience with Family Benefits", in D. van de Walle and K. Nead, Public Spending and the Poor, supra note 278, at 25, 28. N. Barr, "On the Design of Social Safety Nets", supra note 15, at 13. N. Barr, Labor Markets and Social Policy in Central and Eastern Europe, supra note 19, at 6.

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Poverty versus Equality Casual, oblique acquiescence to growing inequality can also be discerned in observations that, in transitional economies, inequality has increased to levels "broadly similar to those in the less-equal industrial market economies such as the United States",35 and warnings that those countries such as Hungary which made strenuous efforts to deal with rising inequality did not succeed to any significant degree anyway.36 There is, however, no fixed relation between market economies and particular levels of social assistance or redistribution undertaken by the state, nor do levels of state assistance inevitably fall in market economies due to policies of liberalization. Indeed, state expenditures may rise with increased openness of the economy to trade, a fact which is attributable to the pressure states experience to mitigate the dislocation such openness inevitably produces among domestic constituencies. Rather, the level and types of social expenditures in market economies vary considerably, facts which can be attributed to the different values and interests at stake and the range of ways in which they might be accommodated. The fact that family benefits in Western Europe are typically lower than those in the states in transition, for example, may result from political choice rather than because it is a natural feature of a market economy.37 Nonetheless, in neoliberal policy analysis, through constant repetition of the idea that market reform simply entails a reduction in social benefits, a certain structure of benefits is normalized, inscribed as an intrinsic part of the move to the market, while pre-existing patterns of social provisioning in the transition economies are variously characterized as incompatible with a market economy, or otherwise exceptional, unusual or dysfunctional. In this process, a judgment is rendered that what exists as a legacy of the plan economies is what should be altered, either because it is in some way connected to perceived failures of the old system, or simply because it is different. Alternatives to both pre-existing social welfare models and neoliberal proposals receive almost no serious attention. The proposed transformation of family benefits provides a useful illustration. Family benefits, maternity benefits in particular, as a percentage of wages are

World Bank, From Plan to Market, supra note 10, at 68. 36

Id., at 69.

Sarah J. Jarvis and John Micklewright, "The Targeting of Family Allowances in Hungary", D. van de Walle and K. Nead, Public Spending and the Poor, supra note 27, at 294, 294-295.

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Kerry Rittich described as generally high in Central and Eastern Europe as compared to highly industrialized market economies.38 While this may have been understandable when the distribution of earnings was flat, it is regarded as no longer defensible in the context of market economies. Arguments advanced to support the recommendation that family benefits be reduced in both level and scope include the following: first, it would address the fiscal crisis; second, it would "assist the move to a market economy in which wage differentials play an increasing role".39 High family benefits are described simply as "increasingly inappropriate" as economic reforms take effect and wages become the main source of family support. While it is clearly foreseen that a reduction in family benefits will increase inequality, the conclusion appears to be that only limited levels of income transfers are compatible with market economies and that any resulting income differential is natural or at least appropriate to market economies. What is at risk here is more extensive than might first appear. First, the "family benefits" slated for reduction are not simply family allowances. They might include: birth grants; maternity leave, often on full pay and usually for three to six months; parental or childcare benefits, to which the mother was entitled after her entitlement to maternity expired until the child reached from eighteen months to three years; paid leave for the care of a sick child; various tax allowances and credits; and death grants.40 Such benefits perform myriad functions beyond merely subsidizing families with children. One is to distribute more resources to women in the paid labor force who have maternal and childcare responsibilities than they would otherwise receive. Consequently, the maintenance of these benefits remains crucial to preventing the deterioration of their status relative to men, assuming women continue both to be employed and to bear these responsibilities. To put it the other way, many of these "family" benefits are distinctly gendered in their effects;

38

Sandor Sipos, "Income Transfers: Family Support and Poverty Relief, N. Barr, Labour Markets and Social Policy in Central and Eastern Europe, supra note 19, at 226. Consider the shift in rhetorical effect which occurs merely by reversing the description: benefits in industrialized market economies are generally low as compared to the benefits available in Central and Eastern Europe. 39 Id. S. Sipos, "Income Transfers: Family Support and Poverty Relief, supra note 38, at 227. 272

Poverty versus Equality their reduction would redistribute resources quite significantly away from women toward men. This remains true without respect to the level of family income; moreover, this redistributive function has nothing necessarily to do with what happens to wage levels. While some women will obviously fare worse than others, all women with obligations of care face some degree of disadvantage relative to men without them. Once these changes are compounded by the elimination of subsidies to various childcare facilities, the redistributive element of reforms becomes quite pronounced. What is misleading about the statement that wages will become the main source of family support is the idea that this change is automatic or intrinsic to the process of reform, or that the existence of a market economy simply requires that it be so. While it may well be the case that wages come to represent an increasingly large part of income, to reiterate, the move to the market says nothing about the level of social benefits which can or should be maintained. Nor does market reform say anything about the level of wages. If such predictions about the ratio of wages to income transfers do, in fact, come to pass, it may be in part simply because reformers are in a position to make it so, by decreeing that "economic reform" means the elimination of particular forms of benefits. What makes such statements seem benign is the underlying assumption that wages also automatically rise with the advent of the market and the demise of the plan economy and constitute the source of income replacement. As described earlier,41 this is an unsafe assumption, because wage raises have been deliberately suppressed as an element of the overall restructuring scheme. The advantages of extensive family benefits, both cash and in-kind, are well known. They include: preventing poverty, enabling women to either work full or part time in the labor force, and promoting gender equity.42 Notwithstanding, the arguments in favor of reductions ultimately prevail in restructuring strategy, even though there is strong evidence that these "universal" benefits also seem to have been well-targeted, succeeding in reaching most of the actual or potential poor.43

See chapter 6. S. Sipos, "Income Transfers: Family Support and Poverty Relief, supra note 38, at 227. 43

Id., at 228.

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Kerry Rittich The basic argument seems to be simply that poverty prevention has become unsustainable: "higher benefits are in direct conflict with the need to contain current expenditure in the interests of longer-term growth".44 What this suggests is that, not only has there been a change in attitude concerning the desirability of equality, there may also be a shift in attitude towards poverty reduction. Moreover, the heightened priority of poverty relief does not necessarily signal significant improvements for the poor. Rather, in the retreat from equality, there may also been a move toward circumscribed forms of poverty relief, delivered after the fact, and away from the objectives of poverty prevention and elimination.45 The displacement of egalitarian social provisioning by programs to target poverty carries a number of risks, some of which arise because the character and degree of poverty is notoriously contestable. Even determining the poverty line poses numerous conceptual and normative problems,46 as it may be defined absolutely, relatively, or subjectively.47 There is nothing about the focus on poverty alone which indicates how the poor will be identified; the number may be reduced or increased by shifting the poverty level or choosing a different indicator. In short, it is well-known that scientific or objective definitions of poverty are a mirage and that all definitions of poverty, ultimately, are political.48 Conceptions of equality are similarly open and contested;49 it is clear that equality could be understood as a complex of separable, if not wholly discrete, values and signifiers. However, shifts in the comparative status of any social group, at least according to a particular axis or measure such as income level, are less open to dispute, and evidence of redistribution may be more problematic to dispose of. Hence, there is reason to be concerned that the displacement of equality by poverty marks an attempt to downplay the importance of inequality just as it is on the increase. N. Barr, "Income Transfer: Social Insurance", N. Barr, ed., Labor Markets and Soda/ Policy in Central and Eastern Europe, supra note 19, at 200. S. Sipos, "Income Transfers: Family Support and Poverty Relief, supra note 38 at 228. The complexities are discussed in N. Barr, "Income Transfers: Social Insurance", supra note 44. 47 W, at 193. 48 Id. A. Sen, Inequality Reexamimd (New York: Russell Sage Foundation; Cambridge, MA: Harvard University Press, 1992). 274

Poverty versus Equality A renewed focus on poverty might be thought appropriate, especially as one of the effects of transition has been to increase the number of poor people.50 However, it is clear that more than short-term concerns and fiscal constraints drive the structure of reforms to social expenditures. Instead, the enormous energy expended in different rhetorical modes to justify the changes signals that what is at stake is the installation of a new paradigm governing social policy and the destruction of the old. Consequently, however much such policies are likely to be defended in terms of short-term exigencies such as the budget crises of transitions, they should be evaluated as permanent features of the social landscape. Under neoliberalism, equality as a policy objective faces permanent eclipse. Attention to poverty might also seem an appropriate standpoint from which to voice concerns about gender disparities, if only because of the stylized fact that women tend to be significantly over-represented among the poor. There is clear evidence that, true to type, this phenomenon is emerging in many of the states in transition. For example, by 1994, in Russia, over half of the households headed by women had fallen into poverty.51 Yet targeting and even eliminating poverty are not necessarily co-extensive with promoting gender equity.52 A poverty or safety net approach tends to be remedial in focus, limited in the first place to the least well-off segment of the population and always constrained by perceptions about what can be "afforded" by the state. By definition, it is inadequate to and not intended to address general deterioration or widespread transformation in social conditions. Moreover, not all of the various forms of disadvantage to women that might occur through restructuring would necessarily result in the absolute impoverishment of women, even assuming there could be agreement on what that might mean. As described, neoliberal markets are poised to accommodate large increases in gender inequality due to the elimination of benefits and subsidies. However, a focus on poverty relief alone is not responsive to such things as shifts in the relative wage and employment levels of women and men,

S. Sipos, "Income Transfers: Family Support and Poverty Relief, supra note 38, at 226; UNICEF, Education for All?, supra note 6. V. Moghadam, "Communism, Post-Communism, and Gender Inequalities: Eastern Europe and the Former Soviet Union", unpublished paper on file with the author, 29-30. See Cecile Jackson, "Rescuing Gender from the Poverty Trap", 24:3 World Development 489 (1996). A theoretical exploradon of this issue is to be found in N. Fraser, "After the Family Wage: A Postindustrial Thought Experiment", Justice Interrupts, supra note 23, at 41.

275

Kerry Rittich nor to any increased economic dependence of women on men. This is especially true if poverty is calculated with reference to household income, rather than individual income. It is difficult to resist the conclusion that, while improving gender equity by targeting the poor for assistance might make sense in some contexts, it seems disingenuous, even nonsensical, when the strategy is part of a larger matrix of policies which is designed to actually increase the dispersion of income. If poverty rather than the inequality comes to dominate public policy and popular consciousness, to the extent that poverty is controlled or recedes from concern, attention to the effects of policies and regulations on specific social groups might well diminish or cease entirely.53 Programs to mitigate various forms of inequality, to the extent that they are not grounded in concerns about poverty, then become in danger of elimination. As a result, however intertwined they often are, it is important to maintain the capacity to distinguish between poverty and equality. Even in the most powerful counter-paradigm to neoliberalism in development, the so-called "East Asian" model,54 gender hierarchy and disadvantage persists. While dramatic gains appear to have been made in poverty reduction in countries that have pursued this route and income levels are among the most equal in the world, enormous gender disparities have persisted long after relatively high levels of economic and industrial development have been achieved.55 Discrete social groups and classes seem to be disproportionately represented among the newly disadvantaged of transition.56 Apart from the differential posi-

See also Jackson, "Rescuing Gender from the Poverty Trap", supra note 52, at 491. Different, arguably opposing, perspectives on this model are presented in: World Bank, The East Asian Miracle: Economic Growth and Public Policy (New York, NY: Oxford University Press, 1993); R. Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialisation (Princeton, NJ: Princeton University Press, 1990); R. Wade, "Japan, the World Bank, and the Art of Paradigm Maintenance: The East Asian Miracle in Political Perspective", 217 New Left Review (1996). For example, female workers in both Japan and Korea have wages that are only about half those of men. See United Nations Development Programme, Human Development Report 1999 (New York: Oxford University Press, 1999). For example, it is becoming increasingly apparent that the Roma are disproportionately represented among the new poor of Central and Eastern Europe; among women, Roma are most likely to be disadvantaged. See Maria Adamik, "How Can Hungarian Women Lose What They Never Had?", Isa Baud and Ines Smith, eds., Searching for Security: Women's responses to economic transformations (New York: Routledge, 1997), 96; UNICEF, Education for All?, supra note 6.

276

Poverty versus Equality tioning of male and female workers in the new working class, market restructuring and political reform seems to have produced new classes and social divisions57 and has been accompanied by renewed ethnic hierarchies and differentiation between nationals and aliens.58 In short, it has provided fertile terrain on which social divisions and identity formations might emerge, resurface and strengthen. All of these phenomena would seem to call for a focus on the techniques and processes by which new and old groups are positioned within the structure of the transformed economies. However, the turn to safety nets for the poor avoids such analysis, taking as its starting point not the production of poverty but its inevitability and the limits to its amelioration except through growth. Equality concerns fare even worse, associated as they are with the particularities of the old regime and failed economic growth; income disparities are positively promoted, at least until they threaten the political fortunes of market reforms. Apart from the quite concrete forms disadvantage which might result from dismantling universal social programs, there are reasons to think that greater tolerance of economic inequality is independently dangerous for women and other disadvantaged groups. It may, for example, indicate a similarly casual or acquiescent attitude toward increases in other forms of inequality, including gender inequality. But perhaps more important is that there is no simple way to separate economic inequality from other forms of inequality. Rather, as the analysis of the productive and reproductive economies indicates, they typically overlap: economic inequality is both a cause and a consequence of other forms of disadvantage. In addition, the possibility that growing economic inequality will correlate with increased gender equality seems especially likely if emerging forms of gender inequality mirror existing forms of gender inequality in market economies. To the degree that gender relations and gender inequality come to resemble patterns in established market economies, particularly those that are regarded as models rather than exceptions or outliers, it may be taken as a sign that transition is proceeding along the trajectory of market normalcy rather than a sign of any problem to be addressed.

This phenomenon is identified in Raimo Blom, Harri Melin, Jouko Nikula, eds., Be-. tween Plan and Market: Social Change in the Baltic States and Russia (Berlin; New York: W. de Gruyter, 1996). 58 Id., at 18.

277

Kerry Rittich Ideas about the normal market may also underpin the dismantling of the social safety net. Beneath the arguments about what is too generous, what can no longer be afforded, what is appropriate in a market economy, and what is a disincentive to productivity lie norms about the allocation of productive costs and activities. As the first part of this analysis suggests, all such norms are deeply infused with expectations about who does what and who gets what in a market economy; they are also profoundly gendered in both their assumptions and their effects. It is not necessary, then, to be an advocate of the pre-existing regime or system to observe that neoliberal market reforms are a vehicle by which new structures of gender inequality might be installed. One of the most powerful devices legitimating reform is the rhetoric of what states can "afford". In a pragmatic vein, market reformers deploy the notion of scarcity to strengthen the idea that there is only a fixed sum available to engage in redistributive activities. However, as resources come ultimately not from the state, but from society, the rhetoric of scarcity obscures the fact that what is being dismantled through reforms are broad-based programs of social assistance which are frankly redistributive in certain ways, so that resources may be redistributed, through a variety of less obvious techniques and routes, in other directions. In other words, the limits to what the state can or should do to alleviate poverty and inequality for some obscure the manner in which state regulatory and policy decisions enhance the economic position of others. Whether poverty can actually be solved without attention to equality, and as inequality is simultaneously increasing, seems doubtful. Poverty itself may result from growing inequality; in the context of transition, the rapid increase in poverty is attributed not simply to the lower incomes which resulted from the collapse in productive output, but to rising income inequality. Moreover, rising poverty and inequality levels are characteristic of the economies in which production has begun to revive as well as those in which economic recovery still awaits.59 At the end of the day, even market reformers may have reason to be concerned about growing inequality, for inequality itself may undermine economic growth. It is well-established that a maldistribution of land can impede economic development; it is less and less in dispute that high levels of education are closely

See Btanko Milanovic, Income, Inequality, and Poverty during the Transition from Planned to market Economy (Washington, D.C.: World Bank, 1998), 85-91. 278

Poverty versus Equality associated with better development outcomes too. However, high levels of income inequality may also impair growth, for the simple reason that maldistribution of wealth itself makes it difficult to impose the taxes on elites that enable the state to do those things which it must do to encourage growth .60 The displacement of equality thus may be dysfunctional for the very goals that reformers claim to be seeking, poverty alleviation as well as greater growth. This too strengthens the intuition that reforms must be looked at through the lens of distribution. In the meantime, there is considerable ambivalence and contradiction around the questions of income (inequality in neoliberalism. Within the Bank, a number of strategies to manage the contradictory positions can be discerned. One might be called a strategy of confession and avoidance. A second is the simultaneous denial and defence of the distributional consequences of restructuring. Another is figuring distributional concerns asperse dangerous to restructuring and hence economic progress. Yet another might be described as technical management of objections, so that any political danger to reforms is defused. Finally, the production or persistence of some forms of poverty and disadvantage is simply normalized. The Bank has developed a number of procedural strategies for meeting the typical objections that are raised against restructuring. For example, states are advised to pay attention to questions of process and to win the acquiescence of workers to changes through employee and management buyouts.61 There are also strategies for allaying concerns about the emergence of private monopolies that may replace public monopolies. Evidence about the "sad reality" of inevitable failure is cited to discourage a focus on improving, rather than merely privatizing, state enterprises.62 And from time to time, the limits of the market in dealing with distributional problems are simply acknowledged outright. For example, the Bank acknowledges that: "Market-based growth that makes efficient use of labor and encourages a large wage employment sector can be good for achieving equality. But market-based development alone is a weak instrument for reducing inequalities

60

See G. Cornia, "Liberalization, Globalization and Income Distribution", supra note 7. World Bank, WoHd Development Report 1997: The State in a Changing World (Oxford; New York: Oxford University Press, 1997), 64. 62 Id. 61

279

Kerry Rittich between the sexes, between ethnic, groups, or between otherwise similar people.63 In such cases, "improving the distribution of initial endowments, especially by promoting access to education for the poor, is crucial for realizing improvements in the distribution of income."64 Yet, in a characteristic neoliberal move, the radical implications of this observation are suppressed and a potentially broad-ranging and multi-faceted inquiry into a pervasive and endemic problem, the allocation of resources to particular social groups, is immediately confined and cabined. Rather than an exploration of the question of what might contribute to disparity in individual endowments, attention is immediately directed to a much smaller, universally appealing, nonthreatening subset of the issue: improved access to education. A door is opened to the possibilities of "non-market" solutions, but we are warned not to expect too much. "Public action can play a role in accelerating changes by pushing to improve the human endowments of those worse off and by acting to reduce discrimination. But tackling the problems of those left out is a formidable challenge for policy, in industrial as well as in developing countries. Investment in these individuals often has a low return, either because they are old and have relatively few years of work left, or because they lack the basic skills necessary to function in a work environment, or because they are stuck in backward regions."65 Here is a blatant attempt to persuade us of both the undesirability and the futility of attempting to mitigate the effects of economic inequality through social provision and other forms of income transfers. This is done by stressing not simply the economic value of individual initiative and responsibility, but also the low economic returns to "social" investments and the intractability of social stratification. However, the degree of redistribution within states is a normative or political matter distinct although not entirely disconnected from the issue of the operation 63

280

World Bank, Workers in an Integrating World, supra note 1, at 46. T

7

64

Id.

65

Id.

Poverty versus Equality of economic incentives in market economies. Various forms of transfer payments exist in all market economies. Despite the attempts to suggest otherwise by counterposing the virtues of a culture of individual responsibility against the evils of dependency, there is no simple connection or established correlation between high levels of social provision and low productivity or conversely, relatively low levels of social provision and high productivity. The empirical case against state investments to support the development of human capital is weak; the evidence may actually run in the other direction.66 This should not be surprising, given the role that social expenditures play in increasing the value of human capital, thereby enhancing the productive capacity of the workforce. This move to individual responsibility is an attempt to place a morally and politically appealing face on the decollectivization of benefits and burdens. While the stated reason is to increase the role of economic incentives, one of its effects is to increase the importance of the many advantages and disadvantages over which people have little or no control, including differences in capacity to translate moral responsibility into the acquisition of resources or the attainment of particular levels of well-being.67 Various political choices might be made as to how much or how little to remedy disparities among individuals; this is no more true of plan than market economies. All industrialized societies invest in the basic welfare of their inhabitants and typically provide some degree of insurance against various forms of risk as well. Moreover, there is no merely technical mode of distinguishing those disadvantages which should be remedied from those which should not, nor is there an obvious answer to the question of which risks should be individually versus collectively assumed. As inequality and advantage and disadvantage are not simply natural phenomena, there is no simple way to disentangle such conditions from prior social and political decisions about how to value particular roles, attributes and qualities. The real significance of the displacement of equality in the context of restructuring and market reform may be that it detracts attention from disparities in 66

Joseph Stiglitz, "More Instruments and Broader Goals: Moving Toward the PostWashington Consensus", WIDER Annual Lectures 2, Helsinki, January 7, 1998 http://www.wider.unn.edii/ (last visited 11/08/2001). The relation of differences in personal capacity to the concept of equality is explored at length in A. Sen, Inequality Re-examined, supra note 49.

281

Kerry Rittich status, wealth and well-being at the very moment at which they are being created. At the same time, it demotes the importance of an effective response. For example, in the context of transition, the admonishment to target only the poorest for income transfers diverts attention from dramatic increases in inequality and decline in the well-being of the population as a whole. Instead, a particular group, "the poor", is identified and its existence as a small but unfortunately intractable element of every society naturalized. While such people are identified as the proper target of state intervention and solicitude, redistribution to classes of persons who do not fall within that (necessarily small) category is ruled out. Left off the agenda, beyond the horizon of possibilities, is a broad range of policies, laws and programs which could redress the newly-created disadvantage. This occurs even in the face of massive shifts in income disparity and systemic advantages, many of which are attributable to the implementation of market reforms. The general effect of the strategy is to legitimize the increase in inequality by discouraging inquiry into its production and channelling attention elsewhere.

282

CONCLUSION

T

he normative case for neoliberal market reforms rests on the possibility of separating the objectives of growth and equality. Reformers hold that as greater welfare is achieved by placing the pursuit of efficiency before distributive concerns, markets should be concerned only with the former. As the foregoing analysis has tried to describe, this requires that success be defined in a controversial way and that many of the complex changes entailed by market reform be ignored. Yet in the end, the clinical separation of efficiency and distribution remains unavailable. An analysis of the structure of reforms suggests why they are necessarily about distribution; the shifts in legal institutions and entitlements through which reform is accomplished mean that efficiency-enhancing reforms are also decisions about the allocation of resources and power. Attention to the role of unpaid work in the realm of production demonstrates how decisions about efficiency impinge upon equity concerns. Efficiency and equity are not separate projects, but are intertwined in far-reaching ways. The distributive effects of reforms may seriously undermine the desirability of the program as a whole, particularly for women. However, the close relationship between the productive and reproductive spheres also vastly complicates the connection between reforms and welfare gains. As enterprises are relieved 283

Kerry Rittich of certain costs, they may simply be transferred elsewhere. Alternatively, access to certain goods and services may be impaired; some may simply disappear, with accompanying negative welfare effects. To the extent that the state comes under pressure to fill in the gap or make up for a shortfall in service provision between the market and enterprise, the benefits and savings to society as a whole may be illusory. The loss of benefits and in-kind services shifts the responsibility of paying for certain activities, those which are depicted as non-integral to production, to the individual or the household, without any guarantee of a commensurate increase in wages to cover those costs. Yet even if there were a straight across the board replacement of the benefits and services with income, there may well be a net loss to many individuals or households, due to the loss of crosssubsidies from enterprise owners and managers, consumers and other workers. Reductions in state subsidies and transfer payments, even if the result were lower taxes and the promised growth in employment and income, would also eliminate an important source of compensation to certain segments of society, disproportionate numbers of whom are female. As we have seen, the value of the benefits and services tends to be gendered. Many of those which are targeted for elimination in the reform agenda underwrite the responsibilities and activities of women in particular, rather than those of individuals or households in general. Given that the gendered division of labor vis-a-vis reproductive work is not only unreconstructed but is likely to be reinforced by the aggregate effect of reforms, it seems remote in the extreme to suppose that either any loss of income or increased labor for women will be compensated by transfers from men to women, especially in the event of a decline in total resources in many households. These features of the reform program in turn call into question the implicit justification, improved overall social well-being, upon which the desirability of the agenda for restructuring rests. The only antidote for all of these potentially negative consequences is not only increased economic growth, but restored full employment and rising wages. Yet there are strong reasons to believe that such an outcome is far from automatic, even unlikely. The reform agenda has nothing to say of assistance in such a case. The most likely scenario is that while some countries will do relatively well, many others will face a very difficult road,

284

Conclusion especially where the productive output of the economy is depressed for any length of time and unemployment remains high.1 A positive outcome, that is improvement of the status quo ante for most people, is predicated upon the maintenance of some degree of bargaining power among workers in the transition process so that what is lost in services and benefits from enterprises and the state can be replaced by rising wages. However, for most workers, this is likely to remain a dream. Under the guise of efficiency-enhancement, the agenda endorses a market structure that empowers entrepreneurs and managers relative to workers. It strengthens the ability of owners, employers and managers to redeploy their labor forces at will, while transferring economic risks to workers by weakening or eliminating labour and employment protections and entitlements. This will render workers more vulnerable to economic downturns and less able to capture the gains of productive activity even if and when markets are thriving. This weakened status will be exacerbated to the extent that macroeconomic policies are adopted to control inflation through the suppression of wages. For all of these reasons, we should expect that, unless economic growth takes off dramatically, at least some of the benefits lost will not be recouped or made up through wages, and less income will be available to buy goods and services on the market. Even where growth does resume, there will inevitably be great disparities in the distribution of income. Parallel arguments apply regarding the status of women. In order for women not to lose ground in the process of transition, and for women to have the resources to replace lost goods and services through the market, the bargaining power of women and men must remain constant. However, the ongoing disparity in reproductive obligations and unpaid labor both creates and reflects an imbalance of power between men and women in the employment context and at home. The agenda for restructuring is marked by the dismantling of mechanisms for the mitigation of gender disadvantage, such as specific employment regulations mandating cross-subsidies for reproductive labor and state transfer payments. Yet no parallel attempt is made to restructure reproductive obligations in the household. As a result, women are placed in a worse

See UNICEF, Education for AIR, Regional Monitoring Report No. 5 (Florence, Italy: UNICEF International Child Development Centre, 1998).

285

Kerry Rittich position to bargain for their demands in the reordered economy. So, in addition to the disadvantage which accrues to workers generally under the agenda, we should expect women to be further disadvantaged by the shift in power and resources in favour of those who are relatively free from unpaid obligations. While such effects are not inevitable, nor are they entirely surprising. Notwithstanding the dominant assumption that growth is per se beneficial, development, industrialization and even evolution within market economies routinely reposition social groups. Even where there appear to be overall gains, some are disproportionately benefited while others are inevitably harmed.2 Depending on the circumstances, what is progress for men may constitute regression or loss of power for women;3 the converse is of course also true. What matters is whether such dislocation is foreseen, whether it is expressly intended, and whether differences among groups are accommodated. The reform agenda envisions a future in which workers are recast as entrepreneurs of their labor skills and services in a market which rewards on the basis of effort and ability to compete. Women are expected, indeed now compelled, to compete largely on the same terms as men, armed only with the promise that employers will not be able to "discriminate" against them. This scenario reflects an Utopian desire to treat labor markets much like other commercial markets. It simply writes out of the script for economic progress the historic problem of the lack of bargaining power of the average worker relative to his employer recognized at least since Adam Smith.4 What is eclipsed in this reform agenda is a recognition of the constraints that different actors will face as they engage in this competition; what is discredited in the process is the belief that serious efforts should be made to address them. While some proposals in the agenda are advanced on the basis of market necessity alone, many others, for example, those concerning the need for greater wage inequality or limits on public spending, flow from particular theories about nature and causes of growth and productivity. While these arguments are not the focus of this study, a number of points directly germane For an historical discussion, see E.P. Thompson, The Making of the English Working Class (London: Gollancz, 1963). E. Boserup, Women's Role in Economic Development (New York : St. Martin's Press, 1970). Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, James E. Thorold Rogers ed. (Oxford: Clarendon Press, 286

Conclusion to the analysis should be emphasized. The first has already been mentioned: labour market entitlements may play a positive rather than negative role in economic growth.5 Other aspects of the legal, institutional and policy conditions of economic development, including such key points as the ability of the state to engage in effective industrial policy, also remain contested.6 Finally, the role of income equality in either promoting or impeding economic growth is also in issue.7 Different conclusions with respect to any or all of these issues could generate sharply different programs for economic restructuring and market reform. One of the most important issues is the characterization and treatment of human capital. As is sporadically recognized by the Bank, human capital investments are an important element of economic growth; they seem particularly effective when directed toward women.8 Given their increased salience and important for high-skill, high-wage growth, it is not at all obvious how or at what magical point expenditures on human capital cease to contribute to productivity and become transformed into anti-productive social costs, why some employment benefits which shield human capital investments through contingent and variable economic circumstances presumptively do good while others do not, or why social expenditures in particular should be targeted for reductions by the state. While the positive role of regulations and state investments may be underplayed, the role attributed to property and contract rights in the reform agenda

S. Deakin and F. Wilkinson, "Rights Versus Efficiency? The Economic Case for Transnational Labour Standards", 23 Ind. LawJ. 289 (1944); Richard B. Freeman and James L. Medoff, What do Unions do? (New York: Basic Books, 1984). Joseph E. Stiglitz, "More Instruments and Broader Goals: Moving Toward the PostWashington Consensus", WIDER Annual Lectures 2, Helsinki, January 7, 1998 http://www.wider.unu.edu/ (last visited 11/08/2001); Joseph E. Stiglitz, "Whither Reform? Ten Years of Transition", World Bank, Keynote Address, Annual Bank Conference on Development Economics, Washington, D.C., April 28-30, 1999 http://www.worldbank.org/research/ abode I WashingtonJ11pdfs I stiglit%.pdf(last visited 11/08/2001). Giovanni Andrea Cornia, "Liberalization, Globalization and Income Distribution", The United Nations University, World Institute for Development Economics Research, Working Paper no. 157, (March 1999) www.nider.unu.edu I publications Iwp157.pdf (last visited 11/08/01). 8 See World Bank, World Development 'Report 1991: The Challenge of Development (Oxford; New York: Oxford University Press, 1991). 287

Kerry Rittich seems overstated. Some of the claims about the importance of property rights and the merits of private ownership move well beyond economics in any event and are advanced on explicitly political grounds. For example, property rights are said to decentralize power, prevent interference with private control over economic transactions, and ultimately prevent or render extremely costly any reversal of the reforms. However, it is manifestly unsafe to assume that privatization leads inexorably to a diminution in the effective concentration of power; it may only change the form or location of power.9 Nor is it clear that a relatively weak state or limits on the ability to control private economic power is co-extensive with greater democracy. Similarly, no automatic equation can be made between the implementation of markets and the attainment of greater freedom, especially when the freedom and interests of particular groups are considered. Instead, a more nuanced investigation of the properties of neoliberal markets suggest that they will necessarily function as arenas of coercion and constraint in which the prospects for some are enhanced while those for many others are worsened. This analysis has primarily investigated the role of law and institutional design in the disparate allocation of resources and advantages and its role in the structuring and intensification of gender hierarchy. It has sought to illustrate the ways in which reforms necessarily affect the rights, entitlements and consequently the balance of power between different social groups, particularly men and women, in ways that have been so far been largely neglected. The hope is that attention to the creation of new entitlements, along with the dismantling of pre-existing institutions for allocating resources, provides one way to tangibly connect programs of market reform with emerging patterns of market disadvantage. Part of the task has been to emphasize the role of the conception of the "normal" market as the vehicle by which this occurs. However, this is only part of the total agenda. Among the most significant aspects of the program are those which are directed at securing consent for the new regime, legitimating the proposed changes and normalizing a particular version of a market society. Many of these efforts are accompanied by quite

This is evidently the case in Central and Eastern Europe and the CIS; many of the major beneficiaries, the new entrepreneurs, are the former nomenklatura, while enormous concentrations of private power have emerged.

288

Conclusion blatant attempts to change dominant values, re-order preferences, and alter the criteria by which people determine whether society is in fact functioning. For example, the following are excerpts from proposed changes to education: "Attitudes Strengthen the idea that the initiatives of workers and others are rewarded. Assist the understanding that employing workers (subject to suitable regulation) is not exploiting them but giving them an opportunity to earn a living. Assist the understanding that business has its place in society and hence that profits are needed to provide an engine of growth. Values In line with the changed relationship between the citizen and the state, encourage the understanding that citizens need to take responsibility for their actions, including their choices about education, work and lifestyle."l Although reforms are presented as a matter of economic organization alone, these types of values and preferences are necessarily external to any economic calculus. Perhaps because they cannot always be justified or derived internally, there is a strong moral overlay to the economic arguments which are advanced. Throughout reform proposals, there are countless references to the disciplining effects of the market, the virtues of enduring hardship in the short term for long term benefit, the merits of self help and personal responsibility, and the corruption and intractability of powerful states. People are encouraged to measure their welfare as individuals rather than evaluate the wellbeing of society collectively. Notably absent is anything approaching a comparable list of the merits of the state as an instrument of social policy and collective action or an analysis of the well-known problems routinely engendered by "deregulated" markets or the weakness of states. There is great stress on the opportunity provided by the market, as opposed to the risks it poses; people are encouraged to value the opportunity over the security provided under the former regime. Enormous amounts of energy, unnecessary merely to defend the shift to the market, have been expended to persuade people of the evil effects of proWorld Bank, World Development Report 1996: From Plan to Market (Oxford; New York: Oxford University Press, 1996), 126.

289

Kerry Rittich viding "generous" guarantees to secure adequate living standards. This has been no simple exercise. On the one hand, wealth and material prosperity are presented as self-evidently the proper objectives pursued by both people and states. On the other hand, growing inequality must be defended as well, and not merely in the short term, but as an unavoidable aspect of a society in which a relatively "deregulated" market determines wages. The reform agenda presents a natural alliance between democracy and market economies; the market is supposed to enhance freedom and autonomy and markets are said to represent the essence of democracy. However, this relationship is often strangely inverted by the constant exhortations to states and individuals to adapt, even subordinate, their desires to the demands of a market economy. Although markets are represented as the route to selfdetermination and self-actualization, the conditions under which these goals might be pursued are highly restricted and coercive in practice. Key decisions such as openness to foreign investment and free trade, the adoption and harmonization of market rules and policies, and assimilation into the global economy are fundamentally non-negotiable. The result is a curious movement between apparently incompatible propositions: homage to equality and democracy and neutrality regarding social, cultural and political priorities coexist alongside vehement declarations of the utter necessity of some of the most radical and potentially transformative aspects of the agenda. In the comparison of the two regimes, plan and market, there are intimations about the lag of the East behind the West that manifest as problematic cultural preferences for authority and insufficient appreciation of the virtues of liberty over security.11 While they lie beyond the scope of this analysis, an investigation of the intersection of market reform projects with other normative projects is indispensable to comprehending the power of market reform discourse and its connection to other political and cultural projects. It is clear that law performs a number of crucial roles in the reform project, simultaneously authorizing and explaining the outcomes of reforms. Yet the distinct role for law as compared to politics in neoliberal reforms is ultimately troubling. Rather than the outcome of political decision-making, law becomes

See also David Kennedy, 'Turning to Market Democracy: A Tale of Two Architectures", 32 Harvard Int'l L.J. 373 (1991).

290

Conclusion the antidote to politics. Rather than a social practice, it is the domain of experts. Rather than a reflection of a range of different social interests and values, law becomes the means by which efficiency comes to dominate over other concerns. Rather than the mechanism by which distributive choices are implemented, legal reform becomes the way those decisions are obscured. Often, arguments about the demands of law are advanced to limit the possibilities of democratic action and public policy, at least in the economic sphere. At the same time, the power that economic actors possess to confine the choices around market regulation is regarded as a good thing; as the argument goes in some quarters, the disciplinary power of capital over governments ensures that resources are well used.12 Claims about law have been integral to the development of neoliberal reforms, easing the displacement of politics from the discussion around markets and masking the fact that normative preferences, ideological commitments and distributive choices are foundational to their design. However, if legal discourse has helped cement the direction of reforms, then a legal analysis which highlights the operation of such preferences, commitments and choices in law can also help reveal and explain the contestable character of economic reform and restructuring, enabling us to consider alternatives with our eyes open.

Larry Summers, cited in Dani Rodrik, Governing the Global Economy: Does One Architectural Style Fit All? Paper prepared for the Brookings Institution Trade Policy Forum conference on Governing in a Global Economy, April 15-16,1999, on file with the author, 21. 291

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INDEX

Abuse of power, 60,120 Access to services, 216 Accountability, 60,115 Administrative functions, 35 Aliens, 277 Autonomy, 290

Banking regulation, 77,166 Bankruptcy, 71 Bargaining power, 207,228,285 Basic services, 211 Benefit entitlements, 36,243,284 Best practices, concept of, 30, 56,58, 85-98,115,154,232

Cash compensation, 43 Capital-holders, 18,157,194-95,229 Capitalism, 112-13 Central Europe, 9,29,65,173-74,241, 243-44

Charity, 268 Childcare, 19,38,44,173,180,185, 192-93,195,204,230-31,242,25152,260,273 China, 91 Citizen initiatives, 74 Civil society, 55 Clinics, 45 Coercion, paradigm of, 135,144 Collective bargaining, 74, 81,193 Collective ownership, 72 Collective responsibility, 191 Common law, 103 Commonwealth of Independent States (CIS), 9,11,29,173 Competition, 71,74 Conflict of claims, 69 Consultative Group to Assist the Poorest (CGAP), 241 Consumers, 18,82,167,207 Contract, freedom of, 134,142 Contract rights, 4,14,68,127,135,287

311

Kerry Rittich Convergence, regulatory, 64,95 see also Harmonization Corruption, 59-60,88,115-16,122 Costs of production, 121,184,204 Credit regulations, 71 Cross-subsidies, 230,284 Cultural practices, 248 Currency, 109

Day care centers, 45 Decollectivmtion, 281 Democratic decision-making, 125 Democracy, 81,99,102,256,288,290 Deregulation, 21,51,61,77,148,154, 159,164,229 Developing countries, 53,215,226, 236 Development aid, 89,236 Development institutions, 3 Development policies, 115,199,235, 238,258 Development theory, 257 Discrimination, 176-77,246 Distribution, 12,16,55,62,107,131, 135,156-58,279,283,285 Division of labor, 49, 51, 53, 55,192, 196-97,284

'East-Asian model', 276 Eastern Europe, 9,11,29,65,91,17374,220,241,243-44 Economic collectivism, 113 Economic development, 3, 5,30, 66, 71,168,240,245,263 Economic governance, 3 Economic growth, 8,11,29-30,33, 50, 89-91,116,234,241,267,278,28384

312

Economic power, 128-29,155 Economic recovery, 278 Economic restructuring, 9,24,40,45, 56,69,130,154-55,177,196,20001,221,232,234,249,256,260, 281 Economic transactions, 132,134,144 Education, 32,46, 52-3,191,239-40, 246,278,289 Efficiency, 7,12,21, 32,44,49, 57,70, 75,84,100,105,114,118,127, 130-31,138-41,143-45,147,155, 166,236,252,261,283,291 Egalitarian social provisioning, 273 Elites, 265,279 Employer expenditures, 43 Employment benefits, 188,232 Employment, full, 284 Employment laws, 242 Employment regulations, 36,74, 81, 162,165-66,168-69,193,223,226, 228,244,247,285 Enterprises administrative functions, 35-6 division of labor, 55 local communities, 191 productive costs, 18,204 reproductive functions, 36 restructuring, 40,225,239,249 shareholders, 207 social benefits, 40-1,178,190,202 social safety net, 40-1 welfare functions, 35,179 Entitlements, 217-18,268,288 Entrepreneurs, 18,106,285-86 Environmental regulation, 79-81,162 Environmental standards, 31,68 Equality, 105,245,252,263-83 Equality of opportunity, 176n, 263

Index Equity, 12,16,76,107,130 Ethnic hierarchies, 277

Family, 20,55,137,173,183,194-95, 197,202,206 Family allowances, 252-53 Family benefits, 271-73 Family wage, 190,205 Feminization of work, 264 Financial regulation, 77 Fiscal austerity, 249,252,264 Flexibility, labor market, 67,210,222 Foreign investment, 31,33,67,71,176 Formalism, 135 Free trade, 110,290 Freedom, 104-05,107,114,256,288, 290

Gender bias, 236 Gender disadvantage, 50,177-78,180, 201-03,227-34,242,249,285 Gender equality, 241,263,269 Gender gap, 203,208,215 Gender hierarchy, 215,276,288 Gender inequality, 208,237,241,244, 247-48,277-78 Gender roles, 215 General interest, the, 94 Global economic integration, 3,6,13, 18,33,62-4,226 Globali2ation, 62-4,264 'Good laws', 30, 66 Governance, good, 4, 88,95 Government failure, 116,120 Gross domestic product, 197-98,258 Growth, functionalist approach to, 89

Harmonization of interests, 57,155, 234 Harmonization, regulatory, 64-5,95, 290 Health care, 10,32,46, 52,191,193, 216,239,246 Households, 19,43,57,114,190,195, 197,199,211-12,242,245,248, 259,284-85 Housing, 45 Human capital, 45,191,241,257-61, 287 Human rights, 68,71,84 Human welfare, 8 see a/so Welfare Hungary, 271

Ideology, 133,136,194 Imports, 225 Incentives, wage, 209 Income distribution, 57-8,139,167 Income redistribution, 82,270 Income security, 32 Income transfers, 42,46, 54,76,159, 217,244,266,268,270,280,282 Individual responsibility, 32, 54,114, 281 Industrial organization, 96 Industrial policy, 6,123,159,162 Industrial production, 249 Industrialization, 187 Industries, domestic, 225 Inequality, 8-9, 32, 54, 58,107,208, 234,244,265-82,286-87,290 Inflation, 108,112,146,222-24,226 Informal sector, 226 Information asymmetries, 77-8 Information deficiencies, 115 Infrastructure, transport, 45, 52

313

Kerry Rittich In-kind services, 35,37,43,205,20708,229,242,284 Institutional infrastructure, 54 Institutional reform, 97 Insurance, 52 Intellectual property, 71,91,162-63 International capital, 33 International economic institutions,

5,8 International economic order, 109-10 International Monetary Fund, 5,223 International trade, 162 Intervention, 17,32,70,73-8,105, 115-16,118,137,154,282 Investments, 31,257 Investors, 18,157,194

Job security provisions, 42,168 Justice, 104

Keynesian policies, 64

Labor costs, 224 Labor laws, 31 Labor market safeguards, 242 Labor markets, 83 Labor mobility, 41,43,209,218,222 Labor regulations, 41-2,64,81-3,166, 168 Labor rights, 71,84 Labor shortages, 38 Land, 279 Law, 17, 50,65-6,70,103-04,127-33, 143,164,290-91 Laws of nature, 104 Legal doctrines, 133

314

Legal entitlements, 138-39,150,164, 167,193-94 Legal institutions, 56,154 Legal norms, 129 Legal realists, 129-30,133-43 Legal reforms, 64,131,165,291 Legal regulation, 70,127,130,133, 143,155 Legal rights, 132,143, Legal rules, 58,66,70,128,131,134, 138-39,142-43,145,155,163,19395,228 Legal systems, 30 Legislation, 104 Level playing field, 14,131 Liberalism, 102-03 Liberalization, 31,77,165-66,225,264 Living standards, 290 Local authorities, 216 Low-wage strategies, 225-26

Market coordination, 94 Market economies, 290 Market failure, 71,73-4,76-8,179 Market reform, 5,11-4,31,49-50,13032,156,195, 227,229,245-46,267, 271, 281 Market regulation, 145-46 Market societies, 4,32, 111, 132-33 Market values, 114 Mass intelligentia, 176 Maternity benefits, 189,204-05,243,

253,271 Maternity leave, 173,204,230-31, 242 Middle class, 269 Minimum wage rates, 42,165,193, 222-26 Minority shareholders, 67 Monopolies, 73,113,121, 279

Index Mont Pelerin Society, 101 Mutual support, 270

Natural law, 103,110 Neoclassical economics, 100,116 New Deal policies, 64 Non-governmental organizations, 233, 235

OECD countries, 9 Old age insurance, 217 Ownership rights, 71

Pensions, 46, 52,218-19 Personal responsibility, 35,226,289 Personal welfare, 32 Plan economies, 6,35-8,173,189-91, 221 Poknd, 176-77,180 Political institutions, 56 Political interests, 50,95 Pollution, 79 Poor, the, 45-6,106 Population growth, control of, 239 Post-realist analysis, 15-6,132-43 Poverty, 8,32-3, 58,107-08,175-76, 180,204,246,250,263-82 Price controls, 31 Price liberalization, 225 Private law rules, 134,140 Private ownership, 72,288 Private power, 135-36,161,288 Private rights, 14, 66,69-70,125,13233,135,137,155,159 Private sector, 31,40,52,70,176 Privatization, 21,30-1,61, 111, 159, 164,174,178,220,225,229,288

Production, 9,182-92,197,199,228, 231 Production process, fragmentation of, 214 Productive activities, 19,285 Productive costs, 18,229 Productivity, 10,45, 53,58,71,74, 91, 182,197,200,209,225-26,254, 259 Profits, maximization of, 32 Property, 133,155 Property ownership, 90 Property rights, 4,14, 31,66, 68,71-2, 90,99,127-28,133,141-42,155, 287-88 Protection of rights, 7,16 Public choice theory, 100,115-25 Public interest, 118-19,121 Public investment, 264 Public law, 103 Public power, 17,135-36,161 Public sector, 33,46,220,225 Public spending, 32,45,285 Public works programs, 177

Quality of life, 33

Rationalism, 103 Real wages, 225-26 Realist scholarship, 15,128-30,133-43 Redistribution, 21,32,46, 50,107,11112,116,124,145-46,149,154,15659,199,218,229,265,270,280, 282 Regulation, functionalist approach, 50 Regulatory change, 195 Regulatory disputes, 76 Regulatory institutions, 3

315

Kerry Rittich Rent-seeking, 59,117-19,122,124, 148-51 Reproduction, 182-92,197,228,231 Reproductive labor, 20-1,37,178,195, 199,201-02,214,230,284 Reproductive responsibilities, 203,205, 207,209,214,217,246,248,285 Res Publica Christiana, 110 Responsibilities, unequal, 207 Retirement, early, 38,46,219 Rights, enforcement of, 66 Rule of law, 4,7,16-7,58,65-7,10306,108-09,158 Russia, 224,275

Safety net, social, 40-1, 52,76,92n, 204,242,277-78 Schools, 45 Securities regulation, 71,166 Security, 67,114 Self-determination, 290 Self-interested action, 117-19,122-24 Self help, 289 Self-reliance, 19,40 Single-parent family, 250 Social assistance, 267-68,271,278 Social benefits, 31,40,190,211,216, 224,226,256,267,271 Social costs, 257 Social divisions, 277 Social expenditures, 267,269-70 Social funds, 36 Social groups, 62,161,267,280,286, 288 Social insurance, 267-68,270 Social justice, 106 Social minima, guarantees of, 266 Social policy, 122-23,275,289 Social practices, 233

316

Social services, 35,40,45-6,211,216, 218 Social stability, 99 Social values, 49,243 Social welfare programs, 64 Social well-being, 284 Socialism, 101, 111, 113 Society, 287-88,290 Solidarity, 11,114,270 Sovereign states, 110 Soviet Union, 29,35-7 Special interests, 127 stability, macroeconomic, 267 Standard of living, 221 State enterprises, 30,35-6,61 State expenditures, 45,203,215-18, 271 State institutions, 60 State intervention, 17,30,32,59,70, 73-8,105,115-16,118,137,139-41, 159,282 State investments, 45,287 State subsidies, 31,35,161-63,213-14, 284 State, the administrative capacity, 74 administrative control, 4,66 arbitrary action, 88 budget reduction, 215 citizens, 289 core functions, 204 development, 6 distributive justice, 105-06 economic growth, 2, 50 external entity, 61 institutional capabilities, 52, 74 institutional structures, 61 income transfers, 54,217-18 market economy, 32,160 normative dimension, 58,215

Index private power, 135 redistribution, 18,32,34-5,46,213, 218 regulation, 135,137 re-organization, 33 social change, 120 social services, 46,54,213,216, 218 transfer payments, 46,203 transformation, 51-4 Subsidies, 42-3,178,207,230,264 see also State subsidies

Targeting, 269-70 Taxation, 108, 111, 156-57,159,269 Totalitarianism, 101, 111 Trade unions, 37, 81,108,112-13 Training, job, 191 Transaction costs, 115 Transfer payments, 281,284 Transnational interdependence, 62 Transparency, 115

Unemployment, 9,146,174,177, 210, 212,217,223,285 UNICEF, lOn United States, 132,271 Universal benefits, 268-69 Unpaid labor, 19-21,185,198,200-01, 205,233,241,246,249,258-59, 260-61,283,285 User fees, 216

Values, 289,291

Wage differentials, 43

Wages, 36,200,215,221-25,273 Wealth maximization, 57,75, 82, 89, 146-47 Welfare, 44,105,195,217,254,281, 283,289 Welfare state, 107-08, 111, 121 Western Europe, 271 Women bargaining position, 207,285 childcare, 19,38,204,260 disadvantage, systematic, 19-20, 201,264 dual roles, 247 education, 173,240,259 household resources, 211 labor force participation, 37,17374,177,240-43,249, 251-52, 254,263 labor market, 19,174,210, 252,264 maternal functions, 239-40 maternity leave, 173,204,230-31, 242 minimum wages, 226 neoliberal reforms, 18,20 pension reform, 218-19 poverty, 275 private sector, 175,220,226 retirement, early, 38,231-32,25354 state sector, 203,220,226 unemployment, 209, 212, 231 violence against, 242 welfare, 174,217,254 World Bank anti-state position, 59-61 division of labor, 247 economic growth, 29,34,251,263, 265 egalitarian social visions, 270 gender issues, 235,239, 244

317

Kerry RiWch gender policies, 241,244,246-47 gender research, 237-38,241,245, 247-50 government, 49 harmonization of interests, 57 income inequality, 58 income policies, 223 labor market regulation, 82 market reform, 5,245-46,251,270 poverty, 180,246,265 private investments, 241 procedural strategies, 279 regulatory analysis, 84 restructuring, 11,43,45,179,240, 249-50,270,279 rule of law, 67 social expenditures, 247 state functions, 52-4 Structural Adjustment Programs (SAPs), 236,249 transition process, 1,49 World Trade Organization, 91 Workers, 18,114,167,194-95,197, 226,285-86

318

The Eric Castren Institute Monographs on International Law and Human Rights General editor: Martti Koskenniemi 1.

O. Korhonen: International Law Situated. An Analysis of the Lawyer's Stance Towards Culture, History and Community. 2000 ISBN 90-411-1452-1

2.

J. Heliskoski: Mixed Agreements as a Technique for Organizing the International Relations of the European Community and its Member States. 2001 ISBN 90-411-1713-X

3.

K. Rittich: Recharacterizing Restructuring. Law, Distribution and Gender in Market Reform. 2002 ISBN 90-411-1935-3

KLUWER LAW INTERNATIONAL - THE HAGUE / LONDON / NEW YORK