A. Pistor’s trenchant diagnosis

In her recent book The Code of Capital (2019), Katharina Pistor offers a trenchant diagnosis of the key role that general private law plays in creating capital, and thus, in producing and entrenching social and political inequalities.Footnote ¹

As she demonstrates in several salient case studies, legal professionals in private law firms in New York City, London and around the globe rely on the general doctrines of property, contract, trust, company and bankruptcy law – the legal ‘modules’ of the code of capital, as she calls themFootnote ² – to create new assets for their clients and turn them into capital by ensuring them with the attributes of priority (over competing claims to the same asset), durability (extending priority rights over time), universality (providing them with effect erga omnes, that is, towards others who had no part in the transaction), and convertibility (into state money).Footnote ³ Thus, contrary to the myth of the invisible hand, she demonstrates how private parties in global markets rely on states and their laws, notably their national private laws, to ‘code’ assets in such a way that they create and protect private wealth.Footnote ⁴ Financial products (that do not exist outside the law) and intellectual property rights (that enclose and privatise what would otherwise be in the public domain) are two of the most obvious instances, but there exist numerous others. Pistor also shows how willing states have been to facilitate the creation of capital in this way. As she points out, this is not even a question of regulation versus deregulation; it is about the nature and content of general private law rules and doctrines that determine private entitlements (as subjective rights). By legally recognising and enforcing the assets that lawyers create as private rights states structurally subsidise the production and further accumulation of capital. This has led to enormous wealth for a few, while leaving societies with staggering economic inequalities and the public with fading political control over its own future.

As Pistor put it in one of the debates on her book, ‘capital is dependent on state law, because the privileges it enjoys require the subordination of countervailing interests, if necessary, by the use of force. To succeed, capitalism therefore needs a friendly state as a host state that is willing to enforce contracts and property rights’.Footnote ⁵ The basic insight that markets, and hence their capacity to create economic prosperity, depend on legal institutions is not new: it has been central to the disciplines of economic law, institutional economics, and, more recently, legal institutionalism,Footnote ⁶ and law and political economy (LPE).Footnote ⁷ However, the key role of the general rules and doctrines of private law specifically in the creation and accumulation of wealth has never been exposed so clearly and cogently. And even if at times perhaps she overstates her case, as critics have pointed out, because there also exist other economic causes of inequality,Footnote ⁸ while public market regulation would be part of a more complete picture of the law of capitalism,Footnote ⁹ the fact remains – and this is Pistor’s key insight – that in the background (indeed in backrooms) general private law is a key institution of capitalism and a core driver today of socio-economic inequality and political disempowerment.

B. Pistor’s proposed roll-back strategies

In the final chapter of the book, Pistor switches from political economy to normative argument. She offers a list of eight measures which in her view ought to be taken, and which she refers to as ‘roll-back strategies’.Footnote ¹⁰ These include: a full ban on any new private law privileges for capital; reigning in choice of law; reducing arbitration; empowering affected third parties through procedural means such as class actions; a ban on purely speculative contracts; national democracies joining forces; and deeply rethinking legal education. She is aware that these roll-back strategies may be less than readers of her book might have hoped for, but she suggests that what she calls ‘persistent incrementalism’ may be a viable strategy ‘to push back and ensure that democratic polities may rule themselves by law.’Footnote ¹¹ While this may be true, the question arises nevertheless whether something more could be done, something more radical, going more to the root of the problem. Rather than an incremental approach perhaps what we need is a paradigm shift in our thinking about – and our dealing with – the relationship between capital and private law. And rather than merely aiming at rolling back, which frankly sounds a bit nostalgic, as if there was an ideal past we’ve lost, perhaps we should try also to move forward and make some progress. However, to that end we would need to have a clearer idea of what would constitute progress.

A. What is wrong with the code of capital?

While using the normative language of ‘should’, Pistor does not make explicit the normative yardstick by which her roll-back strategies would constitute an improvement. That makes their chances for success somewhat harder to assess. It also raises the deeper normative question of what exactly is wrong with how private law shapes capitalism. Before we start fixing, don’t we need a better sense of what the problem is? And if we want to make progress, don’t we need to know which direction we should take? For example, the problem could be that some people live miserable lives, by some objective standard, and we should try to improve their lives with reference to that standard. Or, the problem could be that people’s subjective preferences remain unsatisfied, perhaps – in the aggregate – on a massive scale. Or, indeed, the code of capital, as it currently operates, could constitute an injustice towards particular individuals or groups.

Yet, throughout the book, it becomes very clear that her two main concerns are rising inequality and withering democratic control. These both are core social justice concerns. In other words, what’s wrong with the current code of capital is that it is unjust. It violates principles of social justice, in particular those principles which aim to ensure equality and democracy. One reason why Pistor does not further elaborate on her normative yardstick may be that she assumes that the state of affairs she depicts is likely to be problematic from the points of view of several of the most convincing and influential contemporary theories of justice. She would be quite right because there seems to exist an important degree of overlapping consensus in this regard.

B. Unjustified privileges and rising inequality

C. The erosion of democracy

Much the same applies for Pistor’s other core concern, that is, democratic self-government. As Pistor contends, the current role of private law in coding capital

Clearly, the disenfranchisement of democratic constituents is unacceptable (by definition) from the point of view of any justice theory in which democracy is a core concern. And a right to democratic self-determination is central to most theories of social justice, be it as one of the central capabilities that a minimally just society ought to ensure at least to a threshold level,Footnote ²⁸ as an essential political precondition for living together in society as free and equal persons (ensured by the basic political liberties),Footnote ²⁹ or as indispensable to freedom as non-domination (democratic control over government),Footnote ³⁰ or indeed simply as a right to political autonomy.Footnote ³¹ Again, the differences in understanding of democracy in various justice theories, while salient in other contexts, should not concern us too much here, because they overlap sufficiently for each of them to share Pistor’s concern about how the code of capital undermines democracy and to accept her claim that if we want to save democracy we need to regain democratic control over our private law, which provides the legal modules that shape capitalism. As Pistor warns us, ‘for democracy to prevail in capitalist systems, polities must regain control over law, the only tool they have to govern themselves, and this must include the modules of the code of capital.’Footnote ³² Note that Pistor’s claim is not merely that the code of capital erodes democratic control over private law. Rather she contends, quite convincingly in my view, that it undermines – much more widely – democratic control over our destiny.

Adam Tooze suggests that ‘perhaps the best way to read Pistor is as offering a highly sophisticated program for a leftist economic populism’.Footnote ³³ However, we should not confuse indignation with populism.Footnote ³⁴ And it is very clear that Pistor’s concern is with popular (not: populist) sovereignty and collective self-determination. Similarly, we should also take care to avoid collapsing private law democracy into majoritarianism and mere legislative positivism. Political autonomy and collective self-determination are about much more than the right (however important) to participate in periodical elections. Democracy requires robustly deliberative and participatory institutions and practices as well as a thriving public sphere. What should determine political outcomes in a democracy is ‘the unforced force of the better argument’, as Habermas puts it,Footnote ³⁵ not the coercive force of arguments backed up by money. And as Rawls points out, ‘excessive concentrations of property and wealth [are] likely to lead to political domination’.Footnote ³⁶ There is no popular sovereignty or collective self-determination where there is domination. In other words, rising inequality and the erosion of democracy are two sides of the same coin. And this coin could not be minted without private law.

D. Immanent critique: substantive private and public autonomy

Arguably, without engaging in any ideal theory of justice (and the philosophical disputes among those), we can even criticise our system of private law on its own terms, i.e. as failing to live up to its own promises. Jürgen Habermas argues that the best way of making sense of the system of private law we have here and now, is as a system aspiring to express and ensure both private and public autonomy, understood in both cases substantively rather than merely formally.Footnote ³⁷ If this normative reconstruction of our contemporary private law systems makes sense, as I think it does, then Pistor’s political-economic analysis also provides us with strong reasons for radical immanent critique. Clearly, as Pistor’s sharp diagnosis demonstrates, the system of general private law today, by providing modules for encoding capital, can be said to respect and express private and public autonomy only if we understand each of these notions in their most formal sense possible – in practice, merely nominally.

Immanent critique also points us in the direction of a way forward towards a more justifiable system of private law. What we should try to achieve, then, is a more robustly democratic private law that ensures a more egalitarian society and, vice versa, a more egalitarian private law than ensures a more robustly democratic society. It is Habermas’ fundamental insight that we cannot have one without the other: the system of rights and democracy, as well as private autonomy and public autonomy, mutually presuppose each other. The addressees of the system of private law must be able to understand themselves as their co-authors, which will not be the case in the absence of a fair distribution of access to private rights (in particular, property and contractual rights).

And in each case, in order to be normatively meaningful and justifiable, the understanding has to be substantive rather merely formal. Throughout, our understandings of justice, equality (interpersonal and distributive), and autonomy (private and public) should be thoroughly substantive (or ‘materialised’, after the German term Materialisierung) rather than formal.Footnote ³⁸ In other words, it should take serious account of the actual circumstances (socio-economic and other) in which people find themselves. Just like a mere formal right to influence the law (not being excluded from participating in general elections) will not suffice to make private law become democratic, so too does a mere formally equal access to subjective private rights (eg property and contractual rights) and their legal protection not make private law become egalitarian.

This abstract insight is now underscored very concretely by Pistor’s powerful account of the political economy of capital. Capitalism thrives with merely formal (nominal) democratic control and private autonomy, while it undermines democracy and equality understood substantively. This insight also points in the direction for solutions – for how to make progress in re-coding capital. Here too substantive private and public autonomy mutually presuppose each other, normatively speaking: the recoding of private law in a more egalitarian way has to be democratic and in order for us to regain democratic control private law has got to become more egalitarian.

A. Taming capital by restructuring its code

As Habermas puts it, with reference to the materialisation of private law, ‘the intention is to tame the capitalist economic system, that is, to “restructure” it’.Footnote ³⁹ One possible way forward that comes to mind would be through a European code of private law (EPL-code) based on a strongly materialised conception of private autonomy and with a thoroughly democratic basis. This possibility was not considered by Pistor in her book, but it seems to match well with her core analysis and conclusions. If done right, such an EPL-code could radically transform the modules of the code of capital, and, in doing so, allow the European public to take back democratic control and restore equality. It would break with the current code of capital (i.e. chiefly the common law of the State of New York, and of England), that is based on formal rather than substantive equality and is made by legal experts in law firms and courts rather than by the democratic legislature. Thus, it would bring democratic control over – and ensure substantive equality in – the main elements of the code of capital. And even if the coding of capital is only part of the story of inequality, as has been suggested,Footnote ⁴⁰ then still re-constituting the private law of capital could be a corresponding part of the solution.Footnote ⁴¹

Could readers who are convinced by Pistor’s diagnosis and roll-back strategies also – and perhaps a fortiori – support the less incremental and more radical idea of such a progressive European code of private law if it could indeed successfully recode capital in such a way that equality and democratic control would be restored, at least to an important degree? It seems they could if certain crucial conditions are met.

To be clear, such a progressive EPL-code should not be confused with the kind of civil codes that were adopted in most EU member states in the 18th and 19th centuries. It would be quite distinct. In order to successfully re-code capital the new code of private law would need to have a set of specific characteristics, to which I will turn now.

B. European, not national

The code would have to be European essentially for reasons of political power. The EU would stand stronger than individual countries against the pressure from global markets.Footnote ⁴² While foreign investors might exit individual states if these decided to constrain capital minting options, it would be a much more hazardous move for them to turn their backs on the entire EU and its internal market. In other words, this is a classical case where the subsidiarity principle would be met: given the fact of a globalised economy, no single EU state would stand a chance in trying to tame capital domestically, by transforming the private law modules in which it is coded.

C. Mandatory, not optional

In order to be effective, the private law restrictions on the ways in which capital is created must be mandatory, not merely optional. While most provisions in the national civil codes of member states (as well as in the DCFR) are default (or suppletive) rules that can be set aside by the parties to private transactions, the progressive code should focus on mandatory rules, which apply whatever the parties write in their contracts. In addition, the code should also be internationally mandatory, as ‘overriding mandatory provisions’ (lois de police).Footnote ⁴³ This means that it cannot be set aside through a choice of law for a non-EU legal system. This is a crucial requirement, given that the current code of capital, as Pistor highlights, fundamentally relies on the possibility of shopping for the most capital-friendly legal system. Under current EU private international law, the parties are free in principle to submit their transactions to whichever law best suits their interests.Footnote ⁴⁴ In practice, in most cases this means a choice of law for one of two specific legal systems outside the EU, that is, the law of the State of New York and English law. As Pistor puts it (without specific reference to the idea of an EPL-code), ‘there should be far fewer opportunities for asset holders to go on a legal shopping spree.Footnote ⁴⁵

Two decades ago, in a paper called ‘Hard Code Now!’, Ugo Mattei already argued that the EU needed a mandatory code.Footnote ⁴⁶ This went against the grain of soft law solutions such as restatements, and the idea of an optional code, or one consisting mainly of default rules, that were popular at the time. As he formulated it,Footnote ⁴⁷ ‘put simply, given the available institutional background, a hard European Civil Code seems a prerequisite for the development of an effective set of rules of the game capable to keep economic activity under control.’ At the time, his appeal met with little response. Today, it seems, the time has come to reconsider his proposal.

D. Primary (constitutional), not secondary EU law

The European code of private law – or at least its basic structure – would need to have the status of primary EU law, on a par with the market freedoms and competition law. As Pistor points out, ‘states have actively participated in turning stationary capital into roving capital by breaking down legal barriers and expanding its holders’ private autonomy.’Footnote ⁴⁸ This applies a fortiori for the EU where private autonomy became sovereign under the banner of internal market freedoms, which enjoy the constitutional status of primary law. Needless to say that, in order to reign in capital, private law will have to roll back the excessive expansion of private autonomy, and especially redefine it in much more substantive terms, which would be wholly ineffective if it had only the status of secondary EU law and, therefore, could be overruled constantly by the market freedoms. Put differently, the (re)constitution of European private law would also mean a shift away from the modular structure of private law (‘modules available off the shelve’Footnote ⁴⁹) towards a more hierarchical one (with primacy for a limited set of core principles of private law justice).

Self-evidently, the constitutionalisation of core principles of justice for European private law would mean a radical break with the current constitutional framework of the EU. However, it is important to point out that this would be entirely compatible, nevertheless, with the very idea of a properly functioning internal market, as long as that idea is not reduced to the notion of a growing market. It is difficult to see how an internal market where market freedoms are not checked by justice demands can be understood as a properly functioning market (let alone, for that matter, a ‘social market’).Footnote ⁵⁰

E. Fundamental principles, not detailed rules

Creative lawyers in the leading law firms will always find their ways around detailed regulation, carving out new ways of creating and protecting capital and convincing courts that the asset at hand falls outside the scope of the specific regulation and, hence, within the scope of general private law doctrines. (In this context, lawyers usually refer to the need for ‘legal certainty’, which in private law is just another term for the secure protection of entitlements, which is of course of crucial importance for accumulating capital.) By contrast, principles are much more difficult to escape.Footnote ⁵¹

A great advantage of a system of principles (a principled system) aiming to preserve justice in European private law is that it will be much more difficult for private actors and their sophisticated lawyers, than it is under a set of targeted (sector-specific) market regulations (the kind of regulatory private law that Hans Micklitz has pointed our attention to),Footnote ⁵² to carve out exceptions to create new privileges undermining social justice and democracy through regulatory arbitrage. This is the great advantage of a (re-)constitutive over a (re-)regulatory approach: any amount of regulatory private law could not achieve what a (constitutionalised) code of private law principles could accomplish. (And vice versa, which means that (ideally) the two are complementary.)

Therefore, the European code of private law should consist of fundamental principles for the basic structure of private law, not detailed rules on specifics. A few dozen would probably suffice. Something quite similar was already proposed by Hugh Collins in his book The European Civil Code: The Way Forward.Footnote ⁵³

Taking together this point and the previous one, the EPL-code could become a central part of the ‘economic constitution’ of the EU, to which the creation and protection of capital in the EU would always be subjected. It would provide the ‘ground rules’ for the allocation and distribution of wealth in society.Footnote ⁵⁴ In particular, it would prevent and sanction unjust market conduct,Footnote ⁵⁵ would define principled restrictions on commodification, and, thus, would pose constitutionally entrenched moral limits to the internal market.Footnote ⁵⁶

Having said that, the very idea of an economic constitution may insufficiently express that the focus should be on justice. Therefore, and depending also on its size, the EPL-code could perhaps best become an EU Charter of private law justice.Footnote ⁵⁷

F. Prioritise justice, not economic growth

The first aim of the EPL-code would be to ensure justice, not economic growth. Any objective for the internal market to be a competitive and growing market, as expressed for example in the Lisbon strategy,Footnote ⁵⁸ would remain subject to the normatively prior demands of justice. Justice means both social (including distributive) justice and interpersonal (or relational) justice. As said, the internal market is not even properly functioning unless it is also sufficiently just.

A key justice concern, underlined by Pistor as we saw, is inequality. The progressive private law code would aim directly to significantly reduce the kind of interpersonal and social inequalities that are currently produced and exacerbated by the code of capital. As said, the difference between formal and substantive equality is key in this regard. While the code of capital fully ensures formal (i.e. nominal) equal access to capital accumulation, in practice it remains a privilege for only a very few. In contrast, the aim of a progressive EPL-code would be to ensure that private law works for all. And in order to do so it will have to consider, on a structural basis, the actual characteristics of the parties and the real circumstances in which they conclude their private transactions.Footnote ⁵⁹ In practice, this will mean not only that certain types of assets will no longer enjoy legal support, but also that new ones will be recognised and protected. As Pistor explains,

A discontinuation for certain financial products and similar of their current legal recognition and protection might have a negative impact on economic growth.Footnote ⁶¹ However, from a justice point of view that should concern us only if trickle-down economics worked. Instead, as is well-know, it is a fallacy.Footnote ⁶² Therefore, our real concern – and first priority – should be with coding new rights that improve the condition of the least well off rather than with upholding the legal privileges of the few.

G. Radically democratic, not technocratic

Finally, and most importantly the EPL-code should allow the public to take control over the way capital is created and, thus, over its own future. The people should gain the power to decide when and how to code capital. This should be the objective of the EPL-code as well as the way to draft and enact it.Footnote ⁶³

The EPL-code, in order to be a private law constitution from the people for the people, should be based on democratic deliberation that categorically and robustly includes the participation of groups and individuals at the various peripheries of European society.Footnote ⁶⁴ These include: citizens who currently own no capital; citizens from members states with comparatively minor political power; citizens from various minority groups; and – most difficult to ensure – non-citizens to whom the code would apply. As Habermas puts it more generally,

It is important to underline that ‘the people’ and ‘the public’ should not be understood here as monoliths. To the contrary, the premise for democratic deliberation and participation is ‘the fact of reasonable pluralism of worldviews’, that is, a reasonable disagreement among citizens about fundamental values and key priorities, together with ‘the fact of oppression’, namely that agreement in society about values and the meaning of life could be obtained only with the oppressive use of force.Footnote ⁶⁶ This is what distinguishes democrats from populists, who set up the people against the elite, understanding both as monoliths,Footnote ⁶⁷ rather than as internally diverse.Footnote ⁶⁸

This radically democratic demand also means that the work on the EPL-code cannot be expert-driven. A democratic public that is ‘desperately trying to regain control over its own destiny’,Footnote ⁶⁹ will not leave its destiny in the hands of experts. What different social groups might do instead is seek their own expert advice, for example about effective ways of reigning in capital through private law.Footnote ⁷⁰ However, a technocratic code of private law is the last thing the EU needs. As the social justice manifesto put it, ‘attempts to conceal important decisions regarding the scheme of social justice in the market order behind technocratic processes will merely lead to widespread disenchantment with the ideals and the legitimacy of the European Union.’Footnote ⁷¹

A. The EU’s commitment to social justice

The EU has committed itself to promoting social justice.Footnote ⁷² This means, it would seem, that at least the main socio-economic institutions of the EU ought to comply with fundamental principles of social justice. We can refer to these core socio-economic institutions as the EU’s basic structure. In other words, arguably, the EU has committed itself to ensuring that its own basic structure meets the standards of social justice. Plausibly, even in the absence of any explicit treaty commitment to that effect, the EU would be morally responsible for the justice of its own basic structure, but we do not need to go into that now.Footnote ⁷³ The critique can remain entirely immanent here, i.e. on the EU’s own terms, as a matter of the EU living up to its own promises.

B. An unjust market is not functioning properly

Doubtlessly, the internal market is part of the EU’s basic structure. This means that the internal market is directly subject to principles of social justice. Pursuant to Art 114 TFEU, the EU has the competence do adopt measures which have as their object the functioning of the internal market. In other words, in case of malfunctioning of the internal market the EU is allowed to legislate.Footnote ⁷⁴ This means that to the extent that the internal market is not properly functioning when its operation violates principles of social justice, the EU, insofar, has the legal competence to adopt directives or regulations, in accordance with the ordinary legislative procedure (where the European Parliament is co-legislator), to ensure its proper functioning.

It is difficult to see how a market that structurally produces inequalities and disempowers the public could be compatible with any plausible conception of social justice for the EU. And as Pistor demonstrates very clearly, the problem is not a question of specific market regulation (‘European regulatory private law’) versus deregulation.Footnote ⁷⁵ At the heart of the problem are the classical rules and doctrines of general private law. Rising inequality and dwindling democratic control are the direct consequence of the way general private law permits legal professionals to mint capital for their clients. Therefore, any measure going to the root of the problem of social injustice in the internal market will have to target general private law. And arguably the best way – perhaps the only one – to achieve this is through a progressive EPL-code.

In summary, the EU’s commitment to social justice and its competence in case of internal market disfunction point to a social justice responsibility and a legal competence for an EU code of private law along the lines sketched above. Admittedly, an EPL-code based on Art 114 TFEU, while enjoying quasi-constitutional status in the national legal orders of the member states (because of the primacy of EU law over national law, including national constitutions, reinforced by direct horizontal effect if the code were enacted as a regulation), it would have only secondary EU-law status, and therefore would have to yield in case of any clashes with market freedoms (which are to be expected). Therefore, core EU principles of social and interpersonal justice (whose scope need not to be limited specifically to private law or the internal market) would have to be introduced at the next treaty reform in order to truly ensure justice in the internal market.

C. Shared competence and proportionality

It might be argued, however, that the EU is not the only one responsible for ensuring the proper functioning of the internal market. After all, the EU shares its internal market competence with the member states.Footnote ⁷⁶ Therefore, it could be argued, perhaps the responsibility for justice in the internal market is also one shared with the member states. And maybe the private law aspects of the internal market, and its justice, should remain the responsibility of the member states. However, whatever merit that argument could have in the abstract, the reality is that the EU has already massively legislated on private law subjects. And the private law acquis is almost without exception based on Art 114 TFEU and its predecessors, i.e. the internal market competence.

Indeed, some of the most salient examples in Pistor’s account of the code of capital, and how it creates inequality and undermines democracy, are cases of positive EU private law. Think, for instance, of the almost complete dismantling of the real seat principle by the CJEU’s case law on the free movement of capital and services and the freedom of establishment.Footnote ⁷⁷ Think also of the free choice of law, with only few exceptions, enshrined in the Rome I regulation.Footnote ⁷⁸ In other words, these specific roll-back measures proposed by Pistor would directly require EU private law revision. Compared to those, the proposal for an EPL-code makes only a quantitative, not a qualitative difference. And as long as each of the provisions in the EPL-code is targeted to remedy the malfunctioning of the internal market, by aiming directly at combating social injustice in the internal market, the proportionality principle will also be met.Footnote ⁷⁹

A. Institutions of a just basic structure: the myth of a division of labour

At this point, the reader may wonder: wouldn’t such a progressive EPL-code be blatantly socialist? Perhaps. That depends in part on what one means by socialism. Note, however, that a progressive EPL-code, as outlined above, could be fully compatible, for example, with liberal-egalitarian justice as proposed by John Rawls. In his last book, Justice as Fairness, when discussing the institutions of a just basic structure,Footnote ⁸⁰ Rawls explicitly considered the possibility that social justice could only be realised through a form of socialism, in particular what he called a ‘liberal socialist regime’. In such a regime, while private ownership in the means of production is abolished, markets based on transactions governed by private law continue to exist (as opposed to ‘state socialism’, which has a planned economy governed by a one-party regime). Towards the end of his life Rawls had become increasingly pessimistic about the possibility of realising social justice through the kind of welfare state that his Theory of justice was widely considered to be a defence of. And it has been argued recently that only such a democratic socialist regime could ensure what Rawls called ‘the fair value of equal political liberties’.Footnote ⁸¹ Other institutional arrangements, including in particular welfare-state capitalism, would allow for significant concentrations of wealth which, as Rawls saw, would inevitably end up undermining democracy.Footnote ⁸² That would not only be a problem in its own right (because it would violate the first principle of justice as fairness, which protects basic political liberties); the concentration of political power in the hands of a wealthy minority most likely would also render it politically impossible to realise the second principle of justice as fairness, which demands equal access to positions (the first part of the second principle) and permits socio-economic inequalities only to the extent that they benefit also the least well off group in society (the difference principle, which is the second part of the second principle).Footnote ⁸³ In sum, a liberal socialist regime may indeed be our best hope for reigning in capital by recoding it via a radically democratic and thoroughly egalitarian code of private law.

One final point on Rawlsian justice in order to avoid any misunderstanding. As is well known, Rawls regards the basic structure of society as the first subject of justice.Footnote ⁸⁴ This means that institutions outside the basic structure are not necessarily subject to principles of social justice. A society can still be just even if some of its institutions are unjust, as long as the basic structure ensures background justice. Remember that by the basic structure Rawls means the main political and social institutions of a society and the way in which they shape the division of advantages and disadvantages of social cooperation. Now, some theorists have argued that private law is not part of the basic structure of society and, therefore, – crucially – not subject to principles of social justice. To be sure, on that view private law would still be subject to justice principles, but only to principles of justice between the parties to the transaction at hand (interpersonal, relational, or corrective justice principles), not also to principles of social (or distributive) justice. Indeed, there are passages where Rawls himself suggests that there should be a ‘division of labour’ between institutions responsible for background justice and those responsible only for interpersonal justice.Footnote ⁸⁵ What is at stake here is that these theorists deny any responsibility for private law (even for its basic structure) for ensuring social justice (including, in particular, distributive justice). However, as will be clear, if Pistor’s account has demonstrated one thing, then it is that general private law provides the modules for the code of capital and that its role has immense implications for the distribution of wealth as well as for democratic self-government. In other words, Pistor has shown us that the core branches of private law (at least their main principles and doctrines) are a central part of the basic structure of our societies today. Put differently, those who deny that general private law (or at least its basic structure) is part of the basic structure of society are implicitly denying – against the evidence – the validity of Pistor’s main claims about our political economies (or they rely on a notion of social justice as redistribution, which however is inferior from a point of view of Rawlsian justice – if we take seriously the primary good of the social bases of self-respect).Footnote ⁸⁶ Rawls is entirely right when he points out that ‘principles applying to agreements directly (for example, the law of contract) do not alone suffice to preserve background justice’.Footnote ⁸⁷ However, what he seems to have overlooked – as have others as well, but has now been brought home forcefully by Pistor – is that in societies like ours, with globalised market economies based on transactions governed by private law, – even under ideal circumstances – it is impossible to preserve background justice without involving also general private law (in particular, its core principles and doctrines).Footnote ⁸⁸ In this regard, it is important to note that under Rawlsian justice the question of which institutions in a society are part of its basic structure is not primarily normative, but empirical (to be answered obviously in light of the principles of justice). And the answer may well differ from one society to another. This is simply the mirror image of the question of which institutional regime is most suitable for ensuring social justice.Footnote ⁸⁹

B. Against liberty as licence

Warnings against state socialism have been a familiar trope in the EU private law debate, usually coming from ordo-liberal market-fundamentalists. They will always cry foul in the name of liberty, as they did even when the European Commission proposed a modest directive on unfair terms in consumer contracts, when they claimed that it would have established within the EU ‘the system of control and regulation underlying the socialist law of contract’ (which was enough for the Commission to cave and exclude core contract terms from the scope of consumer protection).Footnote ⁹⁰ However, this should not discourage us from seeking the right institutional response to the threats that the coding of capital through the means of private law poses to democracy and equality today. As Pistor puts it, ‘capitalism, it turns out, is more than just the exchange of goods in a market economy; it is a market economy in which some assets are placed on legal steroids.’Footnote ⁹¹ The exorbitant legal privileges private law grants to capital are unjustifiable and unsustainable. And an EPL-code that is progressive (or liberal socialist, if you like) may well be the right institutional response.

In a democratic society we reciprocally respect each other’s equal right to self-determination and democratically establish its concrete modalities and limits. The right to self-determination has a public and a private aspect. As to the latter, private autonomy is made possible through the system of private rights and obligations constituted by private law. It is important to distinguish such a thoroughly democratic system of private law from the idea of a pre-institutional and pre-democratic right to the public recognition and enforcement of whichever private transaction one wishes to undertake. Indeed, it is the direct aim of a progressive code of private law to reign in such libertarian private autonomy as licence. At the same time, a thoroughly democratic and egalitarian private law will fully recognise and respect the equal substantive right to individual and collaborative self-determination (substantive private autonomy). In the words of Lea Ypi, ‘Freedom is not sacrificed only when others tell us what to say, where to go, how to behave. A society that claims to enable people to realize their potential, but fails to change the structures that prevent everyone from flourishing, is also oppressive.’Footnote ⁹²

C. Real socialism

The opposite criticism would hold that even a progressive EPL-code, however egalitarian and democratic would not go far enough, because it would leave the market system as such untouched. On this view, the real problem goes deeper. It is not the accumulation of capital, or the excesses in its creation, but the very idea of market transactions and the legal support for it. It is true that if we endorse Marx’ surplus value theory, then not only contracts concluded on the labour market are intrinsically exploitative, but also many other goods and services (perhaps most) should be decommodified. Similarly, we could reduce the scope and relevance of private property through a radical expansion of legally recognised and protected commons, as Ugo Mattei urges us to do,Footnote ⁹³ or even replace private property altogether with ‘the rights of the common’, as Hardt and Negri propose.Footnote ⁹⁴ Indeed, we could fundamentally challenge the very idea of individual subjective rights.Footnote ⁹⁵ To the extent that critique based on such radically different conceptions of law, justice and values is pertinent, and their implementation is also compatible with the mutual respect we owe each other in a society characterised by a reasonable pluralism of worldviews, they would indeed speak directly against an EPL-code, however progressive it might be, as a solution to the problems caused by the code of capital (and a fortiori against the more incremental roll-back strategy proposed by Pistor). I have my doubts, but it is beyond the scope of this article to explore these strands of critique any further.

D. Realism and transition

Another objection against the idea of a progressive EPL-code might be that it is naïve. If the common law systems of New York State and England are hegemonic today in facilitating the minting of capital, as Pistor underlines, and if our century will become the ‘Chinese century’, as Peter Drahos has recently claimed,Footnote ⁹⁶ then wouldn’t it amount to a suicidal form of protectionism if the EU imposed a progressive code of private law on transactions in its internal market? It is true, as said earlier, that any gain in socio-economic and political equality might well come at the price of reduced economic growth; the economy may even shrink to a degree. However, within limits, that may be a price well worth paying for restoring socio-economic and political equality. Indeed, it is intrinsic to the very idea of the Rawlsian difference principle. Therefore, the lure of economic growth, with its false promise of trickle-down, should not distract us from the political possibility of restoring equality and democracy by resetting the code of capital.

This brings us to the next charge – a utopian lack of realism. Given the current state of the world, what gives us reason to believe we might be able to achieve a better one? The question of transition from our current state to one that is more just is real. Is it possible to set aside the current code of capital? And can this be achieved without a violent revolution? Is peaceful transition possible? In 1923, the Institute for Social Research in Frankfurt was founded with the explicit mission to understand why the German November Revolution of 1918-1919 had failed.Footnote ⁹⁷ The first generation of Frankfurt school members remained committed to the Marxist idea of a workers’ revolution, even though they became increasingly pessimistic that it would ever happen. (Similarly, they took Marx’ theory of surplus value for granted, the implication of which is that market exchanges lack justificatory force.Footnote ⁹⁸) If we leave the option of revolution to one side for now (either because it will not happen or because it would inevitably lead to bloodshed and end up in authoritarianism), then which realistic peaceful alternatives for transition are we left with? Normative political theory is often rejected, especially by socialists, as unrealistic. However, as Forst points out, the dichotomy between idealism and realism is a false one:Footnote ⁹⁹ ‘A critical conception of justice cannot get off the ground without principled argument, although it neither needs to nor ought to design an “ideal” model of the well-ordered society that would only have to be “realized” by intelligent and well-meaning politicians, which is at best a naive and at worst a technocratic conception.’ And radical critique will need idealising proposals in order to de-reify and shift our current understanding of what is realistically possible here and now.Footnote ¹⁰⁰ This applies as much for European private law as for anything else. By making and discussing proposals that would radically change – revolutionise, in a sense – the role of private law we can contribute to making alternative futures become more realistically attainable. As Pistor underlines,Footnote ¹⁰¹

To this we may want to add that while perhaps incrementalism is the more prudent strategy, we may need the more revolutionary strategy of a European code of private law to make real progress. Whether that strategy is realistic we will only know with certainty after the fact.Footnote ¹⁰²

Within the EU, the (unelected) European Commission has the exclusive right of initiative for new EU legislation.Footnote ¹⁰³ It may indeed be unrealistic to expect the Commission to propose a progressive EPL-code any time soon. However, the European Parliament could seize the initiative by adopting a parliamentary resolution in which it outlines the main principles of the code, in a way quite similar to its recent resolution on corporate accountability.Footnote ¹⁰⁴ Yet it is important to underline that such a legislative resolution should be only the end point of an inclusive democratic deliberation involving every relevant section of civil society. Alternatively, the code could be adopted by way of a convention, leading to a targeted treaty reform. That would be fitting if we understand the code as the EU’s economic and civil constitution. It would also fulfil the demand, raised above, that the EPL-code should have the status of primary EU law, on a par with competition law and the market freedoms.

A. The main private law modules

What should be in the code? The EPL-code would obviously have to cover the main fields of private law that operate in creating and protecting capital – what Pistor refers to as the legal modules from which capital is coded. Pistor mentions property, contract, bankruptcy, company and private international law,Footnote ¹⁰⁵ to which I would add tort, because of its key role in sanctioning – and hence also in preventing – interferences with (intellectual) property.

If the aim is to reign in capital,Footnote ¹⁰⁶ then, by definition, a central focus should be on the main legal attributes that, as Pistor demonstrates, can provide, in principle, any asset with wealth creating and protecting powers, namely priority, durability, convertibility and universality. Reconstituting the code of capital means ensuring that these attributes will work for the many, not merely a few. And the way to do it is to entrench justice objectives and constraints in the very definition, scope, and modalities of subjective private rights. More concretely, this could mean different things. For example, the extent of an attribute could be reduced. A natural starting point would be the redefinition of ownership in less universal and more relational terms.Footnote ¹⁰⁷ A second obvious example is the durability of intellectual property rights. Yet another would be the priority of security holders over general creditors. These are well known battlefields in the politics of private law. A different possibility would be decoupling: perhaps durability is not so bad without convertibility, universality more acceptable without durability.Footnote ¹⁰⁸

Some private lawyers will be quick to point out that we need a more granular understanding of the roles played by these various attributes. Some, and not only common lawyers, will even argue that we can only get it right if we work on a case-to-case basis – which, however, would bring us back directly to where we are now. Therefore, yet another approach to be considered, perhaps the most radical one, would be to formulate principles starting from a different taxonomy, based, for example, a combination of justice principles and the attributes distinguished by Pistor.

Contrary to national civil codes (and to the DCFR) the EPL-code would not provide a comprehensive codification of each of these branches of general private law. Rather, it would limit itself to stating (and constitutionalising) the main principles that should govern the basis structure of these fields of private law, with a view to ensuring substantive equality in the internal market and radically democratic control over it. The remainder, that is the various detailed rules and doctrines, would be left for the national laws of the member states to determine. Put differently, the EPL-code would not provide a comprehensive system of private law, only a partial one. To be more precise, it would contain and provide its basic structure.

As said, such a European private law code would best be formulated as principles, rather than as specific rules, and should enjoy EU primary law (‘constitutional’) status. Ordinary rules of private law (national law and secondary EU law) would then be subject to this limited set of fundamental private law principles.

B. Focus on preventing injustice

Clearly, the starting point for designing the code’s basic structure should be quite a different one from that of traditional civil codes (as well as the DCFR). Its core structure should be determined by social justice considerations. In particular, the focus should be on injustices (social and interpersonal) and how to prevent them.Footnote ¹⁰⁹

This includes, notably, what Judith Shklar calls ‘passive injustice’. As she points out, ‘the free market may, indeed, be as efficient as is claimed, but that does not mean all of its ill effects are above political judgment. Some may be a result of passive injustice’.Footnote ¹¹⁰ It is passively unjust to keep in place a system of private law that enables the creation and accumulation of capital that gives rise to the inequalities and democratic disempowerment we face today.

C. Horizontal human rights

The code should include a catalogue of horizontal human rights. Contrary to what is often thought, horizontal effects of human rights (between private parties) are prior, both historically and conceptually, to their vertical effects (towards the state).Footnote ¹¹¹ Since human rights are rights that we all have towards each other by virtue of our humanity their primary effect is erga omnes. This can be seen most clearly with regard to non-discrimination. The horizontal right to non-discrimination is direct and primary, based on interpersonal justice, not merely derivative from the state’s responsibility for social justice.Footnote ¹¹² While the standard view on constitutional rights in many jurisdictions is that horizontal effects between private parties are indirect, via state action (including the action of the courts),Footnote ¹¹³ and hence derivative, in reality their effect ought to be understood as direct and primary.Footnote ¹¹⁴ Therefore, if the vertical effect of human rights enjoys constitutional protection, as constitutional rights, then a fortiori the direct horizontal effect of human rights should also be constitutionally protected, as horizontal human rights. Instead, in the European legal order today the constitutionally protected status of the direct horizontal effect of its ‘fundamental’ rights is still fragmented, rather than unequivocal and general.Footnote ¹¹⁵

Codifying the direct horizontal effect of human rights would have the additional advantage of sorting out which fundamental rights are in fact protected in interactions between private parties (and vice versa, it clarifies which private rights are constitutionally protected).

There is a wider point to be made. The new limits the EPL-code should impose on the legal coding of capital should be considered as immanent to the system of private rights and obligations. For human rights, as said, this entails that their horizontal effects should be understood as direct and primary effects. Similarly, for abuse of right, for example, it means that the code should adopt the ‘internal theory’ (Innentheorie): subjective rights should be understood as being limited by justice constraints that are immanent to these rights, not imposed in exceptional cases from the outside.Footnote ¹¹⁶

D. No expert blueprints

Since the EPL-code must be radically democratic, academic experts should not be the first to make concrete proposals as to its specific content, let alone present a full draft. Perhaps they could propose some fundamental questions to be addressed, together with some of the main possible answers and their foreseeable implications. However, even this might risk to unduly frame the democratic debate. It is probably best if private law experts get involved only once the main political choices have been made.Footnote ¹¹⁷

A. A European private law code as an agent of global justice

One final question – perhaps the most difficult one – is whether such a thoroughly egalitarian and radically democratic European code of private law, once enacted, could serve as a model for justice in transnational private law. Put differently, could a European code of private law, if done right, be an agent of global justice, taming global capitalism and restoring equality and democracy around the world? As Ugo Mattei put it, ‘if a leading jurisdiction such [as] Europe begins to change its attitude towards lawless capital globalisation in favour of a more social model of economic development, this could be a first move of countertrend away from global hegemony and exploitation.’Footnote ¹¹⁸

The question has two aspects. First, is it realistic to expect that a progressive code of European private law could serve as a global model and set a global standard? This is the external aspect of the realism question that was raised above for internal European socio-economic affairs. The two aspects are related, of course. If the EU does not even manage to tame capital, through a paradigm shift in the role of private law, within its own internal market, then why would any other country be interested in the EU model? And, vice versa, if the EU were able to set a global standard for equality and democracy through private law then it would be much easier for the EPL-code to survive internally as well. It would no longer be a case of protectionism but of hegemony. This brings us to the second question, which is a normative one: supposing the idea of providing a European model for a fundamentally egalitarian and radically democratic private law were a realistic objective to pursue, would it also be legitimate?

B. A Brussels effect?

As to the positive question of whether an EPL-code is likely to become a global model of private law justice, there seems to be reason for caution.

In her illuminating discussion of what she calls ‘the Brussels effect’, i.e. the EU’s unilateral power to regulate global markets, Anu Bradford lists five conditions that must be met for this effect to occur, i.e. market size, regulatory capacity, stringent standards, inelastic targets, and non-divisibility.Footnote ¹¹⁹ Under those conditions, she argues, the EU does not have to do anything except regulate its own market. The effect will occur because private parties (especially multinational companies) will voluntarily adopt the EU’s more stringent standards globally.Footnote ¹²⁰ And, crucially, the result of this external dimension of the internal market is upward regulatory convergence towards a high global standard (i.e. the opposite of a race to the bottom). The most salient example is probably the General Data Protection Regulation (2016).

While an EPL-code, it seems, could easily meet most of these conditions, one stands out as potentially problematic: inelastic targets, where the market actors are non-responsive to regulatory change. As she points out, ‘the Brussels Effect only occurs when the EU regulates inelastic targets, such as consumer markets as opposed to capital. Unlike capital, consumers are not able to flee to less-regulated jurisdictions, compromising the EU’s regulatory clout.’Footnote ¹²¹ This may constitute a problem if the aim of the EPL-code is to re-code capital. To be sure, there is a difference between regulating the capital market, on the one hand, and transforming the private law rules and doctrines on which the creation and protection of various assets, as subjective rights, relies, on the other. And even if an important element of the code were that it would reduce the possibility of choice of law that currently permits firms to shop around for the most favourable private law regime, which would mean that market actors would be barred from voting with their feet lest they forego EU market access, firms would certainly see no reason to apply the stricter EU code also in their dealings outside the internal market. Therefore, it may well be that a Brussels effect is less likely to occur – or is likely to occur only on a much smaller scale – with regard to a code stating principles of general private law (however stringent) than for example with regard to consumer law. Much will depend in practice on whether the code would also reign in (against the CJEU’s established case law on free movement) the freedom for corporations to decide where to incorporate.Footnote ¹²²

C. A benign private law hegemon?

To the extent that an EPL-code could have some external effect beyond the EU, the next question is whether such an externality would be acceptable and should perhaps even be actively sought.

Maybe it would be selfish for the EU to keep a progressive EPL-code for itself instead of offering it to the world as a model. Ugo Mattei asks the question: ‘Is the European civil code only to serve the interests of the Europeans? Alternatively, is Europe a sufficiently strong world power (both in terms of economy and of culture) that its legal system can influence global developments in the present moment of high uncertainty about what path we should walk in the future of world capitalism?’Footnote ¹²³ His answer is that European private lawyers should ‘think worldly’; they should ‘imagine a legal structure of the European market capable of working as a model and consequently serv[ing] the global community and not merely the European interests.’ However, even if this were true (on which below) the question remains of course whether the global community of private lawyers has any reason to ‘think Europeanly’ (again).Footnote ¹²⁴

Bradford is similarly optimistic. She sees the Brussels effect as an opportunity for other countries ‘to outsource their regulatory pursuits to a more resourceful and experienced agency’. On this view, those countries are having a free ride, having their regulatory preferences satisfied at zero costs.Footnote ¹²⁵ Yet, even if we assumed that in this case there existed such a thing as a free lunch, and if the sovereignty concern at the heart of the neo-imperialism critique is ‘unlikely to offer a fatal normative critique to the Brussels Effect’, as she claims, this will be true only if we adopt the consequentialist normative frame of preference satisfaction, that focuses only on outcomes (which may indeed well correspond to regulatory preferences in countries affected by the Brussels effect), and not also on the more deontological concern for political agency (being the co-authors, as a democratic public, of their own laws).Footnote ¹²⁶

D. Political agency

This brings us to the question of political autonomy and agency. In order to be legitimate, for any legal system – including a system of private law – it has got to be the case that its addressees can understand themselves, with good reason, as its co-authors.Footnote ¹²⁷ And when it is argued that a model of private law justice should be judged on its substantive merits rather than on its origins, the important question remains: who should do the judging? Justice is not a matter of mere good outcomes: justice is source sensitive. And social justice has to be grounded in political agency. The people to whom the private law will apply can only decide for themselves, in a truly inclusive democratic deliberation which involves everyone, including especially those at the periphery of society who are least likely to be among the beneficiaries of the code of capital, what the merits are of any model of private law. This is all the more true if a core aim of reconstituting EU private law is to make progress in terms not only of equality but also of democracy. Clearly, democratic control cannot be regained as long as a society is dominated, through the exercise of political-economic power, by another society’s private law code, however progressive and however democratic the means through which it was adopted in that other society (in our case, the EU) might have been.

E. Private law colonialism

It is worth reminding, in this regard, that the civil code, the ultimate symbol of legal modernity and the triumph of legal reason,Footnote ¹²⁸ was also the ultimate symbol of colonial private law that made legal reason instrumental to plunder and enslavement. Colonialism went hand in hand with the spreading of European private law models over the world. And still today, terms like ‘legal families’ and ‘legal transplants’ are used as euphemisms in comparative legal scholarships for what in fact amounts to a form neo-imperialism.Footnote ¹²⁹ Therefore, there is good reason for caution when it comes to the legitimacy of proposing a European code of private law, however progressive it may otherwise be, as a model for the world. The last thing the world needs today, it would seem, is European missionaries going around preaching the merits of their own private law model, especially if the proselytising is in fact backed up (again) by economic-political power.Footnote ¹³⁰

In its most benign form, the idea of the EU offering a model of private law justice to the world relies, implicitly or explicitly, on the notion that there exist standards and principles of justice that are universally valid and the validity of which can be known more or less similarly in different places in the world. However, it has been argued – also with regard to justice – that what may be true in the global north is not necessarily true also in the Global South. This relativistic notion is expressed in terms like the ‘epistemologies of the South’.Footnote ¹³¹ Similarly, I have been referring to the EPL-code as a ‘progressive’ one. However, what if the idea of making progress towards justice through law is a European enlightenment ideal that is itself fundamentally flawed, as was recently suggested by Amy Allen?Footnote ¹³² On the other hand, however, it seems hard to maintain the most radical decolonial critique of modernity without falling into the performative contradiction of offering reasons against reason.Footnote ¹³³

The more important point here is that even if we refuse to give up on the modern project of (self-)critical reason and continue to understand justice as at least in part a matter of universal moral truth (which enables us for example to denounce colonialism, patriarchy and capitalist exploitation as fundamentally and universally unjust), as I think we should, then still it is not obvious, to say the least, that Europe is the natural or best place to look for these truths. There is good reason for caution in this regard because European countries (and more recently the EU) have a long record of confusing justice and morality with their own interests. Therefore, it is entirely understandable, for example, that in many academic disciplines (starting from history) scholars in the Global South have been engaging actively in decentring and provincializing Europe.Footnote ¹³⁴ From the point of view of many countries today the EU is no longer an important normative reference. Put differently, the EPL-code might not even be noted as a global model of private law justice.

A truly postcolonial view on Europe’s role in the world requires strong self-critical reflection on what, if anything, we genuinely have to offer the world – in this case – in terms of progressive private law. Even if other countries are similarly involved – and perhaps much more – in their own struggles against the inequality and the democratic disempowerment imposed by the code of capital, then almost certainly in many cases the specific local needs in different countries as well as the most fitting solutions are very different.Footnote ¹³⁵ Sure enough we should refrain from exercising any copyright, but beyond that it is for other countries to decide whether any elements of a progressive EPL-code might provide a source of inspiration in their own respective struggles for emancipation from the code of capital. Provincializing European private law is an urgent task, but it is not one for Europeans – that would defeat the purpose.Footnote ¹³⁶

Meanwhile, here in Europe we may want to check very carefully whether other countries have any private law models to offer that we may want to borrow from them for our progressive EPL-code. In particular, we could learn perhaps from countries in the Global South, where transplants of the legal modules of the code of capital have been less successful than in countries in the global north. This would require us to understand their experience as instances of successful resistance against the code of capital rather than as failed law.Footnote ¹³⁷ Finally, when it comes to postcolonial private law, it should be added that there are much more direct and legitimate ways of paying our colonial debt, that is, by paying due compensation for colonial plunder and enslavement as required by basic private law principles of unjustified enrichment and restitution.Footnote ¹³⁸