Help me understand a passage from a law book (on freedom of contract) + recommend me resources for further reading!

December 29, 2012 3:28 AM

Help me understand a passage from a law book: The most important consequence of changing views about freedom of contract in the period of 1870-1980 was the rise of the various institutions associated with the 'welfare state'. The introduction of institutions such as state-funded education and medical care, not to mention unemployment insurance and welfare, can be understood in large part as premised on the belief that freedom of contract is an empty ideal for those lacking the means to enter a market

- a passage from a book (I am reading on my own) called "Atiyah's Introduction to the Law of Contract" by Stephen A. Smith.

I don't really understand the last sentence of the passage I've quoted (especially the bold part) and am not too familiar with the topic of 'welfare state'.

Please could someone help to clarify what it means?

Additionally, suggestions for further reading on this topic would be most welcome.

Thanks

posted by ethelwulf to Law & Government (13 answers total)

For believers in absolute free markets, the "freedom to contract" means that rational actors with individual bargaining power enter into agreements that are mutually beneficial, with terms negotiated by both parties. This is premised on a lie, of course, because most of us (not being wealthy) have zero ability to negotiate contract terms. Consider your mobile phone contract, or the terms of your employment, or your rental lease, or the terms for your car's financing - were you able to negotiate any of them? Or were they dictated to you from someone who got to set all of the terms, and give you a take-it-or-leave-it list of terms?

Part of the "welfare state," in addition to providing education and health care, was regulating the content of contracts which were used to exploit the masses, who had (like we do today) no ability to negotiate for their terms. Before this period, the notion of the government regulating the content of contracts would've been unimaginable. But try to imagine what life would be like today if your landlord could put anything he wanted into your lease.
posted by 1adam12 at 3:39 AM on December 29, 2012 [7 favorites]

It means libertarian paradises suck for the poor, as faith in contract law to mediate the purchase of essential services depends upon people having something with which to purchase them.
posted by pompomtom at 4:32 AM on December 29, 2012 [2 favorites]

First Law of Debate: Whenever someone uses "of course" (or "clearly") in a sentence, what follows will in fact be highly debatable. I'm not wealthy, and yet I've negotiated three of the four things 1adam12 lists.

But I think he is correct as to the meaning of that specific sentence. There are markets we want people to be able to participate in, even if they would normally lack the capital to do so. The astonishing success of the Soviet Union in the early part of the 1900s -- transforming a society from agrarian peasantry to industrial superpower in practically the blink of an eye -- suggested to everyone (not just in the U.S., but around the world) that the way forward was to have a government much more empowered to regulate contracts and otherwise reallocate resources.
posted by Alaska Jack at 4:47 AM on December 29, 2012 [1 favorite]

To add to the others, I believe the last sentence refers to structural inequality, whereby actors may have the same rights and, in theory, the same options to enter into contracts, but due to certain structural features of a society -- such as racism, urban/rural income gaps, or gender-inequality -- a power imbalance prevents some actors or groups of actors to enter into contract on a fair basis.
posted by ar0n at 4:48 AM on December 29, 2012 [3 favorites]

And as for further reading on the topic of welfare states, The Three Worlds of Welfare Capitalism by Esping-Andersen is considered a classic.
posted by ar0n at 4:51 AM on December 29, 2012 [1 favorite]

Mod note: Comment deleted; please don't argue or debate other answers. Thanks.
posted by taz (staff) at 6:11 AM on December 29, 2012

Simple version (simplified): if you don't have money, you can't contract for services. From the other side, if you sell health care and the government contracts for your services on behalf of others, you don't get to set the terms with your (formerly direct) customers - the people who consume your services. Your contractual relationship isn't with them.

That's how I would read it.
posted by vitabellosi at 6:13 AM on December 29, 2012 [1 favorite]

If you want to bargain, you have to have something to bargain with.
posted by Chocolate Pickle at 6:21 AM on December 29, 2012

The things the welfare state provides- healthcare, welfare and education (to name a few) are things which negotiation of the contract is impossible on an individual basis. University tuition is dictated by the university, one can negotiate for aid, but the price is fixed and unchanging. Welfare and healthcare are types of insurance, for which the price is once again fixed by actuarial means. One can shop around a little and decide how much coverage one desires, but one cannot actually go in and say "I want this much coverage at this price."

Other things the state provides that are not typically seen as part of the welfare state, roads, police, fire services, postal services, military defense, environmental and safety regulations etc. are also things which it would be impossible to negotiate on an individual basis for. If before setting out on a trip you had to call up the owner of the road and decide on a usage fee for the day, well, I think you get the idea.
posted by Hactar at 6:21 AM on December 29, 2012

Some people object to socialized medicine because it takes the power out of the individual's (or business's) hands to decide whether or not to get coverage or what type to get -- it denies their freedom of contract. In this ideal world, everyone would get to make their own decisions about how much health care to buy or what they were willing to spend.
However, for people who do not have enough money to meaningfully negotiate for/purchase the necessary healthcare, the freedom to contract is cold comfort when what they really need is medical care. Someone who fully disabled and cannot afford private insurance is far better served by having Medicare/government coverage, no matter how barebones, than having no coverage at all and being unable to access healthcare.
The argument for the welfare state is that the freedom of contract -- e.g., the freedom to avoid paying taxes for this medical care if you don't want to -- is less important than ensuring that people are adequately cared for.
posted by katemonster at 6:38 AM on December 29, 2012 [1 favorite]

It's the other side of the coin to Anatole France's ironic line that "the law, in its majestic equality, forbids the rich and the poor alike to sleep under bridges, to beg in the streets, and to steal bread."
posted by holgate at 8:27 AM on December 29, 2012 [2 favorites]

The passage is utterly stupid.

All the things he cites are not rethinkings of the freedom of contract, they are socialism of some greater of lesser flavor -- providing services publicly at taxpayer expense that free enterprise used to provide exclusively but didn't provide universally because people were too poor to buy, not becuase they were too poor to negotiate. (The poor are perfectly capable of negotiation and markets which serve the poor function just as well as markets that serve the rich.)

Better examples of impairment of the traditional freedom to contract in the interests of policy would be labor regulation (minimum wage, overtime, union organization), the application of civil rights law to private enterprise and associations, consumer protection laws, and broadened personal injury liability.
posted by MattD at 10:36 AM on December 29, 2012 [1 favorite]

Additionally, suggestions for further reading on this topic would be most welcome.

If you're interested in an American constitutional perspective (even though the book you're reading isn't just about the US), you might want to look at the dissenting opinion by Justice John Marshall Harlan in the Supreme Court's 1905 decision in Lochner v. New York (which is widely regarded as a bad decision and has been overruled since the 1930s). See the Wikipedia entry for an explanation of what the case was about. You might want to skip over the beginning of Harlan's dissent and start reading from his block quote from the legislation:

No employee shall be required or permitted to work in a biscuit, bread or cake [p69] bakery or confectionery establishment more than sixty hours in any one week, or more than ten hours in any one day, unless for the purpose of making a shorter work day on the last day of the week; nor more hours in any one week than will make an average of ten hours per day for the number of days during such week in which such employee shall work.

The Supreme Court struck that down as an unconstitutional violation of "the right of the individual to liberty of person and freedom of contract." Harlan's dissent explains why that was a bad decision. (There was also another dissent in that case, which might be more famous but is less relevant to what you're asking about.)

Now, a few comments on economics. The "welfare state" basically means a liberal, expansive, big-government approach to domestic economic policy. Remember, the passage in your book and all the comments in this thread are just ideological opinions. Whether they're wrong or right is an open question, so you should stop and think about whether they really make sense.

For instance, it's easy to declare that the only person with "bargaining power" is the landlord, but stop and think about it. Is it true that a tenant has no power to choose what kind of lease s/he wants just because s/he didn't write up the terms? In a competitive market, can a tenant look at many different landlords' leases and decide which one to sign, and would landlords feel pressure in this competitive environment to provide more tenant-friendly terms than other landlords? And could a law that prohibits landlords from putting certain landlord-friendly terms in a lease end up having bad consequences for tenants? For instance, let's say the law forbids landlords from setting the rent above a certain amount. That might seem like the government is "helping tenants," which might seem like it "levels the playing field" because tenants don't have "bargaining power." But even if landlords obey that law, they might react in ways that hurt tenants; for instance, they might decide not to keep the buildings in good repair or condition, since the tenants don't pay them enough to make that worth it. (This could be true even if that's illegal, since it's probably harder to enforce rules about what kind of condition an apartment building needs to be in than to enforce the law about how high the rent can be.) This law could take away investors' motivation to invest in building new buildings in this jurisdiction (i.e. the city or other area where this law is in force), since they would be able to predict that the building wouldn't end up making enough money to be worth investing in.

For further reading on these kinds of economic issues, check out Thomas Sowell's Basic Economics or Tim Harford's The Undercover Economist (chapter 1 looks at the idea of "bargaining power").
posted by John Cohen at 12:27 PM on December 29, 2012 [1 favorite]