Constitutional Erosion and the Rise of Political Piracy
by Dwight R. Lee
The early success of the Constitution, and the economic system that developed
under it, is reflected in the fact that relatively few people felt any
urgency to worry about politics. Political activity offered little return as
there was little chance to exploit others, and little need to prevent from
being exploited by others, through political involvement. People could
safely get on with their private affairs without having to worry about the
machinations and intrigues of politicians and bureaucrats in far-away places.
But this very success can, over time, undermine itself as a politically
complacent public increases the opportunities for those who are politically
involved to engage in political chicanery.
Motivating people to maintain the political vigilance necessary to protect
themselves against government is always a difficult task. The individual who
becomes involved in political activity incurs a direct cost. By devoting
time and resources in attempting to realize political objectives he is
sacrificing alternative objectives. The motivation to become politically
active will be a compelling one only if the expected political outcome is
worth more to the individual than the necessary personal sacrifices. This
will typically not be the case when the objective is to prevent government
from undermining the market process that is government's proper role to
protect. The benefits that are realized from limited government are general
benefits. These benefits accrue to each individual in the community whether
or not he personally works to constrain government.
Over the broad range of political issues, then, people quite rationally do
not want to get involved. This is not to say, however, that everyone will be
apathetic about all political issues. This clearly is not the case, and it
is possible to predict the circumstances that will motivate political
activism. Often a relatively small number of individuals will receive most
of the benefit from a particular political decision, while the community at
large bears the cost. Members of such a special interest group will find it
relatively easy to organize for the purpose of exerting political influence.
The number of people to organize is comparatively small; the group is
probably already somewhat organized around a common interest, and the
political issues that affect this common interest will be of significant
importance to each member of the group.
Of course, the free rider problem exists in all organizational efforts, but
the smaller the group and the narrower the objective, the easier it is to get
everyone to contribute his share. Also, the benefits of effective effort can
be so great to particular individuals in the group that they will be
motivated to work for the common objective even if some members of the group
do free-ride. Not surprisingly then, narrowly focused groups commonly will
have the motivation and ability to organize for the purpose of pursuing
political objectives. The result is political piracy in which the
politically organized are able to capture ill-gotten gains from the
politically unorganized.
The Constitutional limits on government imposed effective restraints on
political piracy for many years after the Constitution was ratified. There
are undoubtedly many explanations for this. The vast frontier rich in
natural resources offered opportunities for wealth creation that, for most
people, overwhelmed the opportunities for personal gain through government
transfer activity. Also, it can take time for politically active coalitions
to form after the slate has been wiped clean, so to speak, by a social
upheaval of the magnitude of first the Revolutionary War and then the Civil
War. Public attitudes were also an important consideration in the control of
government.
Much has been written about how the pervasive distrust of government power
among the American people shaped the framing of a Constitution that worked to
limit government. What might be more important is that the Constitution
worked to limit government because the public had a healthy distrust of
government power. For example, in the 1860's the Baltimore and Ohio railroad
had its Harpers Ferry bridge blown up many times by both the Confederate and
Union armies, and each time the railroad rebuilt the bridge with its own
funds without any attempt to get the government to pick up part of the tab.
Or consider the fact that in 1887 President Grover Cleveland vetoed an
appropriation of $25,000 for seed corn to assist drought-stricken farmers
with the statement, "It is not the duty of government to support the people."
There is little doubt that Cleveland's view on this matter was in keeping
with broad public opinion.
The Constitutional safeguards against government transfer activity
unfortunately have lost much of their effectiveness over the years. The
western frontier disappeared, and a long period of relative stability in the
political order provided time for factions to become entrenched in the
political process. Of more direct and crucial importance, however, in the
move from productive activity to transfer activity has been the weakening
judicial barrier to the use of government to advance special interests. The
1877 Supreme court decision in Munn v. Illinois is often considered to be a
watershed case. This decision upheld a lower court ruling that the Illinois
state legislature had the authority to determine the rates that could be
charged for storing grain. This decision, by sanctioning an expanded role
for government in the determination of prices, increased the payoff to
political activity relative to market activity and established an important
precedent for future increases in that payoff.
In Chicago, Milwaukee and St. Paul Railroad Co. v. Minnesota (1890), the
Supreme Court imposed what appeared to be limits on state regulation of
economic activity by ruling that such regulation must be reasonable.
Unfortunately, this reasonableness doctrine put the effectiveness of judicial
restraint on government at the mercy of current fashion in social thought.
What is considered unreasonable at one time may be considered quite
reasonable at another. It was unreasonable for the Baltimore and Ohio
railroad to consider requesting government funds to repair its Harpers Ferry
bridge, destroyed by government forces, during the Civil War. In the 1980's
it was considered reasonable for Chrysler Corporation to request and receive
a federal government bailout because Chrysler was not competing successfully
for the consumer's dollar.
Undermining Constitutional Law
The idea of reasonable regulation significantly undermined the concept of a
higher Constitutional law that established protections needed for the long-
run viability of a free and productive social order. Once the notion of
reasonable regulation stuck its nose into the judicial tent it was just a
matter of time before the courts began seeing their task as that of judging
particular outcomes rather than overseeing the general rules of the game.
Illustrative of this changing emphasis was the legal brief submitted by Louis
Brandeis, then an attorney for the state of Oregon, in the 1908 case Muller
v. Oregon. At issue was the constitutionality of an Oregon law which
regulated the working hours of women. The Brandeis brief contained only a
few pages addressing constitutional considerations and well over one hundred
pages of social economic data and argumentation attempting to establish the
unfortunate consequences of women working long hours. It was a judgement on
the reasonableness of a particular outcome, women working long hours, rather
than constitutional considerations, which were considered of paramount
importance and led to a Supreme Court ruling in favor of Oregon. When the
constitutionality of legislation stands or falls on the "reasonableness" of
the particular outcomes it hopes to achieve, opportunities exist for people
to increase their power thru nonproductive political activity.
In the 1911 case United States v. Grimand, the Supreme Court handed down a
decision that significantly increased the private return to obtaining
transfers through political influence. Prior to this decision, the U.S.
Congress had increasingly moved toward granting administrative agencies the
authority to promulgate specific rules in order to implement the general
policy objectives outlined by Congress. In United States v. Grimand the
high court empowered these administrative rulings with the full force of law.
After this decision, the cost of successfully using government authority to
transfer wealth decreased significantly as special interest groups seeking
preferential treatment could concentrate their influence on a few key members
of a particular administrative board or agency. The typical result of this
has been the development of symbiotic relationships between bureaucratic
agencies and their special interest clients. A special interest group can
thrive on the benefits transferred to it by the ruling of a bureaucracy, and
the bureaucracy's budget and prestige will depend on a thriving special
interest group demanding its services.
What we have observed over the years is a slow, somewhat erratic, but
unmistakable breakdown in the protection the Constitution provides the public
against arbitrary government power. Those who want to get on with the task
of creating new wealth have much less assurance today than they did in the
past that significant portions of the wealth they create will not be
confiscated by government and transferred to those who have specialized in
political influence.
Maintaining constitutional constraints on government activity is a task
requiring constant vigilance. Once a breakdown in these constraints begins,
it can initiate a destructive dynamic of increasing government transfers that
is difficult to control. Any change that makes it easier to obtain transfers
through government will motivate some people to redirect their efforts away
from productive enterprises and into transfer enterprises. As this is done,
those who continue to create new wealth find the payoff from doing so is
somewhat diminished as more of this wealth is being taken from them. This
further reduction in the relative return to productive activity motivates yet
more people to use government power to benefit at the expense of others.
Furthermore, the burdens and inefficiencies created by one government program
will be used as "justification" for yet additional government programs which
will create new burdens and inefficiencies. This dynamic can lead to what is
best characterized as a "transfer society."
Political Piracy and the Transfer Society
Once we start down the road to the transfer society we can easily find
ourselves trapped in a situation almost everyone will disapprove of, but
which no one will be willing to change. The analogy of piracy is appropriate
here. When all ships are productively employed shipping the goods, a large
amount of wealth can be generated. But if sanctions against piracy are eased
a few shippers may find it to their personal advantage to stop shipping and
start pirating the merchandise being shipped by others, even though this
reduces the total wealth available. This piracy by the few will reduce the
return the others receive from shipping, and there will be an increase in the
number finding the advantage in piracy. Eventually the point may be reached
where everyone is sailing the seas looking for the booty that used to be
shipped but is no longer. No one is doing well under these circumstances,
and indeed, all would be much better off if everyone would return to shipping
the goods. Yet who will be willing to return to productive shipping when
everyone else is a pirate?
Obviously, we have not yet arrived at the point of being a full-blown
transfer society; not everyone has become a political pirate. There are
plenty of people who remain productive, and they still receive a measure of
protection against the confiscation of the returns to their efforts by the
constitutional limitations that remain on governmental power. But there can
be no doubt that these limitations are less effective today than they were in
the past. This erosion is in large measure due to a change in the prevailing
attitude toward government. The fear of unrestrained governmental power that
guided the Founding Fathers has been largely replaced with the view that
discretionary government power is a force for social good. If there is a
problem, government supposedly has the obligation and ability to solve it.
Such public attitudes have a decisive influence on the effectiveness of
constitutional limitations.
Simply writing something down on a document called the Constitution does not
by itself make it so. And, because of this fact, Alexis de Tocqueville,
writing in the 1830's, predicted that the U.S. Constitution would eventually
cease to exercise effective restraint on government. According to
Tocqueville, "The government of the Union depends almost entirely upon legal
fictions." He continued that it would be difficult to "imagine that it is
possible by the aid of legal fictions to prevent men from finding out and
employing those means of gratifying their passions which have been left open
to them."
But controlling our passions is what constitutional government is all about.
In the absence of government we have the anarchy of the Hobbesian jungle in
which those who control their passion for immediate gratification and apply
their efforts toward long-run objectives only increase their vulnerability to
the predation of those who exercise no control or foresight. Granting
government the power to enforce rules of social interaction is surely a
necessary condition if a productive social order is to emerge from a state of
anarchy. But without strict constitutional limits on the scope of government
activity, the existence of government power will only increase the scope of
effective predation. The notion that government can solve all problems
becomes a convenient pretense for those who would solve their problems at the
expense of others. Unlimited government reduces the personal advantage to
the productive pursuit of long-run objectives just as surely as does anarchy.
In such a case, government is little more than the means of moving from the
anarchy of the Hobbesian jungle to the anarchy of the political jungle.
The American experience, however, demonstrates convincingly that with a
healthy fear of government power and a realistic understanding of human
nature, a constitution can be designed that, over a long period of time, will
effectively constrain government to operate within the limits defined by the
delicate balance between proper power and prudent restraint. All that is
needed to restore the U.S. Constitution to its full effectiveness is a return
to the political wisdom that guided out Founding Fathers 200 years ago.
Conclusion
The U.S. is a wealthy country today in large part because our Founding
Fathers had what can be quite accurately described as a negative attitude
toward government. They had little confidence in the ability of government
to promote social well-being through the application of government power. In
their view, the best that government can realistically hope to achieve is the
establishment of a social setting in which individuals are free, within the
limits of general laws, to productively pursue their own objectives.
This negative view of government contrasts sharply with the dominant view
today; the view that government is the problem solver of last resort and has
an obligation to provide a solution to any problem not resolved immediately
in the private sector. Unfortunately, this positive view of government is
less conducive to positive consequences than the negative view of the
Founders. According to F. A. Hayek:
The first (positive view) gives us a sense of unlimited power to realize
our wishes, while the second (negative view) leads to the insight that
there are limitations to what we can deliberately bring about, and to
the recognition that some of our present hopes are delusions. Yet the
effect of allowing ourselves to be deluded by the first view has always
been that man has actually limited the scope of what he can achieve.
For it has always been the recognition of the limits of the possible
which has enabled man to make full use of his powers.
The exercise of government can, without doubt, be used to accomplish
particular ends. Neither can it be denied that many of the specific outcomes
realized through government provide important benefits and advance worthy
objectives. But, as is always the case, those accomplishments are only
realized at a cost, and the pervasive truth about government accomplishments
is that those who benefit from them are seldom those who pay the cost.
Indeed, much of the motivation for engaging in political actions is to escape
the discipline imposed by the market where individuals are accountable for
the cost of their choices.
The escape from market discipline is the inevitable consequence of reducing
the constitutional limits on the use of government power. The immediate and
visible benefits that are generated by wide-ranging government discretion are
paid for by a shift in the incentive structure that, over the long run, will
reduce the amount of good than can be accomplished. More, much more, has
been accomplished by the American people because our Founding Fathers had a
strong sense of the limits on what can be accomplished by government.
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Dwight Lee is a professor of economics at the University of Georgia and holds
the Ramsey Chair in Private Enterprise. He is co-author (with Richard
McKenzie) of the book `Regulating Government: the positive Sum Solution,
Lexington Books 1987. This article is adapted from a chapter in this book.
[Reprinted from Freedom League Newsletter, Apr/May 1987]
