Tatjana Jovanic, PhD Assistant Professor, University of Belgrade Faculty of Law Associate Director, Centre for Economic and Regulatory Law Visiting Scholar, University of Pennsylvania Law School Penn Program on Regulation

Draft, 31-05-2010

THE CONCEPT OF REGULATION IN ADMINISTRATIVE

AND ECONOMIC LAW AND THE EMERGENCE OF THE

LAW OF MARKET REGULATION

Metamorphosis of an academic discipline: from state interventionism,

through Law of Market to Law of Market Regulation

The Law of Market is the Law of Economy. Primary, historical, forms of primitive

markets did not call for special regulation of the market mechanism, due to the fact that

potential conflict of interest existed only between a seller and a buyer, whose economic power

and the level of information was similar. During the Middle Ages, the intervention of the

State had been selective, not anticipating the entire market mechanism. It was mostly limited

to ex post situations, when some among contracting parties failed to perform its obligations.1

In periods of codification of the Law of Contracts and the enactment of the first company

laws and codifications of the civil law, entry of the State into the sphere of an absolute

dominance of the autonomy of will of private parties should not be interpreted as a limitation

of their freedoms, but quite the reverse, as an explicit guarantee of those freedoms to bona

fide parties. Throughout that period, functions of the State amalgamated with interests of the

business associations, like guilds, as it was necessary to limit personal application of

commercial law to those who were entrepreneurs. Otherwise, there was a risk that others

might have misused the granted privileges. The State therefore aided collective interests of the

traders by enacting mandatory provisions representing the public order. However, imperative

1 This limited role of state is often interpreted as the nightwatchman role of a state of the nineteenth century in

the context of Hayek’s opus: F. Hayek: Law, Legislation and Liberty, Vol I, Henley Routledge and Kegan Paul,

1973.

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nature of those provisions and codes did not limit the contractual freedoms, but enhanced

them to create a stable trading framework.

However, a cradle of a modern Economic Law is 'State interventionism',2 an attempt

of a state to eliminate market failures that appeared as a result of the economic crisis of 1930s

and after the Second World War. However, identification of the failures was often provisory,

usually exceeding the boundaries guaranteeing the interest of private parties and the

autonomy of their wills. In the implementation of interventionist measures, including those

which directly affected the business of certain enterprises, the State had deformed the market

to such an extent that, under that form of interventionism known as 'Etatism' the market was

practically suspended. The rationale of the intervention was, surely, the general interest:

economic stability and development. But, similarly to the other projects based on good

intentions, aiming to benefit interest of a broad public, such an overwhelming intervention

failed properly to address the complex problem of governance, as a mechanism of solving the

problem of coordination between a state and private actors.3

Therefore, the modern Law of Market Regulation had to be developed from the ashes

of excessive intervention of the State. If the main priority of the Interventionist era was public

interest in the market environment, then dismantling of such a mechanism called for

affirmation of private interest and restraint of interventionism. This process of limiting the

intervention of the State was marked in Western Europe by deregulation and privatisation.

The central role of the state in regulating the economy was suppressed and displaced.4

However, in the process of Post-Socialist transition, this apotheosis of a private interest has

often led to the reconstruction of a 'Wild Capitalism', with all attributed social conflicts.

However, the role of the Law of Market Regulation is intended to create the framework for a

socially acceptable market economy, by harmonising and interlinking the public and private

interest.5 In Post-Socialist economies, Economic Law as the Law of Market Regulation

should therefore reflect a compromise between the two interests, paving a way for the

2 For an inquiry into the notion of ‘interventionism’ see in particular: M.-L. Pavia, “Un essai de définition de

l’interventionnisme” in: L’interventionnisme de la puissance publique. Études en l’honneur du Doyen Georges

Péquignot, Montpellier, 1984, t. 2., 549. 3 G. F. Schuppert, Was ist und wozu Governance?, 4 Die Verwaltung (2007), 463. 4 P. Genschel, B. Zangl, Die zerfaserung von Staatlichkeit und die Zentralität des Staates, 2007. 5 For a socio-legal comparative analysis of the models of the market regulation in several developed reference

countries see for example: Y. Dezalay, “Between the State, Law and the Market: The Social and Professional

Stakes in the Construction and Definition of a Regulatory Arena” in: W. Bratton, J. McCahery, S. Picciotto, C.

Scott (eds), International Regulatory Competition and Coordination, Oxford, 1996, 59-87.

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establishment of stable market institutions, thus minimising market failures of the anarcho-

capitalist era.

In the period of excessive state interventionism the State proliferated the

administrative regulations in the economic sphere. Administrative actions directly affected the

sphere of a Civil and Commercial Law. Hence, many situations where the state has

constituted mandatory limitations to private freedoms,6 known as ‘exceptions to market

freedoms,’ were interpreted as exceptions to the principle of basic economic freedoms, such

as the right to property and conduct of business. Reference to an ‘exception’ emphasize that

respective right has previously existed, and was subsequently limited. As the extreme liberal

capitalism was founded on the basis of an illusion of extreme individualism, so is the

excessive State interventionism, which glorified the vague public interest, based on an

overwhelming definition of the general interest. This implies a distinction between two types

of relatively delineated legal norms. The first group comprises authentic administrative

provisions of a mandatory nature apparently limiting market freedoms, while the second

group represents rules enhancing the interest of the private parties. Actions of the modern

regulatory State, which nowadays regulates the market, enables business operations and

guarantees the welfare of the society,7 rather than imposes interventionist measures, are based

on those rules which aim to ensure a balance between private interests of individual market

parties and their associations (subjects on the side of supply and demand) and those in charge

of safeguarding the general interest. Opposed to control, the primary role of the modern state

is to oversee the market – using Osborne and Gaebler’s famous metaphor “steering, but not

rowing”, Majone described the modern state as a “regulatory state”.8 The multitude of

interests and regulators is calling for rules which would facilitate harmonization of the private

and public interest. Compromise is to be found in limiting the private interest by interest of a

group, and the group interest by general interest, and vice versa.

From a comparative perspective, in socialist economies or countries which legal

systems are based on a Roman law tradition, the Law of Market Regulation was often an

exclusive branch of a public law, known as the Public Economic Law or the Administrative

6 A. Jacquemin, G. Schrans, Le Droit Economique, Paris, 1982, 57. 7 G. F. Schuppert, “Der moderne Staat als Gewährleistungsstaat” in: Schuppert/Neidhardt (Hrsg.), Gemeinwohl:

Auf der Suche nach Substanz, WZB-Jarbuch 2002, 329; G. F. Schuppert, Der moderne Staat als

Gewährleistungsstaat in: Schröter (Hrsg.): Empirische Policy- und Verwaltungsforschung, 2001, 399. 8 G. Majone, „The Rise of the Regulatory State in Western Europe“, 17 West European Politics (1994), 77; On

the concept of ’regulatory state’ see also: J. Chevallier: „L’État régulateur“, 111 Revue française d’

administration publique (2004), 473-482.

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Economic Law (the Administrative Business Law).9 Its expansion was justified by a need to

raise the entire efficiency of the market, but excessive legislative intervention and command-

and-control measures created compliance burdens to market participants, distracting them

from optimising their business strategies. In such a way, Public Economic Law represented

the antipode of Commercial Law (Business Law). However, it is important to stress out that,

in parallel with Administrative Economic Law, in these countries the Law of the Economy, as

an integral discipline of a mixed public-private nature, existed and faced transformation to

reflect the changes of a role of the state.10

For Public Law of the Economy, limitations of basic freedoms were the rule, but an

exception for private law. Abandonment of an illusion of completely liberal market,

especially in the context of the existing financial crisis, opens a wide sphere of balancing of

individual and joint interests and changes in the role of the executive function. The executive

function, including independent regulatory agencies, represent a basis of the mechanism of

social regulation. The executive branch of the Government and public administration is an

intermediary between the goal of the legal norm and its implementation, while the judiciary

function is essentially a post-regulation. In regulating the markets, the main difference

9 The list is indicative – For Germany see: E. R. Huber, Wirtschaftsverwaltungsrecht, J.C.B. Mohr, Tübingen,

1953; H. Ipsen, Öffentliches Wirtschaftsrecht, J.C.B. Mohr , Tübingen, 1985; H. D. Jarass,

Wirtschaftsverwaltungsrecht, A. Metzener, Frankfurt, 1980; R. Schmidt, Öffentliches Wirtschaftsrecht, Berlin,

Springer Verlag, 1992; W. Frotsher, Wirchaftsverfassungs und Wirtschaftsverwaltungsrecht, C. H. Beck,

Munich, 1994. For France: P. Delvolvé, Droit Public de l’Économie, Dalloz, Paris, 1998; J.-P. Colson, Droit

Public Économique, Paris, 2001; D. Linotte, R. Romi, Services Publics et Droit Public Économique, Litec, Paris,

2001; A.-S. Mescheriakoff, Droit Public Économique, PUF, Paris, 1994; G. Olsoni, L’Administration de

l’Économie, LGDJ, Paris, 1995. Spain: R. Martin-Mateo, F. Wagner, Derecho Administrativo Economico,

Piramide, Madrid, 1977; R. Martin-Mateo, Derecho Público de la Economia, Ed. Ceura, Madrid, 1985; S.

Retortillo Baquer, Derecho Administrativo Economico, La Ley, Madrid, 1991. Italy: C. Bentivenga, Diritto

Pubblico dell’Economia, Giuffre, Milano, 1977; M. S. Giannini, Diritto Pubblico dell’Economia, Il Molino,

Bologna, 1978; P. Jaricci, Diritto Pubblico dell’Economia, Kappa, Roma, 1989; G. Quadri, Diritto Pubblico

dell’Economia, S.E.N. Naples, 1980. Portugal: J. T. Martins, Direito Público da Economia, Coimbra, 1976; C.

M. Pinto, Direito Público da Economia, Coimbra, 1979/1980. 10 Austria and Germany: B. Binder, Wirtschaftsrecht, Viena, Springer Verlag, 1990; W. Fikentscher,

Wirtschaftsrecht, C. H. Beck, 1983; J. W. Hedemann, Grundzüge des Wirtschaftsrechts, Mannheim, 1922; G.

Rinck, Wirtschaftsrecht, Colonia, Berlin, 1977. France: G. Farjat, Droit Économique, PUF, Paris, 1972. Spain:

L. Suarez-Llanos, Derecho, Economia, Empresa, Civitas, Madrid, 1989. Portugal: C. F. de Almeida, Direito

Económico, Lisboa, 1979; A. Menezes Cordeiro, Direito da Economia, Lisboa, 1986; L. C. Moncada, Direito

Económico, Coimbra, 2000; A.C. Dos Santos, M. E. Gonçalves, M. M. Leitão Marques, Direito Económico,

Almedina, 2001.

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between a judge and a regulator is that the judge intervenes ex post, while regulator, as a rule,

ex ante.11

Executive function is charged with a mission to fulfil the goals of regulation. For the

same purpose, regulators may enact implementing legislation and have acknowledged

adjudicative power. In enforcing a legislative framework of the market, administration is

charged with a mission to protect the public economic order and the rule of law and is

expected to fulfil its tasks with a due respect of the principle of legality. As far as executive

function acts in line with its statutory powers, taking an action in line with the applicable rule

formally discharges a regulator from responsibility, but it does not always mean that the

regulator has effectively supported a model of the market which is efficient and capable of

safeguarding the envisaged economic and non-economic effects. In drafting rules regulating

the market, a legislator (including the executive branch in interpreting the statutory

provisions) has to bear in mind that legislation must comprise the element of elasticity, which

would enable the market to function properly in the period of dynamic changes affecting

market participants. Economic sphere is, without doubt, the most dynamic subsystem of a

global society. Therefore, laws and regulations applicable to markets, and regulatory regimes

must be reflexive, and the process of regulation must be based on the evaluation of both

positive and negative effects and incentives it creates for subjects obliged to conform.12

Unlike commercial codes which emerged in the 19th century, the Law of Market Regulation

can not be codified due to the requirement of a high elasticity and hybrid nature of norms, and

as such represents structurally and thematically unarranged set of rules and broader norms.13

Where the Law of Market Regulation has not been established on the basis of

regulation of the market implemented through joint efforts of all market players, and where

the executive function is not obliged to observe the principle of efficiency, this branch of law

is reduced to a set of mandatory provisions which affect functioning of the market through

limitations and mandatory regimes. Regardless of the fact that this was, logically, the way the

modern Regulatory Law has evolved, classical administrative apparatus did not prove to be

capable of fully respecting the principle of efficiency in the process of enforcement and

therefore was accused of hindering the development of the economy. Law of Market 11 B. Arrunaba, V. Andonova, «Market Institutions and Judicial Rulemaking» in: C. Menard, M.M. Shirley (eds):

Handbook of New Institutional Economics, Springer, 2005, 229. 12 On the importance of incentives: R. Posnerm Economic Analysis of Law, Wolters Kluwer, 2007, 374-375; J.

J. Lafont, J. Tirole, A Theory of Incentives in Procurement and Regulation, Massachusetts, 1993. 13 R. Stober, Allgemeines Wirtshaftsverwaltungsrecht, Kluwer, 2008, 19.

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Regulation calls for the application of methods of interpretation, harmonisation and

coordination.14 Hence, it is necessary to enhance the power of the executive branch, especially

the independent regulatory agencies,15 which as experts may develop these methods of

interpretation and coordination through institutional networks, not only at a level of national

economy, but the international level.16 Modern regulators must therefore have acknowledged

operational independence. In order for the regulator to be considered as an 'independent

regulatory agency', in addition to its independent status it is necessary to have the three

following conditions cumulatively satisfied: regulatory powers in terms of legislative and

adjudicatory authority, supervisory authority and a power to take enforcement actions in

supervising regulated entities.17 Such a regulator should not only adhere to the letter of law,

but attempt to balance the legality, efficiency and development, and “fine-tune the

relationship between economic goals and political necessities, with the imperative demands of

the rule of law, justice and legal certainty, what has always been the challenge at the macro

and micro-social level”.18

Obviously, the legal discipline which was previously restrictively defined as a set of

mandatory rules limiting the private autonomy and freedoms of market participants,19 is

facing the problem of proving to be opportune. Mission of law is not to limit market

freedoms, but to guarantee them. Mission of law is not to alter the market structure, but to

preserve market institutions from those tendencies which would distort them and prevent the

market from performing its main economic functions. Mission of law is not to subjugate the

economy to the power of politics, but to protect the economy by preventing the unwanted

effects of laws of the market. Therefore, the Law of Market Regulation cannot be conceived

in light of theoretical approaches interpreting the law as an instrument of state’s monopoly of

power. The interest of market participants to have stable and functioning markets is not only

their private interest, it is the interest of the market itself, and the interest of the State.

However, due to the fact that the development of the Public law of Economy throughout the

14 R. Stober, op. cit., 21. 15 There has been much discussion on the tendency to hive off regulatory functions to independent agencies. M.

Thatcher, “Delegation to Independent Regulatory Agencies: Pressures, Functions and Contextual Mediation”, 25

West European Politics (2002), 125. 16 In that sense see: E. Cohen: L’ordre économique mondial. Essai sur les autorités de régulation, Fayard, 2001. 17 C. Colliard: «Préface» in: C. Colliard, G. Timsit, Les autorités administratives indépendantes, Actes du

Colloque Paris, I, PUF, 1988, 10. 18 Z. Tomić: Upravno pravo – sistem (Administrative Law – System), Beograd, 1998, 141-142. 19 Klaussing: Wirtschaftsrecht, Marburg, 1931, 61.

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history of market regulation appeared to be ‘limiting’ rather than ‘enabling’, it is only since

the wave of privatisations and denationalisations of the 80s that the corpus of Law of Market

Regulation becomes recognized as an economic good.

It is accustomed that, when defining the nature of a certain phenomenon, one initially

attempts to define it within its genus proximum, thereafter pointing to its specific traits. As the

Law of Economy, the Law of Market Regulation may represent a part of the Business and

Law of Commerce, taken in its widest meaning. But it would be false to try to find its place

within traditional public and traditional private law. The Law of Market Regulation

transcends that strict division between the public and private law. It encompasses a vacuum in

between that border, and infiltrates into the sphere of the private law. The whole complex of

Business Law is based on the autonomy of market transactors. In certain segments of that

complex a problem of coordination between the public and the private interest appears as a

problem of proportion, not of the essence. Even in the field of classical Law of Commercial

Contracts, an area where mandatory provisions are exceptions to optional rules, the legislator

had stipulated some obligatory norms with the aim to protect the validity of the contract as

such. Obligatory norms are even more represented in the area of Company Law, where

statuses of companies are determined in a much higher level of ius cogens, although the legal

order supports the right of founders to choose a type of a company. In the field of Market

Regulation the number of obligatory norms prohibiting certain actions or mandating specific

business processes is even higher, but all these norms should be interpreted as specific

regimes equally applicable to market participants who find themselves in a specific market

environment. By creating a general framework through specific regimes, the Law of Market

Regulation appears as a set of rules aimed to protect the public economic order and freedom

of competition. But it does not attempt to do so as a derivative of interest of an endangered

competitor, but in general interest of the national economy. In this sense, the nature of the

norms forming those special regimes is even more mandatory in comparison with the other

areas of the Business Law.

The return of private regulation of the market, followed by new supervisory role of the

administrative apparatus are two parallel processes. This transition clearly emphasizes that the

Law of Market Regulation can no longer be treated as a discipline which exclusively belongs

to the corpus of a public/administrative law.20 It has been enriched with techniques and forms 20 In the preface to his famous book, Ogus clearly emphasized „This book has its origin in a conviction that

conventional approaches to public law and administrative law have failed to address some key issues pertaining

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of private regulation and that is why it is hard to locate this area of positive law (with strong

policy elements) which deals with specific legal regimes and such a modified role of the

State, within disciplinary boundaries known in the legal doctrine and practice. As already

mentioned, this subject used to form a part of a classical Administrative Law, as the

Administrative Economic Law, and in Continental Europe is still predominantly considered as

Public Law.21 On the other side, its complementary part, based on the harmonisation of

private interests, where the State did not have such an active role but was charged with the

mission to protect the freedom of competition, developed as the Law of Competition.

Despite of many changes that occurred during the last decades, branches of public law

in Continental Europe could not completely comprise a new dimension of the action of State

(public administration) as a partner in market regulation, which has a different logic than that

of monopoly in regulation. With the enduring global financial crisis, one may be concerned

about advocating institutional solutions other than a traditional central regulatory authority.

However, the current economic crisis, attributed by many to a lack of central regulatory

vigour, does not diminish the need for the new governance. Completely different, the crisis

calls for proactive regulation. More than ever, the Law of Market Regulation is facing a

challenge of how to alter the incentives of private actors so that they better ensure the public

goal of stable and efficient markets.

By placing Law of Market Regulation within the corpus of Business Law, the scope of

Business Law is broadened with elements of public law.22 Its subject is the market, but not

individual contractual trade relations, but those expressing the interest of the society to

regulate functioning of the market mechanism. But, it would not be appropriate to limit

dilemmas on the nature of the Law of Market Regulation as an independent branch of law and

course of study, only to the problem of locating it within the system of legal branches and

disciplines, as it differs from those in some other features. More than any other legal

discipline, the Law of Market Regulation is characterised by many non-legal (meta-juridical)

determinations. Hence, its existence can not only be tested by comparing it with traditional

to the regulation of industrial and commercial behaviour..“ A. Ogus, Regulation – Legal Form and Economic

Theory, Clarendon Press, Oxford, 1994, Preface. 21 G. Marcou, „Öffentlich-rechtliche Aspekte der Regulierung in Deutschland und Frankreich“ in: A.Benz, H.

Siedentopf, K.-P. Sommermann (Hrsg.): Institutionewandel in der Regierung un in der Verwaltung, Festchrift

König, Duncker & Humblot, Berlin, 2004, 127; J. Massing: Grundstrukturen eines

Regulierungsverwaltungsrechts, Zürich, 2002. 22 G. Farjat, Droit Economique, Paris, 1982, 44-46.

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legal disciplines, as it can not perfectly fit the traditional model of legal branches and

disciplines.23 Transcending the border between the public and the private, Law of Market

Regulation as an autonomous discipline may fill a gap and overcome deficiencies which arise

due to mechanical division between classical private and classical public law, protecting

private or public interests.24 The main argument supporting this thesis is the fact that precise

separation among two interest spheres, generally accepted after the famous definition by

Ulpianus,25 is overridden in practice. Public law and the role of the State in today’s world are

more concerned with individual utility.

Change in the role of administrative apparatus, change in the regulatory processes and

new techniques of regulation have clearly erased the stereotype of a classical division between

administrative and civil law,26 as well as on the international level.27 Most obvious example is

found in the EU, where new modes of regulation, ranging from co-regulation to self-

regulation emphasised the role of private law in the European multilevel regulatory

architecture.28 Classical distinction between the public and private law, pursuant to interest

criterion, is thus superseded. The same is with division based on character or the effect of a

legal norm, differentiating between mandatory and optional. 'Identifying public with

23 K. Meessen, Economic Law in Globalizing Markets, Kluwer Law International, 2004, 89-90; M.-M. Leitao-

Marques, “Le Droit économique entre l’État et le Marché” in: Le droit de l’enterprise dans ses relations externes

à la fin du XXe siècle, Mélanges en l’honneur de Claude Champaud, Dalloz, Paris, 1997, 444. 24 V. Kiraly, “Le droit économique, branche indépendante de la science juridique” in: Recueil d’études sur les

sources du droit en l’honneur de François Gény, tome III: Les sources des diverses branches du droit, Sirey,

Paris, 1934., p. 111. A. C. Dos Santos, M. E. Gonçalves, M. M. Leitão Marques: Direito Económico, Almedina,

2001, 11-15. 25 Publicum ius est quod ad statem rei Romanae spectat, privatum quod ad singulorum utiltatem. 26 C. Parker, J. Braithwaite, «Regulation» in: P. Cane, M. Tushnet (eds), Handbook of Legal Studies, Oxford,

2003, str. 125-126.; D. Oliver, «Pourquoi n'y a-t-il pas vraiment de distinction entre droit public et droit privé en

Angleterre?» Revue internationale de droit comparé (2001), 327.; F. J. Säcker, Regulierungsrecht im

Spannungsfeld zwischen öffentlicher und privater Rechtsdurchsetzung,in: M. Ronellenfitsch, R. Schweinsberg,

I. Henseler-Unger (Hrsg.), Aktuelle Probleme des Eisenbahnrechts XIV, Verlag Dr. Kovac, Hamburg, 2009,

159; H. Woolfe, „Public Law – Private Law: Why the Divide? A Personal View“, Public Law (1986), 220. M.

Freedland, „The evolving approach to the Public/Private distinction in English Law“ in: J.-B. Auby, M.

Freedland (eds), The public Law/Private Law Divide: une entente assez cordiale?, Ed. Panthéon-Assas, 2004, p.

101; D. Oliver, Common Law and the Public-Private Divide, Butterworths, London, 1999. 27 E. Benvenisti: “The interplay between actors as determinants of the evolution of administrative law in

international institutions”, 68 Law and Contemporary Problems (2003), 319. 28 F. Cafaggi, “New Modes of Regulation in Europe: Critical Rethinking of the Recent European Paths” in: F.

Cafaggi, Reframing Self-Regulation in European Private Law, Kluwer Law International, 2006, Preface.

9

mandatory, and private with optional norms has been excessive since legal doctrine has at its

deposal the terms jus cogens and jus dispositivum..».29 Therefore, insistence upon

reintegration of fragments of the inter-disciplinary divided segments of the normative

framework into the general framework which would enable a systematic overview of

regulation of the market, seems to be appropriate.30 The Law of the Economy transcends the

public-private dualism,31 which is commonly associated with liberal political theory.32

Law of the Market within a framework of 'regulatory capitalism'

Central task of the modern Economic Law as the Law of Market Regulation is to

prevent the anomalies of the market mechanism and ensure stable functioning of the market.

Market relationships in a modern economy are more complex than at the beginnings of

capitalism, so are the rules regulating them. Not only that production process has become

more complex, but in addition to subjects of the market on a supply and demand side, many

other subjects emerged. Those subjects and new institutions differ from typical business

enterprises in terms of economic organisation as well as their social function, such as trade

unions, professional associations etc. Even large enterprises and multinational companies

substantially differ from companies which characterized a phase of liberal capitalism by its

organisation, capital, corporate culture and the overall social influence they project. And even

more, regulatory systems became interdependent and a legal framework relating to market

systems may no longer be of a national character.33

An extremely liberal concept of the market, essentially based on a hypothesis of

perfect and competitive market, obviously does not always function in the best and the most

effective way. Therefore it is necessary to identify and correct deficiencies, with other words, 29 V. Vodinelić: «Razlikovanje javnog i privatnog prava», 5 Annals of the Faculty of Law of the University of

Belgrade (1982), 657, p. 670. 30 On the systemic character of the Law of Market Regulation see: M. Ortino, “The Notion of Economic Law and

Regulatory Competition” in: K. M. Meessen, M. Bungenberg, A. Puttler, Economic Law as an Economic Good –

Its Rule Function and its Tool Function in the Competition of Systems, Sellier, 2009, 103. 31 D. Truchet, „La distinction du droit public et du droit privé dans le Droit Économique“ in: J.-B. Auby, M.

Freedland (eds), The public Law/Private Law Divide: une entente assez cordiale?, Ed. Panthéon-Assas, 2004, 57. 32 P. Cane, „Public Law and Private Law: A Study of the Analysis and Use of a Legal Concept“ in: J. Eekelaar,

J. Bell (eds), Oxford Essays in Jurisprudence, Third Series, Clarendon Press, Oxford, 1987, at 57. 33 D. Lazer, „Regulatory Interdependence and International Governance“ 8 Journal of European Public Policy

(2001), 474.

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to solve a problem of negative effect of market failures, what is often interpreted as an

interference of the State in certain activities of private parties.34 This approach supports the

intervention only when it is necessary to solve the problem of typical market failures such as

negative externalities, moral hazard, imperfect competition, natural monopolies etc.35 «Where,

then, market failure is accompanied by private law failure... there is a prima facie case for

regulatory intervention in the public interest».36 Traditional justification for intervention is

often based on market failures which are apt to disable perfect competition. As often

emphasised in economic theory: competition whenever possible, regulation only when it is

really necessary.37 However, market liberalisation, its deregulation and substititution of

regulation with ‘competition’, although caused weakening of the interventionist role of the

State, did not imply that state decided not to regulate the economy. ‘Deregulation’ is an

elusive concept, but its essence is the process of reducing state control over an industry or

activity to make it structurally more responsive to market forces.38 Essentially, deregulation of

the market strengthened regulatory role of the state,39 and created a paradox that the role of

State is limited – but this actually augmented the statutory regulation.40 Regulation of a

modern Market does not represent a self-denial of the role of the State, but State's attempt to

discover the most appropriate means of influencing markets and its participants to achieve

socially acceptable goals.41 Hence, the concept of 'Regulation' of the Market must be

doctrinally neutral, somewhere in a broad vacuum between extremes of Marxist Scylla and

Adam Smith’s Charybdis.42

34 B. Mitnick, The Political Economy of regulation, New York, 1980, 2, 7. 35 J. Kay, J. Vickers, «Regulatory Reform: An Appraisal» in: G. Majone (ed), Deregulation or Re-regulation –

Regulatory Reform in Europe and the United States, 1990, 221-226. 36 «Where, then, market failure is accompanied by private law failure... there is a prima facie case for regulatory

intervention in the public interest». A. Ogus, Regulation – Legal Form and Economic Theory, Oxford, 1994, 30. 37 J. Kay, J. Vickers, op. cit. 38 R. Baldwin, C. McCrudden (eds), Regulation and Public Law, Weidenfeld and Nicholson, London, 1987, 24. 39 R. Cranston, «Regulation and Deregulation: General Issues», 5 University of New South Wales Law Journal

(1982), 1. 40 G. Majone, „The Rise of Statutory Regulation in Europe“ in: Regulating Europe, Routledge, London, 1996, p.

54. 41 T. Daintith, «Regulation», International Encyclopedia of Comparative Law, Vol. XVII, Martinus Nijhoff,

1997, Ch. X. 42 C. Champaud, «Régulation et droit économique», Revue Internationale de Droit Économique, Vol. 16, No. 1,

(2002), 23, at p. 46.

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Obviously, private law alone is not sufficient to regulate such heterogeneous

relationships. The relative social importance of specific markets may not be equal as well.

Therefore, the process of regulation of specific markets, without doubt, may not be equal, but

this does not mean that private interest or interest should prevail over general interest or the

reverse scenario. When the object of the Economic Law is a fragmented, economically

inefficient structure, dominated by one or the other interest, leading idea should be market

rehabilitation. Domination of private dimension and industry capture leads the economy to

cyclical flows, while the dominance of public dimension and politically allied considerations

in the regulatory process, on the basis of existing practices, inevitably lead to market

inefficiency and underperformance of the economic system. That is why is highly desirable to

insulate of the task of administering regulatory regimes from the vagaries of politics in order

to reduce the likelihood that decisions will be made for short-term political gain and thus

threaten the quality of regulatory decisions.43

In addition to institutional limitations of a modern market (as Public Law of the

Economy), its initial subject matter, modern Law of Market Regulation has one other

dimension as well: integration of social rules in different and heterogeneous areas of the

economy and its delicate balancing. Essentially, a public economic order (fr. l'ordre public

économique - OPE) has two main domains of action: 44 1) the public order of direction (OPE

de direction) and 2) the public order of protection (OPE de protection) which represents a

higher level of protection of the market and its participants than the order created by norms

belonging to the corpus of private law. The first domain implying those institutional

limitations is not generally accepted, but nowadays represent the essence of the modern

Economic Law, its dimension known as Regulatory Law, which is emerging in Continental

Europe, either as a metamorphosis of Administrative Economic Law or as meta-juridical

upgrade of the Law of the Economy (Law of Market).45

43 R. Baldwin, C. McCrudden (Eds.), op. cit., 4-6. 44 G. Farjat, op. cit., 50-55. 45 M.-A. Frison-Roche, “Le droit de la régulation”, Recueil Dalloz, 2001, 610; S. Lorenzmeier, R. Schmidt,

“Public Economic Law as the Law of Market Regulation” in: K. M. Meessen, M. Bungenberg, A. Puttler,

Economic Law as an Economic Good – Its Rule Function and its Tool Function in the Competition of Systems”,

Sellier, 2009, 115; M. Döhler, “Das Modell der unabhängigen Regulierungsbehörde im Kontext des deutschen

Regierungs- und Verwaltungssystems” 34 Die Verwaltung (2001), 59.; J. Massing, “Stand und

Enwictlungstendwensen eines Regulierungverwaltungsrechts”: H. Bauer, P.-M. Huber, Z. Niewiadomski

(Hrsg.), Ius Publicum Europaeum, Boorberg, Stuttgart 2002, 161.

12

The essence of modern Economic law cannot be understood without simultaneous

overview of the consistency of other disciplines of Business Law and other branches of law.

The Law of Market Regulation has appropriate goal function – matching the economic

efficiency criterion directly with principle of legality.46 That is why, in its broadest sense

including the study of the regulatory process itself, the Law of Market Regulation has a meta-

positive, interdisciplinary and multidisciplinary nature. In addition to its main subject matter,

the overall framework of the economy, both legal, as well as non-legal affect its goal function.

Every legal provision is specific in its essence, determines a specific behaviour of transactors

in a given situation when there is a possibility that functions attributed to the market may be

jeopardized. The spirit of such a provision, belonging to the corpus of the rules on market

regulation, may be discerned only by an integral knowledge of all legislative acts tackling the

relevant situation. The Law of Market Regulation is thus formally much narrower than other

legal disciplines, as for example, Law of Obligations. It does not encompass all rules and

limitations through which participants relate, however, on the other side, in terms of its

subject it is wider than that of other legal disciplines. Law of Market Regulation is charged

with a mission to coordinate harmonization of their normative subjects. But not in a way to

scrutinize a consideration of an individual contractual relationship, but the social

consideration which equals the optimal functioning of the market, which in return

demonstrates the efficiency of laws.47

Besides its strong policy component, the Law of Market Regulation is also a

normative discipline, focusing on the legal framework set out to achieve the balance of the

totality of economic life and to ensure its dynamic stability by its coordinatory role.

Therefore, the Law of Market Regulation does not encompass all norms which are regulating

the economy, but those which main goal is to ensure that market participants enter into

agreements which enable them to fulfil their interests, but in the same time to preserve the

interest of the other parties and the general interest. The goal-oriented nature of that rules of a

systemic character is explicit, as they refer to specific market situations. Because of that

attribute they represent tools aimed to achieve single ultimate goal: a prevention of market

deformations. In this respect, legal norm represents a stabilising instrument of the economic

policy.48

46 S. Taboroši, Ekonomsko pravo (Economic Law), Beograd, 2003, 20. 47 M.A. Frison-Roche, L’idée de mesurer l’efficacité économique du droit,” in: G. Canivet, M.-A. Frison-Roche,

M. Klein, Mesurer l’efficacité économique du droit, LGDJ, 2005, 17. 48 T. Daintith, “A Legal Analysis of Economic Policy”, 9 Journal of Law and Society (1982), 191.

13

As central sphere of action of the Law of Market Regulation are market relationships,

immediate social effect of norms which implementation is in its focus, is a modification of the

laws of market. To modify market forces but not to replace them, because it is necessary to

neutralise or reduce the intensity of those tendencies which lead to permanent changes in

market institutions and hamper development of market functions. Such an action may

immediately alter functioning of the market mechanism, but not sporadically, on a case-by-

case basis, but through permanent and democratically accepted solutions. The State and a

legal system may slow down development of the economy in accordance with its inherent

market forces, as may accelerate it, but can not paralyse it or determine the other way,

contrary to market forces, without harming the market. Economic factor is primary and

decisive. The spirit of Economic Law is guided by an idea that it is a “servant of the economy,

and not its master”.49

The Law of Market should ensure consistency, unity and absence of discrepancies in

the process of market regulation. Because of its goal function, this discipline differs from

other disciplines and classical Administrative Law as taught in Continental Europe,50 but is

much closer to Administrative Law as known in common law systems.51 That differentia

specifica between the Law of Market Regulation and Administrative Economic Law is the

concept of 'Regulation' – which imply that legal rules do not only have an imperative

character, but, to a certain extent, character of incentives directing the behaviour in a way that

socially accountable. The role of law is not only to order or ban, but to create incentives, to

direct, and harmonise interests at stake. The concept of ‘Regulation’ is much broader than its

usual interpretation in a classical economic literature,52 although one may, hopefully, observe

that in a modern economic theory, ‘regulation’ is nowadays being interpreted in a broader

49 C. Champaud, „Contribution à la définition du droit économique”, Recueil Dalloz, 1967, at 219. 50 On relation between Regulation and Administrative Law in French theory see: J.-B. Auby, „Régulation et droit

administratif“ in: Mélanges G. Timsit, Bruylant, 2004, 209. 51 P. Cane, “Administrative Law as Regulation” in: J. Braithwaite, N. Lacey, C. Parker, C. Scott (Eds.),

Regulating Law, Oxford University Press, 2004. 52 For example: J. High (ed), Regulation: Economic Theory and History, Ann Arbor, 1991; A. E. Kahn, The

Economics of Regulation, Principles and Institutions, Vol. 1, Economic Issues, 1988; B. Mitnick, The Political

Economy of Regulation, 1980; B. Owen/, R. Braeutigam, The Regulation Game, Strategic Use of the

Administrative Process, Cambridge, 1978; C. Phillips, The Regulation of Public Utilities, Theory and Practice,

1993; J. Q. Wilson, The Politics of Regulation, New York, 1980; K. Viscusi, J.-M. Vernon, J. E. Harrington,

Economics of regulation and antitrust, MIT Press, 2001. For an overview of general classical academic literature

on Regulation see: R. Baldwin, C. McCrudden: op. cit., p. 332-333.

14

way, beyond market failure, beyond economic theory of politics and beyond command-and-

control.53

Public regulation of the market economy consists of legislative and administrative

measures by which the state, or an entity to which it delegates, determines, controls or

influences the behaviour of economic agents in order to prevent behaviour which could harm

legitimate interests of the society.54 Public or private, the aim of regulation is to enable co-

existence of legitimate interests of participants in specific economic sectors and the market in

its totality.55 Narrower definitions of regulation centre on attempts by state to influence

socially valuable behaviour by establishing and enforcing legal rules. In that sense, somewhat

narrower, it would be appropriate to define ‘Regulation’ as a modality or type of participation

of the state in institutional operations and alternative to other modalities.56 But, the social

essence of the notion ‘regulation’ is its social nature – it belongs to all market factors, not

only to the state, therefore regulation is a divided function.57 For this reason, skipping its legal

determination and defining its techniques of regulation could override doctrinal differences

about the concept of regulation.58 Or, to define the process of regulation by its three elements:

the setting of standards, rules or other norms; monitoring or determining feedback for

compliance with the norms; and some mechanism for realignment of behaviour which

deviates from the norms.59 However for the purposes of understanding the emerging Law of

Market Regulation, it would be necessary briefly to refer to a notion of ‘regulation’ in a sense

appropriate to the emerging discipline and without ambitions to engage into its various

interpretations.

53 In this respect it is worth pointing to an excellent book by E. Balleisen, D. Moss (eds), Government and

Markets – Toward a New Theory of Regulation, Cambridge University Press, 2009. 54 A.C. Dos Santos, M. E. Gonçalves, M. M. Leitão Marques, op. cit., 191. 55M.-A. Frison-Roche, “Définition du droit de la régulation économique” in: M.-A. Frison-Roche, Les

regulations économiques –légitimité et efficacité, Vol. 1, Presses de Sciences Po et Dalloz, Paris, 2004, 7. 56 A. Jemmaud, „Normes juridiques et action“ in: M. Maille (ed.): La regulation entre droit et politique, Éd.

L’Harmattan, 1995, 95, at. p. 97. 57 G. Marcou, „Introduction“ in: G. Marcou, F. Moderne, Droit de la régulation, service public et intégration

régionale, L’Harmattan, Paris, 2005?, 21. 58 In this regard, followed by the analysis of economic policy and political sociology: B. Du Marais, Droit public

de la régulation économique, Presses de Sciences Po et Dalloz, 2004, spec. p. 483-484. 59 C. Scott, “Self-Regulation and the Meta-Regulatory State” in: F. Cafaggi: Reframing Self-Regulation in

European Private Law, Kluwer Law International, 2006, 131, at p. 132, referring to: C. Hood, H. Rothstein, R.

Baldwin, The Government of Risk, Oxford University Press, 2001.

15

For a long time, the notion of ‘regulation’ was used as a synonym for ‘legislation’ (in

French réglementation, in German Regelung),60 as legal rule or the activity of legislating.61

And that distinction between a narrow concept of regulation as legal or at least legally

sanctioned rule-making and a broader conception of regulation has lead to all sorts of

conceptual misrecognitions and confusions.62 Concept of regulation is a scientific paradigm,

which was adopted in social sciences later than in natural sciences. On the basis of a notion of

‘regulation’ in natural sciences,63 professor Frison-Roche rightly observes that the essence

(‘acrobatics’) of Regulatory Law is to “maintain an equilibrium between the contrary

necessities,” as well as to construct and promote such equilibrium.64 The idea of regulation as

a dynamic process without doubt comes from cybernetic theory. Therefore regulation is the

process which encompasses a command, communication, through which external system’s

reaction may be detected, and the feedback between the system and its environment.

Regulation is needed to ensure the existence of organised systems in line with their own logic,

their exchange with the environment and their adaptation. The regulation is therefore the

process of adaptation of the system – it is a key element of the systems theory, aiming to

maintain the equilibrium of autopoietic systems. Regulation implies that it is possible to

balance a unity of heterogeneous elements, hence implies that it is possible to ensure harmony

of interests, from individual to collective.65 Hence, the regulation is a process of a systematic,

legitimate, influence on subjects and events, through combination of ordering devices and

mechanisms,66 a purposive attempt to influence and control economic and social activity.67

The necessity to take into consideration the interest which is different from that of

enjoying basic freedoms, such as right to property and freedom of contract, was a basis for the

60 However, in the broad sense régulation (French), Regulierung (German). 61 For an excellent overview of semantics of a notion of ’regulation’: A. Jemmaud, „Introduction à la sémantique

de la régulation juridique“ in: Les transformations de la régulation juridique, LGDJ, Paris, 1998. 62 N. Walker, “Epilogue: On Regulating the Regulation of Regulation”: F. Cafaggi, Reframing Self-Regulation

in European Private Law, Kluwer Law International, 2006, 347. 63 For an excellent overview of concept of “Regulation” in natural and technical sciences see: A. Lichnerowicz et

al., L’idée de régulation dans les sciences, Ed. Maloine-Doin, Paris, 1977. 64 M.-A. Frison-Roche, “Le droit de la régulation”, Recueil Dalloz, 2001, 601, at p. 613. 65 J. Chevalier, „De quelques usages du concept de régulation“: M. Maille (ed), La regulation entre droit et

politique, Éd. L’Harmattan, 1995, 71, at. p. 87. 66 In light of the approach adopted in: C. Parker, J. Braithwaite “Regulation”, P. Cane, M. Tushnet (eds), The

Oxford Handbook of Legal Studies, Oxford University Press, 2003, 119, at p. 119. 67 B. Morgan, K. Yeung, An Introduction to Law and Regulation, Cambridge University Press, 2007, at p. 1.

16

determination of the Law of Market in a sense of limitation of freedoms. As well, this was the

underlying argument for the interpretation of a concept of ‘regulation’ of the market in

Continental Europe, where the concept of regulation was, for a longer period of time, masked

by the interventionist role of the State.68 But, this definition is problematic for at least two

reasons. At first, because direct interventionism is not an appropriate concept, as the essence

of the Law of Market regulation is the process of regulation,69 which imply coordination and

balancing, and not a supremacy of public interest over the private, neither a demonstration of

government’s imperium in solving problems of negative external effects. Secondly, limits the

law imposes on market participants do not limit market freedoms, but guarantee them by

preventing the abuse of private rights. And finally, a guarantee of market freedoms, not their

limitation, implies that state is limiting itself and the administrative apparatus, which

rulemaking and adjudicatory actions are confined by applicable substantial and procedural

rules. For sure, this limits state's voluntarism.

On the other side, dynamics of economic development justifies a necessity for the

existence of Law of Market Regulation to codify numerous partial changes of rules regulating

markets, in a different way then classical legislative function does. There are many arguments

supporting a conclusion that the Law of Market Regulation is an expression and result of

regulation, the framework which directs behaviour and creates incentives. As traffic signs

regulate road traffic with a wide range of signs of prohibition or of informative nature, not

every sign has the character of a rule that triggers sanction.70 Law of Market Regulation, as

regulation of market circulation, presupposes that rules themselves are created through a

continuous social compromise.

This balancing of partial interests and the general interest to preserve the order of

capitalism is in the essence of the 'regulatory capitalism'.71 That process of social interactions 68 C. Champaud, op. cit., p. 23; M. Mohammed Salah, “Les transformations de l'Ordre Public économique. Vers

un Ordre Public régulatoire?” in: M.-A. Frison-Roche (ed.), Philosophie du Droit et Droit Économique

(Mélanges Farjat), Paris, 1999, 269. 69 Or, the process of regulation is its object as a prominent French author stated: M.-A. Frison-Roche:

“Définition du droit de la régulation économique” in: M.-A. Frison-Roche (ed), Les régulations économiques:

légitimité et efficacité, Dalloz, Paris, 2004, str. 7. 70 For an excellent overview of controversies of the use of legal rules in regulatory policy: J. Black, „Which

Arrow: Rule Type and Regulatory Policy“: D. Galligan (ed), A Reader on Administrative Law, Oxford, specially

p. 166-67. 71 D. Levi-Faur, “The global diffusion of regulatory capitalism”, 598 Annals of the American Academy of

Political and Social Science, (2005), 12.; J. Braithwaite, Regulatory Capitalism – How it works, ideas for making

it work better, Edward Elgar, 2008.

17

is more complicated than a democratic hearing in the legislative process, because it assumes

multiple manifestations of immediate regulatory activities of state, para-state and private

institutions.72 Moreover, the regulatory process more and more infiltrates in the private law

domain and enhances the role of private actors in the process of regulation.73 Privatisation of

regulation supports thesis that the Law of Market Regulation can not be divided into the

'public' and 'private' sphere.

Internalisation of regulatory function at the level of market subjects, instead of direct

interventionism signifies that regulatory process became decentralised through heterarchial,

hybrid, relationship, a collaborative governance, between public administration, the regulated

and the stakeholders.74 This idea of internalisation evolved from autopoietic theories of law

which have been derived from systems theory, and place greater emphasis on the evolving

nature of regulatory strategies and role of private parties in developing the regulatory

framework.75 The basis of this idea of evolving strategies, which is known as

'proceduralisation of regulation'76 is the assumption that goals of legal norms may be fulfilled

by creating incentives, instead of relying only on the command-and-control technique,

through proactive regulatory intervention and reflexive elements.77 Although in the era of

regulatory governance the law seems to have a marginal role,78 the Law of Market Regulation

calls for the 'new public management' in implementation and enforcement, based on

interactions between market institutions, non-governmental organisations and organisations

established to protect the private interest, under coordinatory role of the administrative

72 G. Becker, “A Theory of Social Interactions”, 82 Journal of Political Economy (1974), 1063. 73 F. Cafaggi, „Le rôle des acteurs privés dans le processus de régulation: participation, autorégulation et

régulation privée“ in: La régulation, noveaux modes? Noveaux territoires, Revue française d’ administration

publique, 2004, 23. 74 J. Freeman, „Collaborative Governance in the Administrative State“ 45 UCLA Law Review (1997), 1.; J.

Black, “Decentring Regulation: Understanding the Role of Regulation and Self-Regulation in a post Regulatory

World”, 54 Current Legal Problems (2001), 103. 75 G. Teubner, Autopoietic Law: A New Approach to Law and Society, Walter de Gruyter, Berlin, 1988; G.

Teubner, “Regulatory Law: Chronicle of Death Foretold”, 1 Social and Legal Studies (1992), 451, str. 463; H.

Willke, “Societal Guidance through Law?” in: G. Teubner, A. Febbraio (eds), State, Law, Economy as

Autopoietic Systems (European Yearbook on the Sociology of Law), Milano, 1992, 353-388. 76 J. Black, “Proceduralizing Regulation: Part I”, Oxford Journal of Legal Studies, Vol. 20, No. 4 (2000), 597. 77 G. Teubner, “Substantive and Reflexive Elements in Modern Law»”, 17 Law and Society Review (1983), 239. 78 E. Fisher, Risk Regulation and Administrative Constitutionalism, Hart Publishing, 2007, 17.

18

apparatus.79 With other words, the law is calling for the involvement of other regulatory

actors by regulating the basis for their involvement.80 Such new public management leads

towards a new governance compromise, which includes a process of negotiating a law co-

existence of various private and public instruments of regulation.81 And further, a responsive

regulation.82

Modern Law of Market Regulation has an important policy dimension: it pays

attention to new ideas for better policy making, setting the agenda for research into new

methods of delegated governance in regulating the market. Based on such a social ‘concert’ of

regulators,83 the Law of Market Regulation shall not accept the status quo represented by

conventional forms of command-and-control regulation, but goes further in search for better

solutions and identification of surrogate regulators and tools of new governance. An integral

Law of Market Regulation would aim to leverage the private sector and encourage the

internalisation of the compliance process.84 However, delegation of responsibilities to private

parties raises questions about transparency and accountability of modern polycentric

regulatory regimes.85 Since the government would be blamed for the failure of a delegated

governance system, more attention needs to be given to questions of implementation and

accountability. But the power in the “regulatory state” is now fragmented, spread between

public, private and hybrid actors. Hence, the role of traditional public accountability

79 The literature is considerable. For example: C. Hood, C. Scott, Bureaucratic Regulation and New Public

Management in the UK: Mirror – Image Developments? London School of Economics, London, 1996; P. Bayne,

Administrative Law and the New Managerialism in Public Administration”, 62 Australian Law Journal (1988),

1040; C. Harlow, “Back to Basics: Reinventing Administrative Law”, Public Law, 1997, 245; A. Vokβkuhle,

“Neue Verwaltungsrechstswissenshaft” in: W. Hoffman-Riem, E. Schmidt-Aβmann, A. A. Vokβkuhle,

Grundlagen des Verwaltungsrechts, Vol I, München, 2006, 21. 80 L. McDonald, „The Rule of Law in the ’New Regulatory State’“, 33 Common Law World Review (2004), 33. 81 A. Pirovano, Changement Social et Droit Negocié, Economica, Paris, 1988, p. 5. 82 In this respect see the seminal book: I. Ayres, J. Braithwaite: Responsive Regulation, Oxford University Press,

1992. 83 M. M. Leitão Marques, A. Casimiro Ferreira, „A concertaçao económica e social“, Revista Crítica de Ciências

Socialis, 1991, 31. 84 C. Coglianese, J. Nash, Leveraging the Private Sector: Management-Based Strategies for Improving

Environmental Performance. Washington, D.C., Resources for the Future Press, 2006; J. Freeman, “The Private

Role in Public Governance” 75 New York University Law Review (2000), 543. 85 J. Black, “Constructing and Contesting Legitimacy and Accountability in Polycentric Regulatory Regimes”, 2

Regulation & Governance (2008), 137.

19

mechanisms characterizing hierarchal regulatory structure are diminishing and being replaced

by broader and more complex “accountability networks”.86

Balancing of confronted interests of market participants to preserve the

market

The essential characteristic of the Law of Market Regulation, which differentiates it

from interventionist administrative measures, is the respect of the autonomy of market

participants. It is important to stress out that it does not attempt to replace the independence of

will of market participants. Specific legal regimes only alter the scope of terms and conditions

in the decision making process of each of them, but without any discrimination.

As the Law of Market does not deal with compensation of damages (as removal of

consequences of individual contracts), but general prevention and coordination, it does not

rely on the evidence of individual circumstances, but on the overall analysis of the appropriate

legal instruments and identification of those powers of market participants which could

jeopardize the public interest represented in efficient market. Market participants enter into

contractual or non-contractual relationships in the pursuit of their own interests, but a specific

regulatory regime alters their behaviour in a way which ensures consideration of the

appropriate limitations. In a resultant of the force of those limitations we may see a

compromise between private, partial, interests and a long-term general interest to preserve

institutions of the market. Considering these institutional limitations as an objective

framework within which they enter into agreements, in making decision on every single

transaction contractors build in their final motive, profit, and the minimal but necessary limit

which would enable them to respect the interest of third parties and the interest of a society.

Being formulated ex ante, limitations imposed by specific regulatory regimes result in

prevention of conflicting situations, such a framework contributes to the achievement of a

legal certainty.

Contrary to market participants which are subjects of rights and obligations, the

market is depersonalised and does not have its own will which could counterweight the other

will. The role of law in regulating the economy is to create synergies with rules of the market.

The Law of Market Regulation should, thus, represent an agent and a patron of laws of the

86 C. Scott, „Accountability in the Regulatory State“, 27 Journal of Law and Society (2000), 38.

20

markets, which transactors may not be aware of, but are strengthening essential elements of

modern capitalist economy.

As the function of law is in general, the Law of Market Regulation should prevent

conflicts which arise due to unclearness and inconsistencies in the protection of private

interests and, releasing market participants from transaction risks, create a stimulus for safe

and continuous business. This raises a value of social welfare. In this context, to define social

essence of the Law of Market Regulation we have to describe it as the group of norms,

regulatory instruments and techniques of regulation aimed to advance the market efficiency

through limitations, directions and incentives, sanctioning the behaviour of subjects which in

their opinion may be economically legitimate, but in its totality decreases the level of social

welfare in comparison with the level which could be achieved should the private autonomy be

restricted to a certain extent.

Despite of appearing simplicity of a problem of creating effective preconditions for

the appropriate functioning of markets, problem of regulation and governance must be treated

by a more subtle mechanism. Goals of regulatory activity must undoubtedly reflect general

interest: eventual conflict must be realistic and able to create serious distortions of market

functions or causing permanent deformations to the market mechanism.87 Existence of general

interest, non-discrimination and proportionality, are basis for an evaluation of social values of

legal norms and conduct of the administration in the regulatory process. When there is a

particular trade-off between economic efficiency, on one side, and justice and fairness on the

other side, the goal of regulation in the public interest is interpreted as ‘socially efficient use

of scarce resources’.88 General interest determines the goal of regulators: maximisation of the

welfare of a society in its totality. This means that regulatory strategy is tailored in line with

public interest, in creating optimal environment for supply and demand sides, that is to say to

balance conflicting interests.89 Regulatory process is therefore linked to various broad

87 Despite of eventual differences, the general interest in preserving functions of the market in all market

economies has simillar characteristics: K. Oettle, “L’intérêt général dans les différents systèmes d’économie de

marché” in: H. Cox (Ed): Services publics, missions publiques et régulation dans l’Union Européenne, Paris,

Pedone, 1997, 165. 88 Den Hartog, “General theories of regulation”, in: B. Bouckaert, G. De Geest (ed.), Encyclopedia of Law and

Economics, Volume III, The regulation of contracts, Edward Elgar, 2000, 223, p. 231. 89 In light of Peltzman’s attempt to modify Bernstein’s capture theory (M. H. Bernstein: Regulating business by

independent commission, Princeton, 1995), stating that the full capture of regulators by one interest group is not

realistic, as it could initiate the opposition of the others. Therefore, the regulatory process is based on the

21

strategies, including rules of a different kind and an array of adjudicative processes and

arrangements, characterised with ‘nodal’ role of a regulatory state. The linkage of process to

strategy is inevitably close, and therefore it would be difficult to claim legitimacy for a

process if the overall strategy is not legitimate.90

Before a modern Economic Law evolved into the Law of Market Regulation,

regulatory actions of the State in the field of economy could have been conceived as

limitations of individual freedom, and of a freedom of the market. As an example,

nationalisation of a company essentially limits the freedom of transaction, but also decreases a

level of competition on the market. By inertia, it could be observed that functions of the Law

of Market are attained by limiting authorities of the private sector, but this view, accustomed

in legal and economic doctrine, is truly incorrect from a socio-legal standpoint. Limiting the

freedom of contract for some participants is exactly guaranteeing of freedom for the others. It

would be much more opportune to claim that that limitations help to establish a rule of law on

the market, instead of a rule of the market power of one or several market participants. The

rule of law in no way precludes the dominance of entities with high market power, as the law

has to reflect the reality, but sanctions the abuse of power. The law does not act contra

oeconomiae, as the inherent, egoistic, trait of a company is to grow and eliminate competitors.

To forbid an attempt to conquer competitors would mean that economic development will be

stopped. It is enough to recall those statutes and professional codes to make it clear how a

normative framework of the modern market represents a complete negation of such

conservative standards. But the law has to save the spirit of market and the essence of market

relationships by guaranteeing freedom of competition and freedom of entrepreneurship, and to

facilitate freedom of market development when basic freedoms are endangered by

autonomous processes of the market itself.

Freedom of the market may be compared to a peak of an ice-berg, which main part lies

under the surface. The Law of Market Regulation does not apply to individual terms and

conditions of the contract, but social impact of the contract, the objective situations which do

not fall under the explicitly stipulated unlawfulness, but rather to an abstract danger that such

a relationship may jeopardize the market. Reformulation of a contractual freedom of market

participants does not aim to make it more elegant, but to identify inherent deformations,

reconciling the conflicting interests. S. Peltzman, «Toward a more general theory of regulation», 19 Journal of

Law and Economics (1976), 211-248. 90 R. Baldwin, Rules and Government, Oxford University Press, 1995, 291.

22

declare them undesirable and invoke sanctions which would not influence the other market

freedoms. “The opposition, frequently made, between regulation and ‘free’ market is deeply

misleading.”91 As the task of the Law of Market is exactly to alter the situation which would

occur should the logic of the anarchic-liberal economy be absolutely interpolated into the

legal transactions, we may compare it to the filter which, in that transformation of the

economy into the law, is charged with a mission to save the economy from self-destruction.

The Law of Market never attempts to abolish market freedoms, but demonstrates to all

subjects who are interlinked through the market how heteronymous limitations through either

mandatory intervention or self-regulation are actually supporting those freedoms.

One aspect of the rule of law in a modern market economy is to ensure a junction of

the main material elements, such as capital, labour, natural resources, management and others,

under equal conditions. Equality is stemming from constitutional basis of a legal system and

corpus of rules protecting human rights. Economic equivalent of the legal framework is the

freedom of competition. That is why freedom of competition represents not only an economic

precondition for efficient market as a mechanism of allocation and distribution, but as well a

logical condition for the establishment of a structure of modern enterprise where all factors

are submitted to a single goal function.

To better understand the essence of the freedom of competition and corpus of

mandatory norms aimed to protect it, it is necessary to point to the relationship between

market and competition, without an ambition to further elaborate the notion of competition.

The competition is an attribute of the market, and the market is the main precondition for

competition. Competition is primarily an economic category, a process of the contest and

rivalry between market participants. Classical economic theory differentiated between

competition and monopoly as mutually exclusive categories, and hence the two different

theories of competition and of the monopoly were promulgated. With an affirmation of the

Chamberlin’s theory of monopolistic competition, this antinomy between a perfect

competition and a pure monopoly has been weakened, as monopolistic competition represents

a precondition for the development of the market. Determination of the element of monopoly,

especially its negative impact on the economy, assumes much higher level of macro-economic

consideration than a judge typically applies in the course of ordinary civil procedures.92 That

91 C. Scott, J. Black, Cranston’s Consumers and the Law, Butterworths, London, 2000, p. 507. 92 M.-A. Frison-Roche, “Les difficultés inhérentes à l’intervention du juge adinistratif en matière de concurrence:

un sujet de dispute”, Revue de la concurrene et de la consommation No. 88, 1995, 13.

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is because the object of protection of competition has an abstract nature: that is the freedom of

behaviour and choice. In the process of a logical concretisation of such an object of

protection, that is to say the goal of provisions on the protection of competition, economic

considerations are predominant, as it is difficult to subtract all elements of social interest

under the legal norm.

Rules on competition protection have two dimensions: subjective and objective.93

Subjective dimension encompasses rules designed to protect competitors, and is therefore

deduced to ‘Law of Unfair Competition’ regulating rivalry among market participants. The

objective dimension has macro-economic considerations, the competitiveness of the market

itself. Therefore provisions on protection of competition represent an instrument for the

achievement of broader goals of economic and social nature (‘competition as a mean’),94 and

in its broadest sense the general interest known as ‘public economic order’.95 Provisions of

laws on protection of competition therefore protect the freedom of market play, a broader,

public interest. Contrary to its primary, narrow, interpretation, modern Competition Law is

committed to creating and maintaining basic elements of an integrated market, and hence

protection of competition represents, in its essence, protection of the market.96 Logically, the

Competition Law represent a special set of rules and principles within a macro-corpus of

Economic Law as the Law of Market.97 ‘European’ concept of Competition Law, which

American equivalent is Antitrust Law, contributed to affirmation of its macro focus,

complexity of goals and its layers: market freedom is a precondition of market efficiency;

efficiency is a precondition of the development, development is the basis for employment,

social policy and the efficient State.98 In Continental Europe, notably France, Competition

Law represents an atomic nucleus of the school of thought known as School of Nice.99 93 R. Le Moal, Droit de concurrence, Paris, Economica, 1979, pp. 132-161; G. Clamour, Intérêt général et

concurrence, Dalloz, Paris, 2006, p. 32-36. 94 P. Bonassiès, “Les fondements du droit communautaire de la concurrence: la théorie de la concurrence-

moyen” in: Études Alex Weil, Paris, Dalloz, 1983, 51. 95 B. Remiche, “Droit économique, marché et l’intéret général” in: M.A. Frison-Roche (ed), Philosophie et droit

économique: quel dialogue? (Mélanges Farjat), Paris, 1999, 254. 96 M.-A. Frison-Roche, “Les principes originels du droit de la concurrence déloyale et du parasitisme”, Revue de

jurisprudence du droit des affaires, 1994, 483. 97 C. Lucas de Leyssac, G. Parléani, Droit du marché, Paris, 2002, pp. 108. 98 On the EU strategy of the protection of competition see for example: P. Craig, G. de Burca, EU Law, Texts,

Cases and Materials, Oxford University Press, 1995, 886–887. 99 G. Farjat, “La notion de droit économique”, Archives de philosophie du droit, 1992, Droit et économie, t. 37,

p. 36.

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The notion of ’general interest’ has traditionally served as the basis for justification of

limitations of market freedoms, and the basis for rules which were limiting the freedom of

market in order to curb volatile nature of the market. That is why the general interest had been

considered as an antipode of competition. Because the notion of general interest can not be

clearly defined,100 it had always been conceived as a basis of State’s voluntarism and a threat

to market freedoms. Despite this methodological and conceptual rivalry between competition

and regulation, and a ’victory of competition’, in modern economies the State turned to ’the

regulator’ instead of ’the administrator’, and the competitive market is clearly a goal in the

public interest. As Delion stressed: „the general interest is the goal of regulation, not solely

the flow of the process of competing.. competition is one among the means of realisation of

general interest’.101 Protection of competition does not imply the absence of the State in the

Economy, but quite the reverse, its new role in the protection of the public economic order

based on free, but regulated, competition. This transformation of a liberal model of

competition into the model which fits the idea of ’regulatory capitalism’ emphasised that the

intervention of the State is necessary exactly to support market economy.102

Social significance of the Law of Market Regulation lies in the fact that its task is to

protect market institutions and the autonomy of will of transactors, by way of coordination of

conflicting interests by collective self-limitation. The danger of infringement of public interest

is not so much in a single transaction, infringing the private interest, but the tendency that

imperfect contracts might become massive and result in a permanent modification of market

functions. Such modifications, sooner or later, would result in a change essential market

functions. This is why market regulation (here I am referring to regulation in a narrower

sense) must be imposed limitation, as the ’precursor’ of the freedom of competition.103 In this

context, the appropriate description of social nature of the Law of Market Regulation should

emphasise that this discipline encompasses limitations of transactors’ freedoms in relations

that are established through the market, with the purpose to protect the integrity of the market.

100 G. Vedel, “Préface” in: F. Rangeon, L’idéologie de l’intérêt général, Economica, Paris, 1986, 3. 101 A. Delion, “Notion de régulation et Droit de l'économie”, Annales de la Régulation, Vol. I. (2006), 3, s. 17. 102 J. Chevalier, “État et ordre concurrentiel, Rapport introductif” in: L’ordre concurrentiel, Mélanges en

l’honneur d’Antoine Pirovano, Paris, éd. Frison-Roche, 2003, 59, str. 62. 103 B. Stirn, “Droit public et droit de la concurrence” u: Le droit de l’enterprise dans ses relations externes à la fin

du XXe siècle, Mélanges en l’honneur de Claude Champaud, Dalloz, Paris, 1997, str. 556.

25

Competition is nowadays regulated (‘regulated competition’).104 Competition is an

important attribute; a model of the market, and the market is the main precondition for the

competition. Hence, the freedom of competition is conceived as general interest of a modern

democratic society. The protection of competition does not imply the absence of the State on

the market, but quite the reverse, its active role in protecting public economic order based on

the freedom of competition. But, public interest is not being defended only with protective

measures aimed to limit market power of an enterprise. Law of Competition is focused only

on one market failure – imperfect competition. The achievement of public interest is also

secured by rules stipulating conditions for entry into the market and the conditions for

performance of certain economic activities, which may also eliminate various barriers to

entry,105 especially with regards to privileges granted to public enterprises or enterprises

performing services of general interest. The Law of Market Regulation in its broad sense

transcends frontiers between sector specific regulation and competition policy,106 and

contributes to the process of economic evolution. Systems of regulation should therefore

balance the freedom of competition with the other social imperatives.107

The Law of Market Regulation, as the Law of Market encompasses general rules,

mostly of a material nature, on access to economic activities, regulation of competition, trade

practices (including the regulation of prices as a relict of state interventionism), consumer

protection and basic issues in regulation of the main sectors of economy, such as monetary

and financial system, agriculture or the industry, including growing network industries.

Specific regulatory regime applied to network industries changes basic norms of the private

law to ensure efficient and socially acceptable conduct of network operators.108 Pursuant to

some authors, by setting out the main principles of ex ante regulation and ex post supervision,

104 I. Maher, „Regulating Competition“ in: J. Braithwaite, N. Lacey, C. Parker, C. Scott (Eds.), Regulating Law,

Oxford University Press, 2004, 187; See also: M. Bazex, “La concurrence réglée: secteur public et privé” in:

J.M. Rainaud, R. Christini (eds), Droit Public de la Concurrence, Economica Paris, 1987, str. 231; A. C. Dos

Santos, M. E. Gonçalves, M. M. Leitão Marques, Direito Económico, Almedina, 2001, 255. 105 J. Francis, The Politics of Regulation, Blackwell, London, 1993, 33. 106 A. Perrot, “Les frontiers entre régulation sectorielle et politique de la concurrence”, RFD éco., No. 4, Vol. 13,

(2000), 81. 107 M.-A. Frison-Roche, “Définition du droit de la régulation économique” in: M.-A. Frison-Roche, Les

regulations économiques –légitimité et efficacité, Vol. 1, Presses de Sciences Po et Dalloz, Paris, 2004, 14. 108 M.-A. Frison-Roche, “Le droit, obstacle ou outil de la regulation des résaux d’infrastructure essentielle” in:

J.-M. Chevalier et al. (eds), Économie et droit de la regulation des infrastructures, LGDJ, 2008, 37. For an

excellent overview of sector specific regulation see also: J. Kühling, Sektorspezifische Regulierung in den

Netzwirtshaften, München, 2004. J. Borrmann, G. Frisinger, Markt und Regulierung, 1999.

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regulatory regime sector strengthen the role of the private law in regulating a specific network

sector.109

Regulatory Law or Law of Market Regulation is founded on that still unaccepted and

indistinct notion ‘regulation’ – and exactly this notion is its object.110 It encompasses the

totality of rules affecting the market within specific regimes, and in the broadest sense the

totality of rules and techniques of regulation. The rules and techniques forming the public

economic order have several dimensions. On a horizontal level, besides general instruments

related to enable and protection market freedoms, as briefly shown above, Regulatory Law is

particularly focused on quality controls and control of information. As modern society

increasingly faces risks, the subject matter of Regulatory Law is increasingly focused on legal

and policy issues arising in a process of risk detection and risk management, or better to say

risk regulation.111

Its time dimension is more disputable due to distinction between ex-ante and ex-post

measures. In liberal theory, ex-ante dimension was often linked to public regulation, a

normative or prescriptive activity, while ex-post was a “mark of liberalism, of minimal public

intervention”.112 However, the ex-ante and ex-post are not two extremes, but are mutually

dependent and strengthen each other. For, example, for an ex-ante intervention to be effective,

ex-post mechanism of sanctioning must exist. The Law of Market Regulation as the

normative framework of the regulatory system, the legal framework aimed to maintain the

balance between legal system and spheres of the economic life, transcends the distinction

between ex-ante and ex-post modes.

For sure, there is a wide array of instruments and techniques used to regulate social

behaviour. Although economists and lawyers tried to classify regulatory instruments in many

different ways, no single classification based on the type of action or modality of control may 109 F. J. Säcker, “Regulierungsrecht im Spannungsfeld zwischen öffentlicher und privater Rechtsdurchsetzung,”

in: M. Ronellenfitsch, R. Schweinsberg, I. Henseler-Unger (Hrsg.), Aktuelle Probleme des Eisenbahnrechts XIV,

Verlag Dr. Kovac, Hamburg, 2009, 159, at p. 163. 110 M.-A. Frison-Roche, “La regulation, objet d’une branche du droit” in: Droit de la régulation: questions

d’actualité, Petites Affiches, No. special, 3 juin 2002, 3-7. 111 The legal literature on risk regulation is extensive and growing. For an overview in the context of

administrative law and regulatory process see for example: R. Baldwin (ed), Law and Uncertainty, Risks and

Legal Processes, Kluwer Law International, 1997; E. Fisher, „General Conclusions: Risk and the Challenges for

Administrative Law“ 15 Review of European Public Law (2003), 707. 112 M. A. Frison-Roche, „Le couple ex ante-ex post justification d’un droit propre et spécifique de la régulation“

in: M. A. Frison-Roche, Les engagements dans les systèmes de la régulation, Presses de Sciences Po et Dalloz,

2006, 33, at p. 35.

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truly reflect the essence of the object of the Law of Market Regulation.113 Every classification

is a simplification, while regulation, its tools and techniques are evolving and mutually

combining. Therefore, the Law of Market Regulation, as an intersection of public law and

socio-economic regulation, is determined by its goal, creating and maintaining the

equilibrium, rather than its instruments and techniques.

But why the term which should refer to ‘balancing’, ‘harmonising’ and ‘adjusting’

created so much dilemmas in social sciences, and subsequently approaches to teaching in

Continental Europe? If we recognize that ‘regulation’ is fundamentally a politico-economic

concept which can best be understood by reference to different systems of economic

organization and the legal forms which maintain them,114 which as such transcends a

traditional public-private divide, then the Law of Market Regulation as a broad meta-juridical,

multi and inter-disciplinary subject seems to be an appropriate discipline of a modern law.

Obviously, due to inherent pragmatism, common law system and universities in

Anglo-Saxon world never faced a problem of placing a study of Regulation and Regulatory

Processes within the public-private divide and doctrinal controversies among the private and

the public law. However, in Continental Europe, although it became evident that talking about

a strict public-private divide in the 21st Century no longer makes sense, the Law of Market

Regulation as a broad concept is still facing opposition. Both from ‘classics’ among

Administrative Law scholars, who are reluctant to admit that the executive function in a

regulatory state does not only command and control; but as well from private law scholars

who still identify the market system exclusively with private law and have not yet recognized

a facilitative function of public law and a new role of the state in the order of regulatory

capitalism.

In the United States, as well in the other common law countries, Regulatory Law in a

doctrinally neutral sense as such predominantly refers to studies of Administrative Law and

Regulatory Processes, with a strong policy component (Regulation and Regulatory Policy).

There are several centres of excellence, among which the following deserve to be mentioned

in this brief overview: Penn Program on Regulation, within the University of Pennsylvania

113 However, a classification system adopted by Morgan and Yeung is appealing: An Introduction to Law and

Regulation, Cambridge University Press, 2007, 79-146. 114 A. Ogus, op. cit., at p. 1, quoting: P. Selznick, „Focusing Organizational Research on Regulation“ in: R. Noll

(ed), Regulatory Policy and the Social Sciences, 1985, pp. 1-2.

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School of Law, Center for Business and the Government (notably its Regulatory Policy

Program) of the JFK School of Government of Harvard University, Regulatory Law

concentration of the Vanderbilt University, Center for the Study of Law and Society at the

University of California, Berkeley.115 In the UK these are, without doubt, universities which

have developed socio-legal studies or specialised centres for the study of regulation and

competition.116 Australia is an excellent example with its Regulatory Institutions Network

(ANU) and Centre devoted to regulatory studies at the Monash University.

In Continental Europe, situation is different. The main promoter or the Law of Market

Regulation was France, where this discipline has evolved mostly from Economic Law

('school of Nice'), but as well as through metamorphosis of the Public Law of the Economy,

or Administrative Economic Law. As Competition Law has became an independent

discipline, some universities offer a study of Regulatory and Competition Law as twin-

courses. As in Anglo-Saxon university practice, special courses on specific legal framework

on network industries emerged as separate disciplines – and hence the General Law of Market

Regulation is basically a thread connecting various disciplines which are dealing with issues

of market regulation.

For the purpose of strengthening this discipline at the University of Belgrade Faculty

of Law, where it existed as the Law of Commercial System throughout the 80s and 90s, and

was transformed into Law of Market Regulation during process of 'the Bologna' reform of a

higher education in 2004, a database on academic centres of excellence in the field of

Regulatory Studies and the intersection of public law and socio-economic regulation is under

creation. This database will provide links to all identified centres of excellence which foster

doctrinally neutral (in its essence a socio-legal) approach throughout the World, including

centres specifically focused on sector specific studies.

115 The list is, of course, not limited. There are as well centres which are focused on the study of regulation in a

liberal legacy, such as the Mercatus Center at the George Mason University etc. 116 Again, the list is just indicative: London School of Economics, Oxford’s Centre for Socio-Legal Studies,

Centre for Regulation and Competition of the University of Manchester etc.

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Conclusion

In a modern market economy, problem of ensuring macroeconomic efficiency is

usually focused on how to restrain the expansion of those pretending to represent public

interest and jeopardize the substance of private and individual by a multitude of legislative

acts and administrative interventions. In a real economy, insistence upon the autonomy of

will, freedom of contract and freedom of entrepreneurship is not only an attempt to defend

those classical entitlements of contractors from political self-will, but also a way to protect

institutions of the market economy and guarantee efficiency and effectiveness of the

economic system. In accordance with this, it is no longer viable to consider the Economic

Law (as the Law of Market) as an intrusive element of economic regulation, in a sense that it

only creates limitations to a basic principle of freedom. It is rather a domain of continuous

balancing of variable elements around the trend line – preservation of institutions of the

market, which guarantee the accomplishment of market’s functions.

Global economy undoubtedly requires new modes of polycentric regulation that

encourage the involvement of a private sector while still preserving role of the government.

Hence the Law of Market must acknowledge that governments and the private sector could

negotiate and jointly act in the interest of private parties and the market. New paradigms of

governance, and need for a proactive regulatory strategy and reflexive regulation transformed

the classical Economic Law into ‘Regulatory Law’. Or to be more concrete, the ‘Law of

Market Regulation’, which is an evolving meta-juridical discipline. In addition to the General

Law of Market Regulation focused on the transformed role of the State in a modern economy,

instruments and techniques of regulation, its main components are existing as independent

disciplines, are the Law of Competition and various legal disciplines which include principles

of intervention of state in specific sectors of the economic system (for example Energy Law,

Telecommunications Law etc.). The golden thread of the Law of Market Regulation, as a

unity of such disciplinary diversity, is a socio-legal approach, which ensures its doctrinal

neutrality.

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