When Is a Market Not a Market?: ‘Exemption’,‘Externality’ and ‘Exception’ in the Case of European State Aid Rules

Logics of Neoliberal Extra-ordinariness

In Foucault’s account, the problematic of 19th-century liberalism was to provide justifications for the state as something external to, yet respectful of the free market economy. As he argues: ‘the fundamental question of liberalism is: what is the utility value of government and all actions of government in a society where exchange determines the true value of all things’ (Foucault, 2008: 46). The appearance of a separation between ‘state’ and ‘economy’ has been recognized by Foucauldians, Marxists and economic sociologists alike, as a distinctive achievement of the liberal period. The liberal state is in need of logics and justifications to guide its actions, though these will typically involve respecting and exiting ‘the economy’ as a zone of autonomy and freedom (Miller and Rose, 1990).

Neoliberalism is altogether different. Again in Foucault’s words, it ‘is not a question of freeing an empty space [as liberalism is], but of taking the formal principles of a market economy and referring and relating them to, of projecting them on to, a general art of government’ (Foucault, 2008: 131). Where the liberal state sought principles and techniques for separating itself from the sphere of the autonomous market economy, the neoliberal state extracts principles and techniques from the market economy, and uses its power to push these into non-market social and political spheres. The state does not retreat in the hope that markets will fill the space previously occupied by bureaucracy or democracy; it seeks to reconstruct social and political relations on the basis of norms and techniques that it extracts from market institutions, and then seeks to enforce elsewhere. In particular, competition becomes a formal principle that is present in markets, but which can be employed to reconstitute social and political institutions (Foucault, 2008: 147–8). Equally, neoclassical economic calculation, which was initially used to analyse individual choice in market situations, becomes extended as a critical audit of public management, bureaucracy and social decision-making (Foucault, 2008: 246–7).

This analysis highlights the distinction between markets as institutions founded upon exchange via a price mechanism, and the principles, techniques and conventions that have historically been associated with markets. A stock market, for example, is a public institution in which the price of company stocks rises and falls in response to supply and demand. By contrast, an ethos of competitiveness and the calculation of efficiency may, contingently or otherwise, have emerged in association with such market institutions, but they are not institutionally or culturally limited to market institutions. Co-evolving with markets as historically extant institutions for circulating goods, there emerges what Boltanski and Thévenot term a ‘market order of worth’, a justificatory framework which provides both a moral philosophy and a set of evaluative technologies (including economics) via which to assess the ‘worth’ of persons, goods and services (Boltanski and Thévenot, 2006). The emergence of ‘market society’ leads to social conventions and scientific techniques for calculating value in terms of price, which can be used even where there is no actual market available for the price to be practicably demonstrated and paid (Fourcade and Healy, 2007). Appreciating the analytical distinction between markets-as-institutions and the market ‘order of worth’ is crucial for understanding neoliberalism, which rests on a moral, political, legal and technical commitment to the latter, rather than on an institutional commitment to the former in the manner of classical liberalism.

On this basis, neoliberalism should be defined as the elevation of market-based principles and techniques of evaluation to the level of state-endorsed norms. This definition demands some clarification. Why these terms? A market-based principle of evaluation would include the commitment to competition as a formal framework for establishing value, regardless of whether markets are present, as seen for example in comparative performance rankings of public institutions or cities (Bruno, 2009; Espeland and Sauder, 2007). We could also highlight the rise of happiness discourses and measurements, as a more recent case of a market-based principle of evaluation that is employed by policy-makers: a commitment to consumer satisfaction is lifted from its institutional context of the market, and extended as a basis for valuation across society and government (Davies, 2011b). A market-based technique of evaluation, meanwhile, would include neoclassical economics and associated accounting techniques. The explosion of risk management during the 1990s demonstrates market-based techniques being employed beyond the limits of markets (Power, 2007). Meanwhile, to say that these principles and techniques become ‘state-endorsed norms’ is to recognize that law is one means of upholding them (as, for example, in anti-trust and regulation) but that ‘soft law’ and governmentality (audit, target-setting, new public management) are also critical techniques for the state endorsement of the market ‘order of worth’. From this perspective, market institutions become one particular empirical manifestation of market-based principles and techniques in action, and very often dependent on the constructive power of the state, rather than a privileged site of economic liberty.

This definition of neoliberalism is sufficiently malleable to accommodate a wide variety of applied regimes of economic policy-making. There is no ‘true’ or ‘pure’ model of neoliberalism, because there will remain expert and political disagreement as to which market traits are the essential ones, and which types of governmental or sovereign agency are best suited to enforcing them. For example, neoliberal scholars have held highly contrasting positions on the question of corporate power, with German ordo-liberals and American neoliberals of the 1930s and 1940s viewing monopoly as a clear threat to competition, but Chicago economists from the 1950s onwards abandoning this view (Van Horn, 2009). Equally, neoclassical economics was at the heart of the Chicago School’s neoliberal critique of the state, but was treated with scepticism by German and Austrian neoliberals, including Hayek (Foucault, 2008). Methodological innovations dedicated to injecting a market ethos into public sector agencies, such as new public management and ‘national competitiveness’ indicators, also have their own differentiated cultural and national genealogies (Hood, 1995; Sum, 2009). What marks these heterogeneous traditions as ‘neoliberal’ is a constructivist project of recreating market ethos and measurement in non-market settings. But there is nothing to prevent policy-makers or other groups from seizing such techniques to advance plural political agendas, for instance using market-based techniques of evaluation to defend higher public spending; they are not the preserve only of economic conservatives.

The question with which we began therefore needs some adjustment. It is not the limits to markets as such that require defining and instituting, but the limits to the state-endorsed extension of market-based principles and techniques of evaluation. How can the state know when to stop extending and enforcing the market ‘order of worth’ in society and public life? Keynes famously declared that Hayek, the intellectual godfather of neoliberalism, had no basis on ‘which to draw the line’. But in a priori terms, three possible bases on which to delimit market-based principles and techniques of valuation (including markets themselves) initially suggest themselves. As defined here, these are quite clearly abstractions. Methodologically, however, I assume that these abstractions are not merely of relevance to critical theorists, but are potentially concretized in real-world political situations by those seeking to stipulate the limits of markets, as the rest of the article aims to demonstrate.

First, evaluative principles and techniques that are extracted from the market must, necessarily, coexist with rival principles and techniques, derived from rival (and indeed incommensurable) moral-technical orders of worth. Often, communities of actors will simply choose to suspend, resist or ignore market-based forms of valuation, appealing to some other notion of value. This can be termed an exemption from the market order. The notion that capitalism or a ‘market society’ involves the subsumption of all rival values within the commensuration techniques of the market is necessarily something of an exaggeration. Indeed, Boltanski and Thévenot outline six rival orders of worth which are present in modern capitalist societies, of which the market order is only one. Different ways of conceiving and measuring value will periodically encounter rival ways, and it is not inevitable that market-based notions of value will triumph. A painting, for example, may have a market price of a million dollars, but this does not prevent esteemed art critics from deeming it to be a bad painting. There will always be cultural taboos, insisting that certain goods are not to be priced, that is, their value is incommensurable with the market order of worth (Espeland, 1998). Scientific discovery is recognized to have great potential market value in the long-run, but scientists cannot organize their enquiry on the basis of maximizing monetary value. And so on.

Of course the demand that certain goods, services or humans are exempt from market-based conventions of valuation does not always succeed. An exemption relies on various assemblages of democratic popular will, rhetoric, moral consensus and sovereign law in order to be upheld. If market-based conventions are not to be used to establish value, it helps if there is some consensus on what alternative principles of valuation are to be used instead, and it especially helps if these can be rendered technical and testable via measurement. Standardization of alternative measures helps further. Concepts such as ‘human development’, ‘quality of life’ or ‘sustainability’ become more resistant to the logic of price if they can also be developed into agreed-upon technical measurement devices, which can support public decision-making. Laws are passed banning child labour, prostitution or trade of bodily organs, thereby employing the sovereign power of the state to uphold exemptions to the market order (Satz, 2010). Equally, state actors may choose not to calculate the value of a policy in terms of price, for the simple reason that politicians were elected with a commitment to a certain course of action, or because there is a strong public consensus for supporting certain institutions irrespective of their efficiency or market value. Neoclassical economists refer to exemptions as ‘equity’, but this single term obscures the diversity of principles and techniques of valuation that exist beyond the limits of the market order of worth.

Second, certain types of socio-economic activity and production are, by their objective nature, resistant to market-based principles and techniques of valuation. These are what might be termed externalities. The concept of an externality belongs to the neoclassical tradition of welfare economics, and was initially introduced by Arthur Pigou (1912) as one of four varieties of ‘market failure’ – cases when the price-setting function of markets was likely to fail or mislead. An externality arises when the cost or benefit of a particular good cannot be contained within the two-way relationship of exchange, but impacts upon third parties who are not party to it. This can be positive or negative, but creates a problem either way: if, for example, private investment has obvious public benefits, there may be inadequate incentives for any individual actor to carry it out (what is known as the ‘tragedy of the commons’). Callon (1998b) has highlighted the ways in which economists and economics are themselves at work in determining what can and can’t be included within market calculations, thereby becoming crucial political actors in the production or reduction of externalities. Where economic value and production are increasingly intangible, so the problem of calculating its market price becomes more severe, and economists get dragged further into political disputes (Moulier-Boutang, 2012).

Externalities are unlike exemptions, in that there is not necessarily any cultural or moral barrier to them being evaluated in the language of price and efficiency; but there is a technical barrier, in that it becomes very difficult to analyse them using neoclassical economics or to deal with them using market mechanisms. ¹ A hallmark of neoliberal government is the considerable effort that is undertaken by its economists and policy-makers, in constructing hypothetical prices for externalities, using techniques such as ‘willingness to pay’ surveys and ‘social cost benefit analysis’, so as to make them commensurable within a market order of worth (Fourcade, 2011; Wolff and Haubrich, 2006). Other artificial government-led measures can be introduced to make prices possible, such as tolls and licences to use or ‘own’ certain goods (Levin and Espeland, 2002). Coase (1960) argued that many externalities, or ‘social costs’ as he referred to them, could be efficiently dealt with through the legal introduction or clearer delineation of property rights. However, some externalities are also exemptions, that is, we neither choose to calculate their value in terms of price, nor could we easily do so if we wanted to. Analogue public service broadcasting or public space are goods whose value often evades the logic of price, both as exemptions and as externalities; we cannot privatize their benefits, and we are often glad that we can’t. For the most part, however, the logic of externalities (and ‘market failure’ more generally) provides neoliberal governments with a justification for action in a way that is normatively commensurate with market principles, but resistant to market-based techniques of valuation.

Third, there are those cases when market-based principles and techniques (including markets themselves) face an apparently existential threat, and need rescuing as a matter of urgent necessity. This is the exception. The concept of exception has been widely analysed within juridical philosophy, most prominently by Carl Schmitt, and more recently by Giorgio Agamben (Agamben, 2005; Schmitt, 2005). The paradox of judicial authority, as perceived by Schmitt, is that it must be defended by an executive authority that is permitted, tacitly or explicitly, to break the rules that it enforces. As Schmitt famously put it: ‘Sovereign is he who decides on exception’ (Schmitt, 2005: 5). In this analysis, rule of law necessarily presumes the possibility of a state of exception, not so much as a contradiction of law, but as its affirmation. The exception is neither legal nor illegal, but transcends the distinction. As Agamben argues:

The state of exception is neither external nor internal to the juridical order, and the problem of defining it concerns precisely a threshold, or a zone of indifference, where inside and outside do not exclude each other but rather blur with each other. (Agamben, 2005: 23)

Just as executive power is neither ‘inside’ nor ‘outside’ of the law, the neoliberal state has elements which are neither ‘inside’ nor ‘outside’ of its own market-based principles and techniques. Mirowski (2009: 443–6) has highlighted Hayek’s Schmittian sympathies, which led him to endorse the extension of neoliberal policies without concern for the political or democratic legitimacy of doing so. This reflects a central paradox of the neoliberal state, that it seeks to enforce forms of quantitative, positive economic rationality, including within the state itself, using sovereign power that is inimical to quantitative, positive economic rationality. The possibility of an exception – a situation where all economic logic or justification must temporarily be suspended – therefore hovers behind all injunctions to impose market-based principles and techniques of evaluation. Importantly, this is not simply an exemption; the state is not temporarily shifting into some rival sphere of normative and technical evaluation. Acting out of ‘necessity’ involves operating outside of all ‘orders of worth’. Boltanski and Thévenot argue that ‘the act of bypassing justice and behaving only as one pleases, without being burdened by the requirement to explain, is the defining act of violence’ (Boltanski and Thévenot, 2006: 37–8). In this respect, the state of neoliberal exception is one founded on a form of violence, where market principles and techniques of evaluation are neither suspended by choice (an exemption) nor resisted by the object to be evaluated (an externality) but suspended for their own sake.

The ontology of each of these different logics is quite different, and to that extent they are not rivals to one another in the sense that Boltanski and Thévenot’s six ‘worlds’ of justification are rivals. What each of them shares is that they have the capacity to disrupt ‘normal’ neoliberalism in some way, but that is all. What I refer to as ‘exemption’ refers to a shift in political metaphysics, from one moral worldview to another. Within the rival worldview, some form of measurement may be required, but not one that is commensurable with price. ‘Externality’, meanwhile, is a technical obstacle, not a moral one, occurring within the ‘political physics’ of neoclassical economics. Price-based measurement is sought, but not achieved, at least not without considerable reconstructive intervention by economists. ‘Exception’, finally, has no formal characteristics at all, but, as Schmitt indicates, is generated by a decision on the part of whoever has the power to call it. By definition, there is no norm or test to establish whether the exception exists or not. While these three logics may rest on different ontologies of market critique, they are all equally available to state actors as ‘critical capacities’, and can therefore be observed in concrete situations and texts (Boltanski and Thévenot, 1999). They are not only abstractions, but conventions which enable peaceful agreement on the limits to the market, as I now hope to show in the case of European Commission documents regarding state aid.

European State Aid Rules: The Legal Market and Its Exemptions

The formal prohibition of ‘state aid’ by member states to particular national industries or sectors lies at the heart of the project of European integration. The 1951 Treaty of Paris, which produced the European Coal and Steel Community (ECSC), included Article 4 (c) stipulating that all subsidies or grants to coal or steel producers were incompatible with the single market for coal and steel (ECSC, 1951). The 1957 Treaty of Rome, which founded the European Community, extended this same principle to apply ‘horizontally’ to all industries, stating that:

any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the common market. (EC, 1992: Article 87)

Despite the fact that state aid rules were only weakly enforced until the late 1980s, and lacked any formal implementation procedure until 1999, they represent a clear case of liberal market principles being enshrined in statute. The definition of ‘aid’ is much broader than that of a mere ‘subsidy’, and includes guarantees, loans, tax breaks and other ways of conferring advantages upon particular firms or sectors (Luengo, 2007). ‘Aid’ is a direct challenge to the price mechanism as the primary measure of worth, and must be rendered illegal and/or restricted using the pooled sovereignty represented by the Treaty of Rome. In this respect, the state aid rules meet the definition of neoliberalism outlined in the previous section, although their origins lie closer to the Freiburg School of ‘ordo-liberalism’, in which the market is instituted via a legal-economic constitution, than to the Chicago School of neoclassical economics (Foucault, 2008; Gerber, 1994, 1998). Ordo-liberals proposed a social market economy, in which both state and firms were bound by rule of law, such that the market price mechanism would become the final legal arbiter of value (Ptak, 2009). Under ordo-liberalism, one particular principle of the market, namely competition, is elevated to the status of legal norm. ‘Aid’ from an ordo-liberal perspective is an abstract idea, and an enemy of the equally abstract idea of competition.

What, then, is the fate of alternative principles and techniques of valuation? What of norms which are incommensurable with those of price? By seeking to provide a normative-legal defence of the market as a principle of valuation, the state aid rules initially confronted the question of exemption to that principle, assuming that the market order was not to engulf everything. The normative defence of the market involves stipulating or anticipating those cases in which alternative justifications and valuation principles can be invoked. These exemptions can be identified in the Treaty of Rome itself, and also in the case law that developed between the first prohibition of aid in 1964 and the formalization of DG Competition’s state aid enforcement procedures in 1999. In these exemptions we can see a formal logic for the limitation of market principles by rival orders of worth.

The Treaty of Rome Article 87 (originally Article 92) outlines two classes of exemption, those types of aid which ‘shall be compatible with the common market’ and those types of aid which ‘may be considered compatible with the common market’ (EC, 1992, italics added). The former includes ‘aid having a social character’, which allows for welfare payments and support for individual citizens as opposed to enterprises. This creates space in which to protect the European ‘social’ model from markets and market principles. It also includes ‘aid to make good the damage caused by natural disasters or exceptional occurrences’ and (since the Maastricht Treaty of 1992) ‘aid granted to the economy of certain areas of the Federal Republic of Germany affected by the division of Germany’ (EC, 1992: Article 87(2)). The types of state aid which ‘may be considered compatible with the common market’ are the following:

aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment;

There is considerable freedom, therefore, to suspend market principles, and allow other forms of justification to predominate. Paragraph (b) in particular offers a normative vacuum, which could be filled by rival orders of worth (‘an important project’) or by some appeal to exception (‘a serious disturbance’), as would prove crucial during the 2008 banking crisis. Paragraph (e) creates a formal channel for political concerns to be translated into exemptions via the European Council of national leaders, which is noticeably absent from all other areas of DG Competition’s remit. Quite evidently the Treaty of Rome does not insist that state aid is universally illegal, but it does insist that the EC is notified in advance of any plans to issue aid, so that its compatibility with the single market can be assessed and, typically, confirmed (EC, 1992: Article 88(3)). Potentially, proposals for aid can be vetoed or altered by the EC, upon notification by the member state. If, on the other hand, notification of aid is not issued in advance, and a complaint is made from some third party, or if a member state issues the aid before it has been cleared by the EC, the EC has the powers to demand that the aid is repaid by the recipient in question (Luengo, 2007).

To say that a state aid is ‘compatible with the single market’ is not, in this instance, to say that it is commensurable with the market. The provisions listed in Article 87 (3) above are not derived from neoclassical economics or any technical theory of market failure, but leave space to pursue rival normative notions of a common European project. A 1980 directive from DG Competition established the principle of ‘compensatory justification’, whereby the recipient of the aid had to be making some contribution to the ‘common interest’ of the European Community, aside from the project of the common market (EC, 1980). The judgement, therefore, is not whether the state aid is or isn’t efficient according to market-based calculations, but whether it has some alternative justification which fits with any of the exemptions listed in Article 87. If a justification could be framed in terms that spoke for the interest of Europeans generally, it wouldn’t need to be a justification drawn from the market ‘order of worth’ specifically. The principles therefore implicitly accept that certain policy decisions (such as those which aim to ‘promote culture and heritage conservation’) may be in tension with market-based conventions of valuation, but remain in the interests of the European Community. The question, as Article 87 (3 d) above demonstrates, is the extent to which a rival value conflicts with market principles and mechanisms, not whether it conflicts.

In practice, this proves to be a weak basis on which to enforce and extend the market. Until the 1990s, there was little ‘soft law’ or economic analysis to accompany the normative state aid principles laid out in the Treaty of Rome, and the EC did very little either to block aid or to influence the particular character of aid that was issued (Buthe, 2007). For example, no unlawful state aid was ever repaid on the orders of the EC until 1984 (Luengo, 2007). The principal injunction was simply that the Commission was notified in advance of aid being issued, and its principal complaints to member states during the 1970s concerned lack of notification, not the presence of aid as such (EC, 1980). Equally, in the absence of an empirical economic critique of state aid, the Commission was largely unable to advance a case for where state aid might beneficially be conducted, or why reducing aid might be of empirical benefit to European citizens. By remaining open to multiple evaluative frameworks (so long as they accounted for the ‘common interest’ of all Europeans), DG Competition lacked a strong basis on which to assert the authority or normality of market-based principles of evaluation.

What this suggests is that, where the limits of neoliberalism are defined in terms of exemption to the market norm, that is, where market-based principles of evaluation are simply suspended in favour of rival principles, claims for exemption are very difficult to deny. By leaving the market norm at the status of formal legal principle, and with open-ended categories of alternative substantive goals that are separate from but ‘compatible with the common market’, the Treaty of Rome produces a fragile version of neoliberalism. The market norm becomes an empty Kantian idea, as the Freiburg ordo-liberals had initially stipulated, without any substantive or rhetorical justification, or a capacity to be tested. As a result, it lacks the types of worldly justification – the critical capacity, the Realpolitik, the techniques of measurement – that Boltanski and Thévenot analyse as enabling normative conventions to be mobilized in everyday situations. If the market is an empty abstract legal principle, then every publicly justified exemption is de jure valid, so long as it attains publicity in the form of a ‘notification’. The issue is then not whether a given state action is economically justifiable within the market order of worth, but whether it is publicly justified at all within the common European polity.

State Aid Reform: From Exemption to Externality

The power of the Commission to apply pressure on member states increased with the passing of the Single European Act (SEA) in 1986, which created steps towards the establishment of a single market with the Maastricht Treaty of 1992. The state aid rules became far more actively applied during the late 1980s, with a rise in complaints and investigations regarding aid, especially in sectors such as telecommunications, insurance, banking and sports (Sinnaeve, 1999). The shift from the common market introduced by the Treaty of Rome to the single market founded with the Maastricht Treaty saw the state aid rules begin to shift from their somewhat symbolic status, in which exemptions merely needed to appeal to the common European interest, to being a governmental tool for accelerated market integration and competitiveness. This shift can likewise be understood as a shift from a norm-based ordo-liberal project, in which certain competitive principles of the market are enshrined in law, to an ‘effects-based’ neoclassical project, in which regulation became organized around the utilitarian notion of efficiency maximization (Davies, 2010). Insofar as state aid is concerned, the critical document in this transformation was the ‘State Aid Action Plan’ of 2005 (EC, 2005). In the process, the limits of market-based principles and techniques of valuation are redefined, from a logic of exemption to one of externality. It should be noted that this redefinition has proceeded pragmatically and gradually, meaning that logics of exemption were never formally denied or abandoned altogether.

The anti-trust rules laid down by the Treaty of Rome became accompanied by formal implementation procedures in 1962, but the European Council repeatedly refused the Commission’s requests for similar procedural regulations for state aid (Buthe, 2007; Lavdas and Mendrinou 1999). But as state aid became used more actively by the Commission following the SEA and then the Maastricht Treaty, the reliance on discretion, case law and (what I have termed) a logic of exemption became increasingly problematic during the 1990s, and in 1998 the European Council demanded greater clarity via a formalization of implementation procedure, leading to the 1999 rules of application (EC, 1999; Zahariadis, 2010). The Commission’s stance towards state aid shifted from one of principled opposition to one of active reduction via investigation, audit and prohibition. This was supported by DG Competition’s first attempts to measure levels of state aid, published from 1988 onwards, whose initial finding that member states were issuing an average of 3 percent of GDP in aid generated heightened concern, both in the Commission and among more market-oriented member states (Luengo, 2007). Within this empiricist tradition of neoliberalism, the problem with state aid is less that it represents an a priori exemption to the norm of competition, but that there is too much of it and its effects are not made explicit. The first task for a regulator, therefore, is to bring the true costs of state intervention to light, measured in terms of price.

State theorists have plotted the rise of ‘Schumpeterian’ or ‘competition’ states in the post-Keynesian era, which don’t simply liberalize or de-regulate their economies, but act purposefully to raise levels of productivity, innovation, entrepreneurship, social capital and Research and Development (R&D) (Cerny, 1990; Jessop, 2002). This has been accompanied by the production and exploitation of multiple tiers and scales of governmental action, from small clusters of innovation, up to international spaces of market integration (Brenner, 2004). The EU represents one example of state-space fragmenting into multiple scales and domains of political power, in response to the de-nationalization of capitalism (Smith, 2003). Different areas of economic policy-making are shifted to whichever scalar level is deemed best suited to manage them, with the creation of competition law an area than lends itself to the largest scale possible. In a process culminating in the launch of the ‘Lisbon strategy’ in 2000, the European Commission employed the rhetoric and measurement of ‘competitiveness’ to move from the legal principles of the common market, to the achievement of ever higher levels of economic integration, leading to ever higher levels of efficiency, employment and growth (Bruno, 2009). In this context, the actions of both member states and of the Commission were no longer judged in terms of their compatibility with the ‘common interests’ of Europeans or the principle of the common market. They were judged in terms of their measurable impact on efficiency.

This is another form of neoliberal government that is both more and less active at the same time, but it is far less concerned with realizing this paradox in legal norms than ordo-liberalism. Instead, audit, governmentality and ‘soft law’ play a much stronger role. Such government is more active, in that it doesn’t assume that removal of regulations will automatically lead to higher levels of competitiveness; it is less active, in that its opportunities for legitimate government intervention are narrower. As the 2005 state aid reforms indicated, it provides a narrow space within which the state can act, which must be outside of the market, on behalf of the market. The ‘Schumpeterian’ state acts upon the ‘social’ for the benefit of the ‘economic’ – delivering those types of ‘social’ goods that markets are proven to benefit from, but equally proven to under-supply of their own accord because they cannot be easily owned and priced (Jessop, 2002). These are otherwise known as ‘positive externalities’, and include public education, high-end R&D, shared infrastructure and some venture capital. An externality is valuable to the extent that it improves market efficiency, even though it lies outside of the market price system itself. In this respect, it is not a normative exemption from the market ‘order of worth’, but a particular type of object that resists easy calculation via market-based techniques of valuation. By this logic, it is not that prices shouldn’t be applied to value goods such as scientific research, but that they cannot technically capture that full value.

Due to a combination of high-profile merger rulings being overturned on appeal and lobbying by the US government, DG Competition greatly expanded its internal capacity for neoclassical economic analysis from 2003 onwards (Neven and Albaek, 2007; Roeller and Stehmann, 2006; Wigger and Buch-Hansen, 2010). Mirroring the US Federal Trade Commission, it appointed a Chief Economist with a Chief Economist’s Team, to provide independent, academically authoritative advice on legal cases, which privileged the empirical ‘effects’ (i.e. efficiency measured as consumer welfare) of government action or inaction. This apparently wholesale adoption of the Chicago School approach to anti-trust represented a re-balancing of expert authority within the agency, away from lawyers and towards economists, representing a very clear instance of neoclassical economics becoming intimately involved in how markets are not only defined but also ‘performed’ (Davies, 2011a). In this turn from abstract formalism of competition policy towards neoclassical empiricism, ‘competition’ became classed as a matter of degree, that might vary from one sector to the next in terms of the efficiencies that might result, and the benefits that might then exist for European consumers (EC, 2004). Competition, from the Chicagoan perspective, is no longer an ‘all or nothing’ principle, but a measurable feature of economic activity (Bork, 1978).

With the publication of the ‘State Aid Action Plan’, the critique of state aid became presented in empirical economic terms, not normative ones: ‘As a result of [state aid], customers may be faced with higher prices, lower quality goods and less innovation’ (EC, 2005: 4). An ‘economic approach to State Aid analysis’ is proposed in order to:

ensure a proper and more transparent evaluation of the distortions to competition and trade associated with state aid measures. This approach can also help investigate the reasons why the market by itself does not deliver the desired objectives of common interest and in consequence evaluate the benefits of state aid measures in reaching these objectives. One key element in that respect is the analysis of market failures, such as externalities, imperfect information or coordination problems. (EC, 2005: 6, emphasis in original)

The advance of the neoclassical economic approach is therefore overlaid on the prior normative rhetoric of the Treaty of Rome. The concern is still with ‘compatibility’ with the market and with the ‘common interest’; but this is now subject to a technical, quantitative evaluation, involving evidence of the likely effects. Compatibility is to be tested by economists, not by lawyers. The logic of exemption does survive (i.e. the legitimacy of non-market-based moral registers of value) but is now bracketed within the neoclassical framing of ‘equity objectives’ (EC, 2008a: 9). This is in contrast to the various ‘efficiency-based’ justifications for state aid, focused upon tackling market failures, especially in areas involving information, R&D, human capital and so on. The logic of ‘market failure’ enables the EC to direct member states to varieties of state aid which are commensurable with market-based principles and techniques of valuation, that is, they are efficiency-optimizing. The logic of ‘equity’, on the other hand, maintains a space for non-market orders of worth to survive. But even this is subjected to a test of its proportionality and economic effects. It is not only notification that is demanded of member states seeking to grant aid, but explicitness regarding what is at stake (Muniesa and Linhardt, 2009).

‘Externalities’ and market failure represent the empirical limits of market pricing, but in a way that remains within the market ‘order of worth’. This is different from an ‘exemption’, which represents not only the empirical limits of the market, but the normative limits of the market-based approach to valuation. By reforming state aid on the basis of an ‘economic approach’, and highlighting various efficiency gains that specific forms of state aid could deliver, DG Competition signalled its recognition of the empirical limits of markets as pricing mechanisms, but not the normative limits of market-based approaches to valuation. The new ‘compatibility test’ announced by DG Competition involves a strange type of political compromise, whereby member states are allowed to continue intervening in markets so long as they offer justifications for doing so (as had always been the case) and those justifications are framed in the language of market failure, welfare effects, objectives and incentives. It is an attempt to extend and impose market-based principles and techniques of evaluation upon member states, and not markets as institutions.

Financial Crisis: From Externality to Exception

The 1999 state aid application guidelines state that DG Competition may take up to two months to evaluate the ‘compatibility’ of an aid, assuming, of course, that it has been notified of it in advance (EC, 1999). This may then lead to a much longer enquiry. In the weeks that followed the collapse of Lehman Brothers in September 2008, however, the speed of financial events and member state policy decision-making increased to the point where notifications were made only hours before aid was being granted to financial institutions. The capacity for state actors to deliberate and take decisions over weekends, when markets were closed, was a crucial resource in the sovereign rescue of the market system. Given the situation of emergency, and the apparent ‘necessity’ for member states to act in unprecedented ways, the Commission had to find new flexibility in its own rules, in order for them to survive the crisis. These events did not signal an exemption, in that no rival normative framework was brought into play, in fact justification was entirely absent. Nor did they signal an empirical externality, despite retroactive efforts to frame the financial crisis technically as a ‘market failure’ warranting state aid (e.g. Mateus, 2008), because there was simply no time or capacity to evaluate the situation and rescue packages using a formal neoclassical ‘compatibility test’. Instead, this needs to be seen as a case of neoliberal exception.

As we have already seen, the Treaty of Rome contains provisions to authorize aid ‘to remedy a serious disturbance in the economy of a Member State’ (EC, 1992: Article 87(2)). This creates a space in which exceptional circumstances can be claimed, aside from any calculable effects or definition of the European ‘common interest’. Conceptions of ‘justice’ imply actions that are in accordance with a general human interest; they apply to all people, in the same way, in similar instances. Under normal circumstances, the application of law produces a classically Kantian problem of how to judge particular instances on the basis of universal rules, which may be supported by the formalization of tests. Concepts of justice share with scientific tests a capacity to bring disputes to an end (Boltanski and Thévenot, 2006: 32–5), and in this respect legal and economic experts simply offer rival ways of subsuming particularity under a rule. But under exceptional circumstances, situations are judged purely on their particularity, as a matter of necessity, in order to save law from collapsing altogether (Agamben, 2005: 24–5). Neither economics nor a priori notions of the European common interest were adequate to authorize decisions that were made as the financial systems of member states were being rescued, because the very possibility of certain market norms and techniques was in existential danger. Justifications for state action are neither necessary nor possible, when the institutional conditions of justification are themselves at risk. Necessity then substitutes for justification.

The exceptional events of autumn 2008 required the European Commission to develop an unprecedented stance towards state aid, which maintained an endorsement of the neoliberal principles and techniques of the market, while granting member states the right to intervene in the markets however they saw fit at very short notice. Once again, the peculiarity of the EU as a quasi-state made this unlike a typical exception, in that it effected a reduction in its sovereignty and autonomy, at least while the emergency of the financial crisis was playing out, where a declaration of ‘exception’ would ordinarily be thought to occasion quite the opposite. Initially, at least up until the collapse of Lehman Brothers on 15 September 2008, the Commission had sought to frame the crisis in terms of its existing ‘guidelines on State aid for rescuing and restructuring firms in difficulty’ (EC, 2004). With member states acting rapidly on behalf of their entire financial sectors, it became clear that these guidelines were being stretched to breaking point, and would either need abandoning or supplementing (Gibson-Bolton and Reiss, 2009).

The paradox of the exception is that rules are both revered and suspended at the same time; as Agamben explores, a number of national constitutions contain legal provisions allowing the sovereign to act unlawfully. It is with this in mind that we can understand the extraordinary and emergency efforts to update state aid rules so as effectively to suspend them. The speed with which member states were acting during the first two weeks of October 2008 meant that the Commission was under heavy pressure to offer formal, legal recognition of the exception, or simply face the rules being ignored regardless. Hence, while member states were rescuing their financial systems, the Commission was working to rescue the state aid rules. On 7 October, the European Council demanded clarity from the Commission on how it intended to view state aid rules under the new circumstances. It responded on 13 October with a Communication, The Application of State Aid Rules to Measures Taken in Relation to Financial Institutions in the Context of the Current Global Financial Crisis (EC, 2008b). By offering formal recognition of the exceptional situation, the Commission could continue to assert its authority in two regards: first, by maintaining the insistence that member states offered notification of any aid they intended to issue and, second, by insisting that the exceptional situation was only a temporary one. Moreover, unlike the 2004 guidelines, this new Communication located the rescue packages in the exceptional context of aid ‘to remedy a serious disturbance in the economy of a Member State’, as provided in the Treaty of Rome (EC, 1992: Article 87(2)).

The rhetorical and logical resources contained in the October 2008 Communication demonstrate certain key features of the neoliberal exception. First, the crisis is not referred to as a ‘market failure’, which would suggest that market-based principles and techniques of evaluation (and their technical limitations) were still the basic justification for state aid. Instead:

As regards the financial sector, invoking this provision is possible only in genuinely exceptional circumstances where the entire functioning of financial markets is jeopardised. (EC, 2008b: 3)

The compatibility, therefore, is no longer between a particular state aid and the single market or the principles of the market as judged by lawyers or economists; the compatibility in question is now between the particular state aid and the founding text of the EU. The Commission is no longer concerned with how far market principles can be suspended by member states (be it on the basis of exemption or externality), but with how far the state aid rules can be suspended by member states, on the basis of exception. This is as much a question of how much exceptional, temporary flexibility can be inserted into the rules and the Realpolitik of their application, as it is of whether member states can be practicably restrained in any way. The Commission ends up clinging to the bare minimum of the requirement to notify:

It is of paramount importance that Member States inform the Commission of their intentions … The Commission has taken appropriate steps to ensure the swift adoption of decisions upon complete notification, if necessary within 24 hours and over a weekend. (EC, 2008b: 12)

How long does this state of exception last and how far does it extend? One criterion by which aid to banks would be considered compatible with state aid rules was that it be reviewed at least every six months (EC, 2008b). In December 2008, the Commission announced a new Temporary Framework authorizing necessary rescue packages in the ‘real economy’ (i.e. non-financial firms), such as loans and guarantees that the financial sector was itself unable to offer (EC, 2008c). This framework expired on 31 December 2010, and subsequent communications were issued to provide guidance on the phasing out of aid to financial institutions (EC, 2010). Statements made by the Commission therefore indicate a desire to terminate the formally recognized exception to market-based principles and techniques of valuation. But this doesn’t mean that these principles and techniques are now restored to the status of state-endorsed norms. On the contrary, the exception does not need to be legally validated or recognized to persist; that is its definition. From a Schmittian perspective, the legality of sovereign rule always tacitly allows for non-legal acts. But moments of rupture and publicly declared states of exception create the possibility of permanently exceptional states, in which executive political power acquires the legal right to act purely out of necessity, and without justification. Whether or not the Commission recognizes this as an accurate depiction of European neoliberalism post-2008, this may be what has emerged.

There is an inherent conflict in the relationship between economics and sovereignty, as explored by Foucault, which shapes the unwieldy character of the neoliberal state. The euro crisis of 2010 onwards can be seen as a consequence of this, in which a transnational market logic was created in place of national sovereignty, but without any political sovereignty of its own. As Peck argues, ‘neo-liberalism’s curse has been that it can live neither with, nor without, the state’ (Peck, 2008: 39). The European monetary crisis is serving up new attempted solutions to this contradiction. The appointment of economists as unelected prime ministers of Greece and Italy in 2011 took the attempted synthesis of economics and sovereign power to unprecedented heights, and cast a more thoroughly Hobbesian light upon the possible ‘performativity’ of economics. Meanwhile, whatever imbalances of European national power may once have been concealed by the liberal rhetoric of a post-national European project are now visible as the survival of the single currency becomes predicated upon the obedience of southern European citizens to the demands of German and French national leaders. In its apparent state of exception, the European project is one of discretion and political decision, as much as one of judicial rule.

Conclusion

As Timothy Mitchell (2002: 245) has noted, capitalism and markets only attain their identity in contrast to the non-capitalist or the non-market. So what does the ‘non-capitalist’ or the ‘non-market’ consist of? I have identified two classes of standard extra-ordinariness in this respect: those activities and goods that excluded from market valuation for normative reasons (exemptions) and those activities and goods that are morally amenable to market valuation, but which resist those precepts because of their objective qualities (externalities). But the riddle of neoliberalism, and what sets it apart from traditional liberalism, is its paradoxical relationship with political sovereignty, which it is both dependent on and hostile to, as an adolescent child is towards its parent. Neoliberalism’s sovereign ‘parent’ cannot be internal to its market-based worldview, but nor can it be entirely external to it, because it is relied on to enforce and extend the norms of the marketplace across state and society. This uneasy situation is stabilized by the formalization of logics distinguishing those cases when states are permitted to act from those cases when they are not. But the ontological unity of the political with the economic, and the state-centric nature of neoliberalism, means that an exceptional collapse of the market into the state remains a constant, albeit implicit, possibility. The logic of exception means that the limits of the market are not only institutional, normative or technical, but also necessarily temporal; the market order survives for a period of time, but must be interspersed with periods of exception, unless it can rid itself of its reliance on state sovereignty.

European state aid rules are an example of justificatory governmental logics being formalized in multiple ways, according to multiple principles, techniques and necessities. As I’ve explored here, these include the principle of exemption, the technical problem of externality and the necessity of exception. These are by no means mutually exclusive logics. Nor do they possess the form of ontological parity that Boltanski and Thévenot see in rival orders of worth. Instead, they depend on different ontologies of power – legal, calculative and executive respectively – which need not succeed one another but are layered on top of one another, just as Foucault (2007: 106) saw governmentality supplementing sovereignty, not displacing it. Market exemptions and market externalities are often coexistent, though are analytically distinct. Yet during the most urgent moments of the financial crisis, in the first two weeks of October 2008, the logic of exception trumped all others. The market order of worth was not failing in any technical sense, nor being substituted by some rival order of worth; its survival became contingent upon executive decision. In this sense, the state was temporarily neither ‘internal’ nor ‘external’ to the price system, but in that ‘zone of indifference, where inside and outside do not exclude each other but rather blur with each other’ (Agamben, 2005: 23).

In the years that have followed the rescue of European banks, a number of scholars have questioned whether neoliberalism is alive or dead, or in some type of ‘zombie’ state (Harman, 2009; Peck et al., 2010). The progressive unfolding of the European sovereign debt crisis from 2010 onwards has forced constant decisions and dilemmas upon state actors, who repeatedly face unprecedented situations in which the ‘normal’ market order faces an existential threat. Senior politicians and senior bankers now negotiate face to face, to try to identify shared interests. In answer to the question of whether neoliberalism is alive or dead, it seems entirely plausible to speak of an ongoing or permanent state of neoliberal exception. Agamben identifies one case of exception in the Roman institution of iustitium, in which law would go on ‘holiday’ while the republic fought for its survival. Iustitium is neither legal nor illegal; in fact it is not a legal category at all, but a juridical vacuum. The present actions of European states and European Commission are perhaps neither compatible with market-based principles and techniques of valuation, nor contrary to them, but operating in a market vacuum.