Unravelling the Embedded Liberal Bargain: Labour and Social Welfare Law in the Context of EU Market Integration

• Published date: 01 May 2013
• DOI: http://doi.org/10.1111/eulj.12025
• Date: 01 May 2013
• Author: Diamond Ashiagbor

Unravelling the Embedded Liberal

Bargain: Labour and Social Welfare Law

in the Context of EU Market Integration

Diamond Ashiagbor*

Abstract: European economic integration with a minimalist social policy at EU level

was in part made possible by strong domestic labour market and social welfare institu-

tions. The main contention of this paper is that EU market liberalisation was embedded

within institutions of social citizenship at domestic level, which served to counter the

liberalisation of the internal market. But this settlement has been put under strain. In

addition to the challenges posed to the sustainability of European welfare states by the

global economic crisis, the internal market jurisprudence of the Court of Justice casts

doubt on the sustainability of the ‘embedded liberal bargain’. This paper focuses on the

role of the Court, in particular in its jurisprudence on the interaction between (EU)

market freedoms and (national) labour law, which undermines the ability of states to

retain their regulatory autonomy over labour or social welfare law and, arguably, speeds

up the unravelling of the ‘embedded liberal bargain’.

I Introduction

EU market integration was never designed or intended to replace institutions of

social citizenship that existed at the national level. Nevertheless, there was a keen

awareness among the founders of the European integration project of the importance

of national social and welfare systems. It is from this initial observation, an interest

in the approach of the EU and the Member States to the social dimension of trade

liberalisation, that this paper approaches the question of ‘embedded liberalism’ and

the de-territorialisation of labour and social welfare law within the EU—in other

words, how the EU and the Member States have sought to respond to the potential

negative social fallout and the economic insecurity arising from liberalising

previously closed national markets. A central concern of this paper is how the EU

confronted the conundrum of increased economic integration between states, which

had quite differing systems of labour market regulation and welfare models, and how

the original settlement has evolved over time.

* Professor of Law, SOAS, University of London, London, UK. I would like to thank Lizzie Barmes, Judy

Fudge and Claire Kilpatrick for their helpful comments on earlier drafts. All errors remain my respon-

sibility. Some of the research on which this article is based was conducted while holding a Fernand

Braudel Senior Fellowship at the European University Institute in Florence.

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European Law Journal, Vol. 19, No. 3, May 2013, pp. 303–324.

© 2013 John Wiley & Sons Ltd., 9600 Garsington Road, Oxford, OX4 2DQ, UK

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The story of EU integration, as recounted by labour lawyers and scholars of the EU

internal market, is by now familiar.1This paper begins in Part II by exploring part of

this history and the evolution of the European social dimension through the lens of

‘embedded liberalism.’ One can trace a narrative from Ohlin and Spaak2to the Treaty

of Rome, premised on the understanding that the creation of a single market would

not require harmonisation of labour standards. Rather, so I contend, reliance would

be placed on a response mainly at the national level: well-coordinated market-

correcting institutions and the willingness to compensate for market failures. In

surveying the causes of the unravelling of the embedded liberal bargain, the focus of

Part III of this paper is on the role that adjudication may have in framing what forms

of social intervention are legally viable or permissible within the context of market

integration. While we may not look to a court to engage in redistribution, it can

nevertheless curtail the efforts of other actors, and the Court of Justice of the Euro-

pean Union has played an important role in market creation, with a resultant impact

on social and labour market institutions at the national level. Accordingly, the paper

examines the impact of the Court on a redistribution that is typically the preserve of

Member States and national regimes of social citizenship. Part IV makes the argu-

ment that the Court, through its internal market jurisprudence, and in particular

through its activist interpretation of the right to health care and the concept of EU

citizenship, may in fact be constructing a form of social citizenship at the EU level,

which undermines the capacity of Member States to maintain certain social models,

especially corporatist forms. While noting the Court’s reliance on the concept of

‘solidarity’ between Member States, I argue that the individualised conception of

solidarity promoted by the Court serves to undermine expressions of collective soli-

darity within the Member States.

II The Embedded Liberal Bargain

One means by which to understand the response of states, and even of international

organisations, to the challenges of open markets, of trade liberalisation between

market societies, is through the work of Karl Polanyi. Polanyi’s concept of embed-

dedness is central to the thinking of many, in particular those working in the disci-

pline of economic sociology, who seek to challenge economic imperialism, most

especially the assumption of the self-regulating market economy. At the core is the

idea that the market is embedded within the social. However, the concept of embed-

dedness is not very well def‌ined within Polanyi’s major work, The Great Transforma-

tion,3and as Krippner et al. point out, there are ‘clear tensions between Polanyi’s

initial use of the concept and its use today.’4But what we can discern is Polanyi’s

central thesis that:

1P. Davies, ‘The Emergence of European Labour Law’, in W. McCarthy (ed), Legal Intervention in

Industrial Relations: Gains and Losses (Blackwell, 1992), at 313–359; S. Deakin, ‘Labour Law as Market

Regulation: The Economic Foundation of European Social Policy’, in P. Davies, A. Lyon-Caen, S.

Sciarra and S. Simitis (eds), European Community Labour Law: Principles and Perspectives (OUP, 1996),

at 62–93; C. Barnard, EC Employment Law (OUP, 3rd edn, 2006).

2The Ohlin and Spaak Reports, see n 21 below.

3K. Polanyi, The Great Transformation: The Political and Economic Origins of Our Time (Beacon Press,

2001 (1944)).

4G. Krippner, M. Granovetter, F. Block, N. Biggart, T. Beamish, Y. Hsing, G. Hart, G. Arrighi, M.

Mendell, J. Hall, M. Burawoy, S. Vogel and S. O’Riain, ‘Polanyi Symposium: A Conversation on

European Law Journal Volume 19

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