Competition, Effects and Predictability

Rule of Law and the Economic Approach to Competition

Bruce Wardhaugh

• Publisher: Hart Publishing
• Year: 2020
• ISBN:
  9781509926077
• Edition: 1
• Topic: Law
• Subtopic: Antitrust
• Index: Law

In the US and EU, legal analysis in competition cases is conducted on a case-by-case approach. This approach assesses each particular practice for both its legality and its welfare effects. While this analytic method has the merits of 'getting the result right' by, inter alia, reducing error costs in antitrust adjudication, it comes at a cost of certainty, predictability and clarity in the legal principles which govern antitrust law. This is a rule of law concern. This is the first book to explore this tension between Europe's 'More Economic Approach', the US's Rule of Reason, and the Rule of Law. The tension manifests itself in the assumptions in and choice of analytic method; the institutional agents driving this effects based approach and their competency to use and assess the results of the methodology they demand; and, the nature and stability of the legal principles used in modern effects-based competition analysis. The book forcefully argues that this approach to competition law represents a threat to the rule of law. Competition, Effects and Predictability will be of interest to European and American competition law scholars and practitioners, legal historians, policy makers and members of the judiciary.

1

The Rule of Law and Why it Matters

The phrase ‘rule of law’ features prominently in current political and legal discourse. Six months to the day after his inauguration, a major American newspaper criticised the US President for showing contempt for the rule of law.¹ The President of the UK Supreme Court has criticised the popular press for undermining the rule of law in its coverage of the Brexit case.² The European Union has instigated legal proceedings against the government of Poland as a result of the threats to the rule of law posed by the government’s judicial reforms.³ Western governments have spent millions of dollars, pounds and euros over the past decades in an effort to improve the rule of law in developing countries.⁴ This aid is provided with the expectation that, inter alia, it will improve the lives of recipient countries’ citizens by bringing both the intangible benefits of improved governance and the tangible benefits obtained through greater economic development.

In addition to these understandings of the rule of law, there is also a normative element to the concept. The rule of law in its normative sense is a measuring stick by which legal systems, legal regimes and legal acts are evaluated. Hence we can meaningfully speak of the rule of law (as an abstract concept) or how this abstract concept is manifested within a particular legal system, instrument or practice.

As this book is concerned with the rule of law and its relationship to the effects-based approach taken by the US and EU competition regimes, this normative sense is essential to the book’s argument. The argument is that this effects-based approach has a tendency to undermine rule of law values which are reflected in both legal systems. With this in mind, it is appropriate to address the normative understanding of the rule of law in some (albeit limited) detail. A comprehensive discussion of the history or a detailed philosophical justification of a particular conception of the rule of law is well beyond the scope of the mandate of this work.⁵ A more limited discussion is sufficient to provide the appropriate analytic clarity for this work.

The purpose of this chapter is twofold. It first examines the nature of the rule of law. This shows that the phrase is used in three senses, each of which has a distinct connotation. Of concern are two such of these: its use to describe ideal, normative standards, which are used as part of an evaluation of a legal system; and its use to denote positive features of a legal system, which typically have constitutional status. This examination will add conceptual clarity to our subsequent discussion – as far too often imprecise use and consequent equivocation resulting from different meanings of a term can be a cause of muddled thinking.

The second goal of this chapter is to outline briefly why rule of law concerns are relevant. A philosopher or legal theorist may have some intrinsic interest in exploring such ivory tower themes. A competition or commercial lawyer, however, may be interested more in pragmatic concerns, and demand some sort of practical approach to our concern. Consequently a so-called ‘pragmatic’ response to (or dismissal of the relevance of) our analysis may be something on the lines of ‘so what – what does the rule of law matter for the real world?’

The retort is simple: there is a significant body of evidence which suggests that the respect of rule of law considerations by domestic law, particularly in commercial law, facilitates economic activity thereby enhancing the total welfare of the relevant jurisdiction.

Otherwise put, normative rule of law considerations mirror the sorts of expectations which rational beings would regard as conducive for organising their behaviour. These considerations require that principles designed to guide behaviour show consistency through time, be clear in their formulation and application, and that what is expressed in these principles is accurately reflected in the outcomes of the legal system in question. The expectations of commerce are identical. Commercial relationships will thrive where such standards are reflected in the principles governing the trading system. And where the relevant rules are uncertain, unclear or inconsistent, commercial expectations will be thwarted. Rule of law considerations are thus more than ivory tower theories. Establishing this is the second goal of this chapter.

To achieve these two goals, this chapter proceeds as follows. The next, and briefest, section of this chapter considers the rhetorical use of the phrase, ‘the rule of law’. The phrase is frequently thrown around in this rhetorical sense; but as rhetoric, its use in this sense adds little to precise legal analysis of legal systems, institutions and norms. Our analysis is not only for completeness, but also serves as a caveat regarding rhetorical hyperbolae and other misuses of language.

The second section considers normative views of the rule of law. There is no unanimity among legal philosophers regarding its content. However, it is fair to say that these views range from ‘thin’ theories, in which the rule of law consists of a minimal set of formal and procedural guarantees, to ‘thick’ theories which import substantive moral values into the concept. The chapter’s focus is on thin theories, as thicker ones are built upon them. Given that the book’s argument is that the effects-based approach to competition law violates thinner normative understandings of the rule of law, there is no need to consider ‘thicker’ theories.

The third section discusses the rule of law as a principle found in legal systems, particularly those of the US and EU. The normative discussion will show that the rule of law is one virtue of a legal system, and legal systems can incorporate rule of law considerations to varying extents. Thus it is legitimate to ask of a legal system about the extent to which it incorporates this normative good. However, in addition to particular legal systems manifesting this norm, particular elements of that system (constitutional provisions, legislation, decisions, etc.) can also be compared against that norm. This section serves to introduce a point of comparison for the US and EU regimes, through showing their efforts to incorporate rule of law norms. This section thus will provide a point of comparison by which the competition regimes of these jurisdictions can be viewed in an effort to determine the extent to which these competition regimes live up to the internally imposed standards of their jurisdictions.

The fourth section of the chapter considers the practical importance of rule of law considerations in the legal framework of a society. This serves as a retort to those who would otherwise suggest that discussion of such concepts belongs in an ivory tower and as such is divorced from reality. Rather, the contrary is the case. Rule of law considerations, and in particular those identified in the second section as constituting an element of a thin (or formal) theory of the rule of law, are the very sorts of considerations which give rise to commercial certainty. And it is commercial certainty which is a very real concern to those engaged in the planning of those sorts of commercial strategies and transactions which may be regulated by a competition regime.

I.The Rhetorical Use and Abuse of ‘The Rule of Law’

Judith Shklar is perhaps the best-known exponent of this view. She writes:

It would not be very difficult to show that the phrase ‘the Rule of Law’ has become meaningless thanks to ideological abuse and general over-use. It may well have become just another one of those self-congratulatory rhetorical devices that grace the public utterances of Anglo-American politicians. No intellectual effort need therefore be wasted on this bit of ruling-class chatter.⁶

In many respects, this accurately describes much of the contemporary rhetorical context in which the phrase is used.

To the extent that the phrase is used in this manner, and that legal theorists regard the emotive content of the expression as exhausting its meaning, these legal theorists share a similar moral nihilism with the proponents of logical positivism, a philosophical movement of the mid-twentieth century. This philosophical movement sought to analyse (or solve) significant philosophical problems through logical analysis and empirical observation or verification.⁷ So analysed, metaphysical and theological controversies were viewed as meaningless nonsense, since their claims are neither true nor false.⁸ Aesthetic and ethical claims in turn were viewed as statements about the speaker’s subjective emotional state.⁹ So claims such as ‘honesty is a virtue’ or ‘lying is bad’, to the logical positivist, mean nothing more than ‘I prefer honesty’, ‘I dislike lying’ or (otherwise put) ‘hurrah for honesty, and boo to lying!’ Similarly, in Shklar’s sense, rule of law claims merely signify a speaker’s preference (or dislike) for a certain state of affairs. In this use, a rule of law claim that a given practice or legal arrangement violates the rule of law merely expresses opprobrium towards that arrangement.

We will not address this first, rhetorical, sense of ‘the rule of law’ further, save with a caveat. It is mentioned here for completeness, and in so doing to shed light on some of the rhetoric that often finds its way into public discourse on legal and political matters. However, by way of a caveat, we note that given the other senses of the phrase, this rhetorical use of ‘the rule of law’ can be dangerous. The rhetorical use of the phrase can bring with it connotations of the other two senses, which thus imports some degree of normative or legal illusion into the description of the speaker’s subjective mental state. As a rhetorical device it loses much, if not all, of its meaning. Hence in this sense, the phrase is subject to disingenuous use; and as ‘an empty phrase [it is] so lacking in meaning that it can be proclaimed with impunity by malevolent governments’.¹⁰

II.The Rule of Law as a Normative Concept

A.The Rule of Law as Formal Constraints on the Exercise of Power

A constant theme of Western political thought is to determine how one can constrain rulers. We see this theme emerging in Plato’s Republic during its discussion of the nature of the just state; it is echoed in Aristotle, and via late antiquity this theme evolves into those medieval understandings of the nature of law and morality that gave rise to theories of natural law and (to these minds) a necessary link between law and morality.

Modern, liberal understandings of the concept typically start from other foundations. Some start by being focused on the individual, and consider how particular formal legal structures (and possibly substantive rights) can permit individuals to realise values such as autonomy and freedom within a political community. Other such understandings view the need for incorporation of the rule of law into a legal regime as an attempted solution to a Hobbesian problem: how can citizens constrain the sovereign, when the...