UNIVERSITY TEXTBOOK SERIES® ADMINISTRATIVE LAW AND PROCESS SIXTH EDITION by RICHARD J. PIERCE, JR. Lyle P, Alverson Professor of Law George Washington University School of Law SIDNEY A. SHAPIRO University Distinguished Chair in Law Wake Forest University School of Law PAUL R. VERKUIL* Chairman, Administrative Conference of the United States President Bmeritus, College of William and Mary GEOUNDATION PRESS * The ideas expressed harein are those tho Adminittative Conference of the United oy oF his coauthors and should not be attsibutad to 10 federal goverment.Chapter 1 THE POLITICAL NATURE OF THE ADMINISTRATIVE PROCESS § 1.1 Private and Public Law Contrasted ‘Two essentially different models exist in this country for the resolution of social probleme and disputes, depending on whether they involve private or public law. Pri vate law typically involves a lawsuit brought by a private party usually against anoth er private party in a state court, often under common law prineiples, The federal court in this mode! has a backup role through the exercise of diversity jurisdiction. According to this model, the judge will determine impartially which claims have greater merit. In making that decision, the judge typically will be hound to follow an existing set of pree- cedents or statutory provisions that limit the scope of the decision that can be made. Public law typically involves an attempt by a governmental administrator to regulate the conduct usually of many persons under legislative standards designed to promote the public interest. While an agency may have to give a hearing to parties affected by a proposed aetion, the procedures used often will be less formal than those used in a private law trial and no Article III judge will be involved. In reaching @ decision, the administrator will typically have considerable discretion since the applicable laws will have delegated the responsibility to make the necessary policy decisions to the administrator's agency. The administrator is responsible to reviewing courts, bul agency decisions are also subject to review by the executive and logislative branches, and, for some forms of proceedings, this review can be concurrent with the regulatory proceeding itself. The distinctions between public and private law are not precise, Normally, for example, the responsibility for implementing broad legislative standards is assigned to administrative agencies. Courts, however, are sometimes also assigned that responsibility. The federal judiciary enforces the Sherman Act, for examplo, which broadly prohibits ‘monopolization” and “rostraint of trade” under 15 USC, §1 Moreover, even when the primary responsibility for enforcing broad logislative standards is assigned to agencies, the courts normally review agency decisions. ‘Thus, the judicimy is not limited to the enforcement of private rights, but it is also a participant: in the enforcement of public law as well. In order to remedy unconstitutional agency action, for example, judges have overseen remedial actions on behalf of schools, (prisons, mental health facilities, the police and public housing.? Finally, even traditional public law functions, such as the management of prisons, ean be turned over to private entrepreneurs. In this situation, the courts must decide whether publie or private law rules apply.? The concept of privatization, which allows "See C. Sabet & W, Simon, Destabiization Righte: How Public Law Litigation Suecende, 117 HARY. Is Rav. 1015 22004); A. Chayes, The Role of the Judge in Public Law Litigation, 88 HAR. [ ROY. i281 C99) * Consider Richardson v. McKnight, 522 U.S. 599 (1997), whore the Court, by & vote of five to four, Al that private prison officals ave entitled to the governmental function immunity under 12 U8 ten 12 THE POLITICAL NATURE OF THE ADMINISTRATIVE PROCESS, cha government contractors to provide services normally provided by government officials, has gained strength in recent years and poses new challenges to the public law model of governance. ‘The public law model is used widely in Europe, as the next ection shows, and it is has heen adapted in the United Statos with some reservations. Still, much of what we call law is really law of the administration, state or federal. Professor Mashaw’s pathbreaking recent work explains the “lost” American administrative law as partially a refusal to acknowledge the need for establishing a public law tradition in a common Jaw countey.! §1.2 Background to the Public Law and Private Law Distinction Since the time of Justinian, civil law jurisdictions have drawn distinetions between public and private law.% Three of the most important of these concern the organization of the judiciary, the nature of legal philosophy, and the manner of legal education, In most civil law countries, two different judicial systems exist for the enforeement of private and public law. Private law, whieh consists primarily of civil and commercial law, is adjudicated in “ordinary” courts. Public law, which consists primarily of administrative and constitutional law, is adjudicated in “administrative” courts, ‘The administrative courts have the power to annul virtually any administrative act for errors of fact, as well as law, and for cases of unlawfulness, as well as abuse of discretion, Most administrative judges have oxpertise in an administrative law subject and some administrative courts are divided into subject matter sections such as tax courts, social security courts, and others, Continental legal scholarship has stressed the distinction between public and private law in the creation of a general conception of law. The codified private law exists to protect private property and freedom of contract from government intrusion. ‘The sole function of the state is the recognition and enforcement of individual property and contract rights, The state performs this function by serving as a neutral referee when there is a dispute between private parties. By comparison, the public law, which generally is codified, exists to promote the “public interest.” As a result, the state is considered to be a party, and not a roferee, Further, the state, as the representative of the publie interest, is thought to have interests “superior” to that of any private party § 1988. See generally P. Verkuil, Pubic Law na on Privatization of Government Functions, 84 N.C. 1. REV. 397, 402-8 2006) isting init delegations to private parties) * See d. Preoman, Pending Public Law Norms Phrough Privatisation, 116 MARY, Le Buy. 1286, 1302 (20108) (Aiseussing whether privatization erodes the public law norms that constitutional ard statutory hmste ae designed vo protect); P. VERXUN, OUISOUNCING SOVIMEIGMTY I-11. (2007) rigumg, varus privatization effors in the military ond’ civilian aotings). Compare D. Rontne, Bevan Wal 2-30 (3013) (dseussing use of conizactors by USAID nnd other agonete 19 earty out poiey objestives i Une Nfdle Bond. « See), MASiIAW, CraTING TIE ADMINISTRATIVE CONSTITUTION: THE LOST ONE HUNDRED YRARS OF AnuicaN ADSCNIETRATIVE Law 5-9 2010), 5 J, MERIYMAN, Tie Civil, LaW TRADITION: AW IvrkopUcTION 70 THE LiKcAL Susans OP Wesreny BUKORE AND LATIN ANLICA 88-108 JDBC. Seladiln ‘he Clu Law Sytem, in Il INSARNATONAL EvevcioPnDia OF ComPalarivie LAW 2-26 to 2-40 (K- Zeiger © U, Drobnig edo, 1978; 3. Mennyoan, Ths Publi Fau-Priate Lats Distinction on Burgpoan and American Lave, V7. PON 18 (1908)§1.2___ BACKGROUND 10 ‘THE PUBLIC LAW AND PRIVATE LAW DISTINCTION r, the state can be the “driving consideration” to involved in the dispute. In thi “effectuate the public interest Continental legal scholarship has also used the distinction between private and public law to support a strict separation of powers doctrine. This doctrine holds in part that the legislative, executive, and judicial branches cannot perform each other's functions.? The separate court system for private and public law matters serves this distinction.* Public law judges are not called upon to adjudicate private law matters, ‘They therefore can be considered to be members of the executive branch, Conversely, private law judges are not called upon to adjudicate public law matters. The separate ‘court systems thereby allow a stricter separation of powers than is possible in systems, like the one in this country, where the same court system adjudicates both types of law. Of course, as with our system, it is not always clear even in Continental countries what egal actions are premised on public law and what are within the realm of private adjudication. Despite the considerable influence that the public and private law distinction has ad in civil law countries, it has far less impact in common law jurisdictions, One reason is that the distinction made less sense in foudal England during the early development of the common law, Because both “public” and “private” rights were defined by property interests, no distinction was made between property ownership and public office of the type made in civil law. Another reason is that one set of courts became the source of review for legislative and executive actions, as well as for private disputes, and therefore there was no strict separation of powers of the European type. Finally, early American legal scholars tended to ignore the distinction as unnecessary to the synthesis of judicial decisions by subject matter, euch as torts o contracts. This differed from the European tradition of secking an overriding conceptual framework for public and private law. Most early administrative law scholars also adopted narrow definitions of administrative law that inhibited the development of a general conception of public law of the continental type. Professor Wyman in a 1903 book made a distinction between “internal” administrative law, which concerned the relationships of administrative decisionmakers, and “oxiornal administrative Iw, which concerned the constitutional and statutory authority of agencies to impinge on the rights of private citizens.1? For a time, the distinction was used to soparate the field of public administration, which studied tho creation and application of administrative policy, and the field of administrative law, which studied the judicial review of final agency actions J, MERKYMAN, supra note 6, at 100-01 See infra § 2.12. * Continental log edueation has alao hoon influenced by the distinetion, Public lanyors ar trained to be bureaucrats, not advocates, and. a publie law edueatian encompasses instruction in politieal seichce ail economics, a well as constitutional and administrative law. See T. Carbornent, The Pench Liga! Studies (Curriutum: he History and Relevance as a Model for Reform, 28 MCI. Ind. 448 (90), 2 In trance, for oxample, the Tribunals dos Conflicts must adjudicale jmisdictional deputos betwee the administrative and ordinary courts, See N. BROWN SJ. BHis, FRENCH ADMINISIRASIVE La 144-46 (3th ‘a, 1983), 2B, WyMaN, THE PRINCIPLES OP THE ADMINISTRATIVE LAW GOVERNING Ts RELATIONS OF PUBLIC OF- rcwns 1-23 (1908),4 ‘THE POLITICAL NATORE OF THE ADMINISTRATIVE PROCESS oh Wyman's distinction was ultimately abandoned because scholars recognized that some problems of administrative law concerned internal procedures, organization and personnel administration."’ A good example is tho separation of the prosecutorial and judicial functions within an ageney. Nevertheless, scholars still considered administrative law and public administration to be largely unrelated. Professor Carrow, for example, noted that “those subjects of administration not closely related to the exercise of administrative powers . .. are of lesser interest in the study of administrative law, ‘Thus such questions as the ones raised by the desirability of a single-head as against a broad type of administration, centralization as against decentralization of administrative agencies, civil service generally, or grants in aid to other governmental levels, are matiers more clearly within the providence of publie administration studies”? Scholars made another distinction which further served to narrow the focus of administrative law. This distinction was between “general” administrative law, which pertained to those procedural questions common to most agencies, and “special” administrative law, which pertained to the substantive law made by an agency and any unique procedures used, For law students, this distinction was made on the “practical” ground that it was “truly impossible to present both the general and all the specialized Jaw in one book, nor could it be taught in one law school course”. As a result, “specialized” questions were left for specific subject matter courses such as federal trade regulation, taxation, or immigration and naturalization law. ‘The movement to de-emphasize the broader aspects of administrative law was not universal, however. Early scholars, such as Professors Goodnow and Freund attempted to establish links between publie law, as practiced on the continent, and administrative law, as it dovoloped ‘in the United States.'* Later authors contended that administrative law could not be understood apart. from its broader contexts. In the introduction to his 1960 textbook, for example, Professor Hart reminded the reader that the central problom studied in both administrative Inv and political science was the “adjustment of authority and liberty.” Hart warned that the student who ignored this connection would “see important issues of administrative law as merely technical, and hence dull and meaningless questions” and would “be unable to make intelligent administrative law judgments”. By comparison, Hart thought that the student “who reduces every question to tho over-all problem will find administrative law of great significance precisely because it involves specific application af political theory.” Although the private-publie law distinction has not become a staple of Ameriean administrative law scholarship, scholars have used the distinction to analyze legal developments in administrative and constitutional law. For example, Professor Mashaw has considered the different dimensions of the “right” seek judicial review 5 See generally W. CHASE, THE AMERICAN Law SCHOOL. AND ‘IEE ish: OF ADNHNISYRATIVE GovERS: -uavr 61-69 (1982) (lailurs of scholaychip to address “interna!” law resulted in excessive agency disrction). EM, Cannow, ie BACKOROUND OF ADMINISTRATIVE Lest 17-18 (1948). "SR, Parker, Administrative Lave: A Text 5 (1952), "See E. Freund, Administrative Powers Over Persons and Propesty: A Comparative Survey (1928); Goodnow, Colaparative Administrative Lav (reprint 1970) (1803), '®J. Hart, An Intyoduetion to Administrative Law: with Soleeved Cases 28 (2d ea. 1950); accord Freund, Historical Survey, bs The Growth of American Administrative Law 40 (1825),‘THE RELEVANCE OF THE PUBLIC LAW MODEL T0 gua ADMINISTRATIVE LAW 5 under “individualistic” (private law) and “statist” (publie law) conceptions, 18 The publie and private law distinction hae also been used to highlight the fact that when judges engage in constitutional adjudication, their decisions, especially concerning remedial action, inherently raise a problem of democratic responsiveness, As the Chevron case teaches us, judges are not elected and are not members of the “political” branches of government.” Moreover, despite the failure generally to identify American administrative law with public law trends abroad, administrative law scholarship is deeply committed to the view that administrative Jaw must be understood in terms of its broader relationships. Scholars have examined other social science disciplines, political science, public administration, and economies, to evaluate how the administrative law and process can be botter understood and improved.!* Further, administrative law easebooks usually ask students to consider questions associated with the public administration, political science, or economic aspects of administrative law and process. Certainly, the authors of this treatise approach the subject of administrative Jaw from this broader, interdisciplinary framework. It is well to remember the words of Woodrow Wilson, in his academic years that preceded his presidency (and his ‘administration"): “Public administration is detailed and systematic execution of law. Every particular application of law is an act of administration. . .. Administration is the most obvious part of government; it is government in action; itis the executive, the operative, the most visible side of government.” § 1.3 The Relevance of the Public Law Model to Administrative Law In civil law jurisdictions, public law is synonymous with administrative law. While there has been a reluctance overtly to make that connection in the United States, the authors believe that many current administrative law doctrines are nonetheless indirectly influenced by the concept of public law. We will propose a public law model that helps explain the relationship between administrative Iaw and the process by which administrative decisions are reached. ‘The remainder of this chapter will describe the administrative process. Chapter ‘Two will describe the relationship of that process to administrative law. The nature of that process, and the interconnections between it and administrative law, form the publie law model. "6d, Masha, “Tights” in the Federal Administroriw State, 92. YALa Lad. 1129 (1983); see also B. AcKuEMAN, RNCONSTRUCTING AMERICAN LAW 23-7 (1684); R. Stowaxt & C. Sunstein, Public Programe onal Private Rights, 95 Han. 1. REV. 1195 (1982), See also. MASHAW, supra note 4 Chevron U.8.A., Ine. v. Natural Resavrees Defense Council, Ine, 467 U.S, 837 (1984); diseussed infra at § 74 See, 4, S. OROLAY, RRGULATION AND PUD) INTERESTS: THE Possumurry oF Goon REGULATORY Govexnnmat @o07), R. Banvaiw dM. Cave, UNDERSFANDING REGULATION: THRORY, STRATEGY, & PRACTICE cb. 3 (L000); J. MasHaN, Geen, Cisos & Covinsaner: USING PUBLIC CHOICE To IMPROVE Puntsc LAW (1986), C. Sussman, ‘Funt Maikers & SociaL JUSTICE (1997); G. ROBINSON, AMERICAN Buntaucnacy: Puntac Choice & BuaLIC Law (1991); B. Kagan, Presidential Administration, 111 HARY. L Rv. 2245 (2001), C. Farina, Statutory Intrpretation and the Balance of Power in the Administrative State, {89 COLUM. L. REV. 7 452 (1989), R. Paves, The Rule of Constitutional and Politiea! Thsory in Administrative Tes, 64°F, iv. 469 (198), "Woodrow Wileon, The Study of Administration: An Heeay, Pol, Sl. Q. (Duly 1887).6 ‘THE POLITICAL NATURE OP THE ADMINISTRATIVE PROCESS chat $1.4 The Nature of the Administrative Process Four governmental institutions create public law. ‘Tho legislature establishes an agency by passing onabling legislation that defines its role and its limitations. The legislature controls the agency subsequently through @ combination of statutory controls, such as laws that overrule agency decisions, and non-statutory controls, such fas oversight hoarings. The President or a governor appoints the person or persons who will lead an agency, usually with the approval of at least one house of the legislature. The executive's staff monitors the agency’s compliance with the administration's general rogulatory philosophy or specific wishes in a given case. The agency is composed of its politically appointed leadership and usually a staff hired through a civil service system. Finally, the judiciary, who may be political appointees or elected officials at the state level, will determine whether an agency has acted within the mitations of its enabling act and the constitution. Private parties are active in public Law by participation in ageney proceedings and by lobbying agency administrators, the executive, legislators, or the staff of those persons. Private participants include the firm or industry being regulated and other firms financially affected, both of which may participate through the use of trade associations, such as specific industry associations, or the United States Chamber of Commerce. Public interest groups, such as the Environmental Defense Fund, Natural Resources Defense Council, OMB Watch, Public Citizen, and the Sierra Club, will also participate in some matters, § 1.4.1 Regulation of greenhouse gases In 1999, ninotcen private organizations submitted a petition to the Environmental Protection Agency (EPA) to compel it to regulate the emission of four types of greenhouse gases (GHGs) under the Clean Air Act (CAA).2® Section 202(a)(1) of the CAA provides that “The [BPA] Administrator shall by regulation prescribe standards applicable to the emission of any air pollutant from . .. motor vehicles which . . . cause, or contribute to, air pollution which may reasonably be anticipated to endanger public health or welfare. ..." The organizations argued Section 202 required EPA to regulate because GHGs were “air pollutants from . . . motor vehicles” that, according to federal reports, were a danger to “public health and welfare” in light of the adverse impacts of climate change. In September 2003, after taking public comment, EPA denied the petition.## The petitioners, joined by state and local governments, filed a lawsuit in the D.C, Cireuit Court of Appeals challenging its decision, After the circuit court upheld BPA, a group ‘>See International Genter for Techsology Assesment, Petition for Ruleinsking and Collateral Reet ‘Sovking the Regulation of Greenhouse Gas Eiasions from New Motor Vehieles Under § 202 of the Clean Air ‘Aer 10°24 (Oct, 20, 1998) ‘The organizations wore the Alliance for Sustainable Communities; Applied Power ‘Tecimolegien, Ine; Io Pucle Amerie) “The California Solar Energy Industries Azen.; Clements Roviranmental Corp.; Bnvinonmental Advocates, Bavironnte al ane Bnorgy Study Instituto; Frionds of the Earth: Full Grelo Baongy Project, Ine; The Greon Party of Rhode Island, Greenpeace USS; Interwational Genter for Technology Assessments Network for Havironinental and Beonoric Responsibility of the United Ghureh of Christy New Jersey Environmental Watch; New Mexieo Solar Yinergy “Assn Oregon Fhvitonmental Coun: Publi Citizen, Solar Energy Industries Assn; and the SUN DAY Campaign. 2149 USC. § 7521000) 2 Notico of Denial of Petition for Rulomaking, 68 Fed. Reg, 62; 129 (Sept. 8, 200%).gia ‘THE NATURE OF THE ADMINISTRATIVE PROCES of etates,2? local governments, and pubic interest organizations* sought review by the Supreme Court. The HPA, other states,” and six trade associations®” opposed the petition for review. The Supreme Court overruled the circuit court’s decision and yemanded the ease back to BPA. ‘The case is emblematic of public law disputes in a number of ways. It was the result of a political dispute concerning the best way for the United States to respond to global climate change. In addition, it prosonted the issue of whether the Constitution ‘authorized the federal judiciary to reviow this type of political dispute. Further, it wolved all three branches of government. Congress had passed, and the President had signed, the CAA, and the Suprome Court was being asked to decide whether the Jaw required EPA to regulate, And, as will be discussed shortly, the White House at the time the petition was denied was against regulating GHOs and undoubtedly influenced EPA to deny the petition. Finally, as indicated, it involved dozens of parties, including other levels of government, trade associations, individual companies, and public interest groups, split between those opposing and supporting EPA. Before the Court reachod the issue of whether BPA could decline to regulate, it had to determine if any of the parties suing the agency had “standing.” This requirement arises out of Article IIT of the Constitution, which limits the power of federal courts to the resolution of “eases” and “controversies.” The Court split 5~4 with the majority holding that the state of Massachusetts had standing to sue EPA. We discuss the standing doctrine in § 5.4. For now, we will only point out that standing doctrine requires that the plaintiff euffer come sort of injury or harm caused by actions taken by federal agencies or the lack of action, as plaintiffs were alleging in this case. ‘The requirement that a plaintiff be injured ensures that the plaintiff has an actual stake in tse outcome of the case sufficient to ensure that the dispute really does involve a controversy between the parties. As you'll learn in §5.4, the standing test is relatively vague, which pormits various Justices to implement it a way that reflects their view of what should be the role of the courts in disputes such as the one in this case. The majority found the Massachusetts was actually injured by the failure to regulate because it was loosing small amounts of shoreline each year from rising sea levels that were the result of climate change. The dissent found that any injury to the state was too small to cause it the level of harm sufficient to create an actual controversy and that, in any case, Massachusetts had failed to prove that GHG emissions from mobile sources in the US ‘was the cause of the loss of land, ™ California, Connecticut Illinois, Maine, Maskachupette, Now Jersey, New Mexico, New York, Orexon, Rhode Ialan, Vormont, and Washington, u District of Columbia, American ®Conter for Biological Div sn, New York Gity, and Baltimore sy, Conter for Face) Safety, Conservation Law Foundation, Bavironmental Advocates, Environmental Defense, Friends of tho arth, Greenpeace, Intornational Center for Technology Assessment, National Hnvinopmental Trust, Natural Resources Defense Counei, irra Club, Union of Conrermed S Public Tnlerost Research Group. Alaska, Maho, Kansas, Michigan, Nebrasks, North Dakota, Ohio, South Dakota, Texas, and Utsh, wAlinee of Automobile Manufacturers, National Automobile Dealats Association, Engine Manufacturers: Associntion, ruck Manufacturers Asoeiation, COx Litigation Group, and USty Air Regulatory Group. 2 Massachunotts ¥, EPA, 549 U.S, 497 (2007.5 ‘THE POLITICAL NATURE OF THE ADMINISTRATIVE PROCESS: ch. On the merits, the majority held that the definition of “pollutants” in the CAA included GHGs and that the definition of “public health or welfare” included injuries resulting from weather and climate. ‘This meant that EPA could not avoid regulating unless it could find that the GHGs could not “reasonable be anticipated” to cause harms to the environment or the public. The majority therefore remanded the case back to EPA s0 that it could decide whether or not an endangerment finding was appropriate. EPA had argued that it could decline to regulate if regulation would conflict with other priorities of the Bush administration. Tho administration had taken the position that the United States should not act to regulate potential sourees of climate change until an international agreement was reached concerning how nations would proceed. ‘The Court replied that this was not a reason that FPA could use to justify a lack of faction because Congress had not authorized the agency to take foreign policy considerations into account in deciding whether to regulate, It explained While the statute does condition the exercise of EPA's wuthority on its formation of a “judgment,” that judgment must relate to whethor an air pollutant “cause(s}, or contribute(s} to, air pollution which may reasonably be anticipated to endanger public health or welfare.” Put another way, the use of the word “judgment” is nol a roving liconse to ignore the statutory text. It is but a direction to exercise discretion within defined statutory limits.” On December 7, 2009, the EPA Administrator found that six GHGs in the atmosphere threatened the public health and welfare of ewrent and future generations, and that motor vehicle emissions therefore contributed to the greenhouse gas pollution that threatened the public health and welfare. In June 2012, the D.C. Court of Appeals upheld BPA’s endangerment finding.*® The finding does not itsell impose regulatory requirements, and EPA has turned to the issue of what emissions limitations are necessary to protect people and the environment. The petition to regulate GHGs was filed in 1999, which means the effort to regulate these emissions had been going on for 14 years at the time this edition was completed. This is another aspect of significant public law controversies—they can last for years and years before a final resolution is reached, §1.4.2 The airbag controversy Automobile manufacturers routinely attempt to convince buyers to purchase their automobiles because they have installed more than the minimum mandatory airbags roquired by law. As the following story indicates, however, this was not always the siluation. The series of events that. led to today's use of airbags in cars nicely illustrates the interaction of the various institutions, private parties, and public interest groups that interact in public law. In 1966, Congress passed the National Traffic and Motor Vehicle Safety Act which directed the Department of 'ransportation to “reduce traffic accidents and deaths and injuries to porsons resulting from traffic accidents" by promulgating regulations that Td. nt 892-38, > Coalition for Responsible Regulation, Ine. et al. v. RPA, 84 F.8d 102 (D.C, Cir 2012)git ‘THE NATURE OF THE ADMINISTRATIVE PROC “shall be practical, shall meet the need for motor vehicle safety, and shall be stated in objective terms”. "The Department's general authority to promulgate such safoty standards was delegated to the National Highway Traffie Safety Administration (NHTSA). One of the Department's and NHTSA‘s first efforts was a 1967 regulation that required all new automobiles to have seathelts.™ By 1972, however, the Department found that the level of seatbelt usage was too low to reduce traffic injuries significantly, A new regulation therefore was issued to require that all automobiles built after 1975 have either automatic seatbelts, which would deploy without any effort by the passenger to buckle them, or airbags, which would automatically inflate around passengers if an automobile was in an accident, The Department also required that all automobiles built between 1973 and 1975 be equipped either with passive restraints or with an “ignition interlock” that would not allow them to be started unless the cat's seatbelts were buckled 5 In Chrysler Corporation v. Department of Transportation, the Sixth Cireuit affirmod the regulations, but their political 1ife turned out to be stiori-lived, The automobile manufacturers: had chosen to comply with the 1973 to 1975 regulations by installing ignition interlocks. The interlocks were so unpopular with the public that Congress received numerous complaints. The lawmakers reacted by passing the Motor Vehicle and School Bus Safety Act Amendments of 1974. The law prohibited the Department from requiring the interlocks. It also provided that any future passive restraint regulations promulgated by the agoncy had to be submitted to Congress for its review and that Congress could veto them by a concurrent resolution of both houses.3* Passive restraints then became « political ping-pong ball. William Coleman, President Ford's Secretary of Traneportation, withdrew the existing regulations and proposed that a demonstration project involving as many as 500,000 cars be mounted to smooth the way for public acceptance of passive restraints, When President Carter appointed Brock Adams as Secretary a few months later, the Departmont changed its, mind and reissued a regulation requiring passive restraints starting in 1982. The regulation survived serutiny by Congress, which did not use its legislative veto authority, and it was affirmed in Pacifie Legal Foundation v. Department of Transportation by the District of Columbia Circuit.*T In February 1981, however, Drew Lewis, appointed Secretary by President Reagan, withdrew the regulation on the ground that automobile manufacturers planned to meet the regulation by use of automatic seatbelts that could easily be detached. 16 USC. §§ 1881, 19020); 49 CER § 1.60(a) Gelegating Seeretery’s authority to NHTSA). See generally). MASGAW & D. HAR, TiN: STRUGALE FOR AUTO SAPITY (1950) 32 Fal. Reg. 2408, 2415 (1967). 987 Fed. Rog. 3911, 3912 (1972), 8472 F.2d 059, 675 (dh Cir, 1972), 15 USC. § 1410b. Tho Supreme Court later declaned the legislative voto to be unconstitutional. See info 3.5, 42 Fea. Reg. $4,288, 94.297 (1977) 17593 F.2d 1838, 1349 (D.C. Cir, 1979), cer, deniad, 44% U.S. 890 (979) "S40 Pod. Reg. 21,205-208 (1981),10 ‘THE POLITICAL NATURE OF THE ADMINISTRATIVE PROCESS cha In Motor Vehicle Manufacturers Association v. State Farm Mutual Automobile Insurance Company, the Supreme Court heard s ehallenge to the Department's decision by severa! insurance companies, which believed that passive restraints would lower insurance costs, and by several public interest groups.” ‘The decision was dofended by the Department and by the Motor Vehicle Manufacturers Association, which belicved that. passive restraints would increase automobile costs without any corresponding benefit. The Court remanded the regulation back to the Department on the ground that the agency could not withdraw it without a more logical explanation of its actions. The Court found that: while NHTSA offered reasons why it did not make sense to require automatic seathelts, it offered no rationale for why it did not require the installation of airbags. In 1984, Secretary of Transportation Blizabeth Dole promulgated a new passive restraint rule which required the automobile manufacturers to install either automatic seatbelts or airhags in all automobiles ater 1989,"° he regulation provided, however, that it would not go into effect if two-thirds of the nation's population were covered by state laws requiring the use of manual seatbelts before April 1, 1989, and if those laws met the minimum criteria set out in the regulation. Although lobbyists from the automobite manufacturers swooped down on state legislatures in a $15 million campaign for the adoption of laws requiring the use of seatbelts, the campaign failed. Most states did enact seatbelt laws, but most of these did not meet the minimum criteria specified in the regulation and the regulation requiring the use of passive restraints went into effect. By the late 1990s, airbags were practically a standard technology. In 1997, of the 100 million ears and trucks on the roads, about 55 million had driver-side airbags, and some 28 million also had passenger side airbags. Nevertheless, the government's mandate continued to be controversial"! NHTSA discovered that in addition to the 1,700 lives saved by airbags since the mid~1980s, airbags were responsible for causing the deaths of 56 persons, including 35 childven. ‘The problem was that airbags explode with such great force that they are a threat to small adults and children. ‘The age had originally assumed that airbags of this force were necessary to protect drivers passengers because they might not be wearing seatbelts, The agency issued warnings to the public not to place small children in the front seat of cars with passenger side airbage and it amended its regulation to permit car owners who were endangered to install a switeh to shut off airbags. The automakers’ resistance to the legal imposition of airbag technology involved many of the common elements of a public Inw mattor. The Department of Transportation was given broad discretion to decide how to reduce traffic injuries which it chose to exercise initially in the form of requiring passive restraints, The issue throughout the following years of contention was whether such a requirement served the public interest of protecting people and reducing the cost of automobile accidents, Resolution of the iseue involved @ statutory amendment and other oversight by Congress, successive changes implemented by each of four now Presidential appointees, and three different Inwsuits, including a challenge heard by the Supreme Standard: Occupant Crash Protection, 49 Ped. Reg. 28.962 (1984), OMAR, REGUTATORY LAW & POLICY: CASES & MATERIALS 32 (2d ed. 2003)gia ‘THE NATURE OF THE ADMINISTRATIVE PROCI un Court, Participants in most of those events included industry groups which supported and opposed the proposals and public interest groups which supported them. i ‘The seatbelt example indicates that the administrative Jaw process is bound up. with the practice of politics. This chapter will address the nature of the relationship between that process and politics. To consider this issue, it is important to recognize that there are two contending explanations for why regulation exists. One is that it, serves some public or general social purpose. The other is that it serves the economic interest of some private group or groups. § 14.8. The Philadelphia Refinery as a Case Study Our firet two ease studios looked at the regulatory process as a means of furthering public poliey goal. We discussed the many issues raised by efforts to improve highway safety by requiring passive restraints in vehicles and by efforts to mitigate anthropogenic climate change by regulating greon house gases as pollutants We looked at both from a top down perspeetive. We discussed the ways in which agencies and courts have interacted in the process of furthering these tivo important policy initiatives. In our third case study, we illustrate the way that regulatory issues usually appear to the many thousands of regulatory lawyers who work in the trenches. "Typically, lawyors become involved in regulatory proceedings at the behest of private clients that sock legal assistance to accomplish a discrete goal. In this process, lawyers, look at regulatory issues from a bottom up perspective, eg, how can I got a permit or waiver that will allow my ctient to take some step in the process of implementing a proposed project? | ‘this ease study was inspired by an excellent investigative report published by the Washington Post in December 2012." It focuses on the large oil refinery that Sunoco has operated near Philadelphia since 1866, By 2011, the refinery was in grave danger cof closing, Most ofits facilities and equipment, were obsolete. The refinery had operated at a loss for years, and it was incapable of continuing to operate profitably within the constraints imposed by increasingly strict environmental rules without major changes. When the union that represented most of the employees at the refinery—the United Steel Workers (USW)—learned that Sunoco planned to close the refinery, it asked the member of Congress who represents the district that includes the refinery—Bob Brady—to help USW save the refinery and the Jarge number of high-paying jobs it provides, Sunoev, USW, and Brady approached a private equity firm—the Carlyle Group- in. an effort to find a buyer for the refinery that would be willing and able to make the substantial investments required to save tho refinery. Carlyle concluded that the refinery ould he saved and converted into a modern profitable and relatively environmentally benign facility if, but only if, it could make numerous major changes, each of which required multiple regulatory approvals. Sunoco, USW, Brady, and Carlyle met with President Obama’s economic advisor, Gene Sperling, in an attempt to “Steven Mufson, Cariyle Group, Sunoco and Poltisians’ Joint Venture to Rosewo Philadelphia y, Wash, Pos, Dec, 22, 2013 Refin2 TRE POLITICAL NATURE OF THE ADMINISTRATIVE PROCESS cha enlist the support of the White House for the effort to resuscitate and rejuvenate the refinery. Sperling concluded that saving and modernizing the refinery was an important component of any effort to reinvigorate the economy of the northeast. ‘The refinery was a critical souree of both high-paying jobs and adequate supplies of petroleum products for the entive region, Sperling agreed to provide White House support for the project. Among the many changes to the refinery that were necessary prerequisites to success were locating and obtaining access to a now supply of the light sweet crude oil that it could refine profitably in a manner consistent with environmental rules and locating and obtaining access to a new supply of fucl that it could use to operate the refinery at low cost and in a manner consistent with environmental rules, Both of those critical tasks had been rendered feasible by the dramatic oxpansion of the oil and gas production process called fracking that began in 2007, Fracking refers to the process of drilling horizontally from a well completion depth of one to two miles through an oil and/or gas-rich shale formation and injecting a fluid at high pressure to leach oil and/or natural gas out of the shale through @ production well located some distance from the injection well. Fracking has increased massively the supply of oil and gas available in North America. By 2012, the US had already overtaken Russia as the world’s largest supplier of natural gas, and the US is projected to displace Saudi Arabia as the world’s largest supplier of erude oil by 2020.* Fracking has created a large supply of inexpensive gas produced from the Marcellus shale gas formation that underlies a large part of the northeast and a large supply of light sweet crude oil produced from the Bakken shale oil formation in the Dakotas. Since gas is much more environmentally benign than other potential sources of refinery fuel, the availability of the remarkably abundant and inexpensive gas from the Marcellus formation created a situation in which the refinery could switch to a new fuel souree that simultancously reduced its costs significantly and reduced its emissions of pollutants significantly. The refinery has to obtain aceoss to gas from the Marcellus formation, but that will not be difficult. ‘The combination of the large supply of gas available from Marcellus and the large demand for gas in the northeast has encouraged several firms to propose to build gas pipelines that will provide the refinery with access to cheap sas produced from Marcellus. ‘The abundant now supply of light sweet crude oil from the Bakken formation offers a similar combination of economic and environmental advantages, but the refinery confronted serious questions of access to the relatively remote Bakken crude. Fortunately, the fracking revolution aleo provided a potential means of enabling the nowly renovated Philadelphia refinery to obtain access to the light sweet crude produced from the Bakken formation, The massive increase in the supply of cheap gas produced from the Marcellus formation has created a situation in which electric generating companies in the northeast have replaced much of the coal they were buying from the Powder River Basin (PRB) in Wyoming with gas produced from the nearby Marcellus formation. That, in turn, has reduced dramatically the demand for rail transport of coal from the PRB to the northeast. Carlyle was able to take “International Eneray Agency, World Bry Outlook 2012.g15. ‘THE PUBLIC INTEREST EXPLANATION FOR REGULATION, 1a advantage of the newly available rail capacity from the northwest to the northeast by entering into agreements with two railroads to chip crude oil from Bakken to a now high-speed rail terminal that will serve the renovated refinery. ‘The Washington Post article describes generally three regulatory proceedings that are critical to the success of the project to rejuvenate the Philadelphia refinery—the successful attempt to persuade EPA to apply the new source provisions of the Clean Air Act to the proposed changes in the refinery in a manner that allows the changes to be made, the ongoing efforts to obtain regulatory approvals for the new high speed rail terminal, and the ongoing efforts of several firms to obtain the regulatory approvals needed to construct gas pipelines from the Marcellus formation to the refinery. ‘The article does not deseribe the hundreds of other regulatory proceedings that must be succeasfully concluded by lawyers for Carlyle and its allies to allow this project to continue to progress to the point at whieh it can be implemented in full. At the same time that the White House was lending its support to the project to save and to rejuvenate the Philadelphia refinery, it was engaged in a broader process of formulating and implementing a policy with respect to fracking. Before 2012 the White House had taken no position on fracking. The Department of State and the Department of Energy had taken stops that were supportive of fracking, while the EPA and the Department of Energy had taken steps that seemed to reflect skepticism bordering on hostility toward fracking. The President was silent on the subject until his January 24, 2012 State of the Union Address. In his State of the Union Address, Prosident Obama took ownership of the fracking revolution by referring with pride to the unprecedented increase in oil and gas proditction and rosulting decrease in dependence on foreign sources of energy that had taken place during his administration.** He returned to that theme in the hundreds of stump speeches he made during his successful reelection campaign. It is now apparent that the White House has adopted a position that is strongly supportive of fracking, albeit subject to strict regulation. That position is consistent with numerous studies that have found that fracking has the potential to yield large economic, environmental and geopolitical benefits if it is regulated in ways that render its environmental risks tolerable.** It is fair to assume that federal agencies will continue to act in ways that are broadly consistent with the White House views on fracking. §1.5 The Public Interest Explanation for Regulation Regulation can serve the public interest in two ways.%® First, it can address “market failure” or the absence of one or more of the factors necessary for an efficient. market, A private market is “efficient” when it produces only those goods and services most desired by consumers, Second, regulation is justified on the ground that the “Barack Obama, Remarks by the President in the Stat ofthe Union Adavese (January 24, 2012). ‘© g, Intrnational Baergy Agency, Golden Rules for the Golden Ago of Natural Gas (2012); Secretary of Bhorgy Advisory Hoard, Shale Gas Prexiuetion Commnitiee 90-Day Report (2011) erally Bihar Diener, Natural Gas Pracking Addresses All of Our Major Problems, foruncomsing im 2018 in Journal of Energy and Environmental Law “0 For an analysis of the publie interest explanation of regulation, age C. SUNSTEIN, AFT THE RIAN Ravouvtios: REOONCIWING THE RHGULATORY STATE 47-78 (1990), P. Verkuil, Understanding the "Public Interet” Justification for Government Actions, 8 ACTA JURIDICN HUNGARICA 141 (1988),“ ‘THY POLITICAL NATURE OF THE ADMINISTRATIVE PROCESS cha outcome of markets is inconsistent with important collective social values other than economie efficienc; § 1.5.1 Regulation to improve information Without accurate and adequate product information, consumers can purchase goods and services that will fail to perform adequately, or that will harm them or their property. Markets will be inefficient in these circumstances because consumers with accurate and adequate information about those consequences would have purchased other products, Inadequate information occurs because of market flaws of various types.” For example, some sellers, like itinerant roofers, do not depend significantly on repeat sales. They are free to mislead consumers because future ales do not require maintaining consumor good will, In other markets, information about the performance of products is too expensive for consumers to obtain. For example, information about the officacy and safety of pharmacoutical drugs or pesticides can be developed only after time-consuming and costly scientific testing, Because consumers are unlikely to undertake the testing on their own, some sellers may exploit the consumer's lack of knowledge to sell a drug or pesticide that performs poorly or is dangerous ‘Two forms of regulation have been created to address the problem of inaccurate and inadequate consumer information, Some agencies, like the Federal Trade Commission (FTC), are authorized to prohibit sellers from “false or deceptive acts or practices” in the sale of their products or services.*® Other agencies prohibit the sale of goods or services unless a license is first obtained from the agency. The agency conditions the availability of a license on the seller's meeting certain requirements that are intended to set a minimum level of quality for the goods and services. States license Gecupations for this purpose. Federal agencies, such as the Food and Drug ‘Administration (PDA) and the Environmental Protection Ageney (BPA), license the sale of products also for this purpose.” § 1.5.2 Regulation of competitive conditions ‘An efficient market also requires numerous sellers and buyers. Under these conditions, 2 market price will prevail at which sellers will produce exactly the supply of goods and services demanded by buyers at that price. ‘This result is efficient because both shortages and oversupply are avoided, ‘The type of competitive conditions that produce appropriate buyers and sellers will not always be present, Several types of rogulation have been adopted to remedy those situations, The antitrust laws, for example, prohibit a firm from an competitively exploiting a monopoly market position or two or more firms from “See W. Wagner, Commons Ignorance: The Pailure of Rnvironmentat Law to Produce Information On Health ond the Environment, 88 DUKE Lal 3619 (2004), MicuaKi. J. TRRKICOC Iino FuneDOm or Cowher (1993). Compare R. Pitofsky, Beyond Nader: Consumer Protection and the Regulation of Advertising, 0) HARY.L RY. 61, 668-87 (1977) (markets generally wil not produce adequate tonsumer information), will Rc Posnse, The Federal Trade Commission, 87 U. CH, Ls RAV. 7, 8-65 (159) (arlots generally will produce adequate consumer information) S15 USC. §§ 45, 82 See 21 U 8C. $6 951-9600" ewe and device roqulation); 7 U.S.C. §§ 196-136y (pesticide regulation)15 ‘TH PUBLIC INTEREST EXPLANATION FOR REGULATION 15 engaging in an agreement or conspiracy to restrain trade wnreasonably.* The states regulate firms, such as Jocal natural gas companies, that have a monopoly, to prevent them from exploiting their lack of competition by charging a price higher than that i which would occur in @ competitive market. § 1.5.3 Regulation for externalities and free-riders An efficient market also requires that consumers pay a market price that reflects: the value of the resources used in the production of the product, If « manufacturing. process, for example, produces toxie vapors that make persons ill, the manufacturer should pay for the medical expenses of those persons and include them as part of the price for which the product is sold. If the manufacturer does not pay those costs, the product will be overproduced. There will be more demand for the product than if it were sold at a higher price that reflected the damages its production caused. Under some market circumstances, a manufacturer will adjust the price of a product because persons who are adversely affected by its production will bargain for that result In most markets, however, 60 many persons are affected that the costs of negotiating the necessary bargain are prohibitive. The tort system compensates for that problem by foreing manufacturers to pay for the harmful consequences of many of their actions. Further, Congress has reached the judgment that agency regulation is, necessary to avoid additional injuries. Agencies such as the Environmental Protection Agency (EPA) and the Occupational Health and Safety Administration (OSHA) have the authority to order manufacturers to lessen pollution and other dangerous conditions. Some products, like national defense or police services, will not be produced in private markets because of what is called the “free-rider” problem, These products, called “public goods,” have the unique character that consumption of them by one consumer does not diminish the possibility of consumption by another consumer. As a result, public goods must be purchased by the government if they are to be purchased at all. Otherwise, every consumer will attempt to become a free rider by waiting for someone else to purchase the product so that it can be used for free. Government regulation concerning the method and collection of taxes ensures that each citizen pays a share of the cost of governmental purchases of public goods. §1.5.4 Regulation for social goals Even if a market system is efficient, it may produce outcomes that citizens find inappropriate. Citizens also rely on regulation to address these non-economic goals. As Cass Sunstein explains: S15 USC. G12, 818ce AA. KANN, uF, BooNOMICS OF RWOULAHON: PwNCWLES & INStITDTIONS HARRISON, T. MOnGAN, & P, VEAKUIL, REGULATION & DEREGULATION: CASES & MATIRIAL 2004} Bee R, Coase, The Problem of Socal Coot, 3.4L. 8 BOON. 1 (1860). 5 See R, Piotee, Encouraging Safety: The Limits of Tort Law and Government Regulation, 9 VaND. V Rev, 1283, 1289 (1980), While health and safety and environmental regultion can be justified on the basis of inanketfalbure, there fe debate over whether the fauve it'an eeoxemic problem or @ socia) problem: infra § 15.4 1 988); J ch. 3 a of16 ‘THE POLITICAL NATURP OF THE ADMINISTRATIVE PROCESS: Chat First, citizens may seek to fulfill individual and collective aspirations in political behavior, not in consumption. As citizens, people may seek the aid of the Jaw to bring about a social state in some sense higher than what emerges from a market ordering. Second, people may, in their capacity as political actors, attempt to satisly altruistic or other-regarding desires, which diverge from the self- interested preferences characteristic of other markets. Third, political decisions might vindicate what might be called meta-preferences or second.order preferences. A law protecting environmental diversity and opposing consuming behavior is an example. Besides the endangered species act, scholars have sought to justify other types of health and safoty and environmental law on the basis of collective social values.®° Other regulatory responses concern the distribution of wealth. Efficient markets may produce a distribution of wealth that a majority of citizens find unsatisfactory because some people are too poor to live a humane existence. Wealth is redistributed to needy persons, both divectly through methods such as food stamps, and indiroetly through subsidies to areas like housing and community development. The function of administrative agencies in redistributive activities is to determine the eligibility of persons and institutions to receive payments. §1.6 Regulatory Reform Whatever the justification, regulation in the United States is ubiquitous. Tt is difficult to think of many activities in which businesses and individuals engage that is not affected, at least indirectly, by regulation. The scope and extent of regulation has caused scholars to raise questions about its utility, In particular, crities have contended that the benefits of many forms of regulation are lesa than the costs of the regulation, * Regulation is economically efficient when benefits exceed costs because the total value of society's resources will have been increased. By comparison, when benefits are less than costs, society is spending more money to produce a social benefit than it is worth and thereby wasting scarce resources. Supporters of regulation counter that benefits do exceed costs for health and safety and environmental regulation, that a cost-benefit standard is an inappropriate measure of whether there should be regulation because it is extremely uncertain and biased, and that many forms of regulation have equitable goals which cannot be measured in economic terms.% ‘The debate concerning the costs and benefits of regulation will continue for the foresceable future.® The liveliness of the debate, however, should not obscure the fact 6, SUNSTEIN, supra note 18, al 57-58, 6 See, ef Ls HRINZEILING & F. ACKERMAN, PRICHLSS: ON KNOWING THE PRICE OF BVERYTHING AND cnx Vanuly OF Notaine (2004), 8. SHAPIRO & R. GLICKEMAN, Risk RUGULAHION AT RISK: RESTOR! PRAGMA APPROACH (2003). "2A, OKUM, EQUALLY AND ExvICIRNCY: TH Bio MuaDKore 6-22 (1976), Se, est, ©. SUNSTBIN, supra note 18; RISKS, Costs, AND Lives SaveD: Garmina Barra Rasuurs Foxe RoGuatiON GR Hahn ed 1990), 8. BUBYE, DRGAKGNG Tif Vicious CIRCLE: TowAKD evECTIVE Tsk Recuuation (1593), W. Viscu, Fatal TRADBOPPS: PULIIE AND PRIVATE RESPONSIBILITIES FOR RISK (1992); SS) BRIER, RRGULATION AND TIS REFORM 147-50 (1982). See, ex, supra note 5. 9 See injra $95 (iseussing regulatory nnalysis and political accountability).| that the crities of government regulation have already made a significant contribution to public policy. Soveral typos of regulatory programe have bocn ended or modified because their costs were greater than their benefits. For example, Congress has abolished the Civil Aeronautics Administration (CAB) and the Interstate Commerce Commission (ICC), and ended or vastly reduced price and entry regulation of the airline and surface transportation industries, Similarly, Congress has ended regulation by the Federal Energy Regulatory Commission (FERC) of petroleum prices. Partial deregulation has occurred for other forms of transportation and for broadcasting, Besides deregulation, critics argue that the form of regulation can be changed to decrease its costs, They contend that agencies should adopt regulatmy techniques, wherever feasible, that do not remove decisions about the sale and purchase of products from consumers.’ For example, states or municipalities could replace occupational licensing with techniques that would increase the amount of information that consumers would have about the quality of the service being offered. The advantage of these techniques is that consumers are allowed to determine for themselves what minimum level of quality they will aecept. Because consumers make that decision, @ possibly erroneous prejudgment by an agency about what consumers prefer is avoided. © §1.7 The Public Choice Explanation for Regulation ‘The public interest explanation for regulation identifies the economic or social purpose for which the regulation was establishod. ‘The purpose is either to improve the efficiency of a market or to address market outcomes that are inconsistent with social values, Regulation ean also be explained as the produet of political forees all | Politics has been defined as “who gets what, when, and how” and in this sens 1 regulation is political. Because regulatory decisions produce groups of persons who. | will benefit and groups of persons who will lose, each side competes concerning the outcome of proposed policies. Competition over regulatory outcomes is normally | conducted by interest groups who represent citizens affected by the proposed decisions. ‘Trade and producer organizations, Iabor unions, environment associations, and similar groups bargain with members of Congress, presidential aides, and administrators concerning the outcome of regulatory issues.* This competition has been interpreted as, a market process similar to private market decisionmaking, Interest groups demand more or loss rogulation according to the self-interest of their members and public officials supply more or less regulation according to what would benefit their self- interest. 8, Breyer, REGULATION aND TIS REFORM, suprir nate 6, xt 191-96, OUT, Moore, ‘The Purpose of Licensing, 4 3. Lav & BEON. 98, 104-06 (1961); J. Rose, Occupational Lioensing: A Pramework for Analysis, 1979 Anz St... 188, 191. 2H, Laswell, Potanics: Wao Gare Waar, Waien, How (1986); see also R, Luows, Wiio Prov: WINNERS, LOSERS, AND GOVERNMENT REGULATION (2985) "8 See 8, CROLEY, eupra note 18; J. CHUBB, INTEHEST ENERGY 18-41 (1969); R. NOLL & B. Owen, Tap POLITICA INTHE REGULATORY PROCESS 26-62 (1983). 6G, Stigler, The Theory of Economic Rogulstion, 2 BELL J. GON. & Mas Peltzman, Toward a More General Theory of Reyulation, 29 J. Law & ECON. 231 AND Pix Pourrics oF oxo DentantoN INTs GROUT Sei, 3, 1-13 (1981); S. 19 (1976) R. Posner,18 ‘THE POLITICAL NATURE OF THE ADMINISTRATIVE PROCESS a 1 ‘The idea that the regulatory process is best understood as a market-like provess is paxt of the “publie choice" explanation of polities. The public choice approach has been defined as “the economic study of nonmarket decisionmaking, or simply the application of economics to political science."6 The hasie premise of this method is that individuals are ogoistie, rational utility maximizers, who pursue their own self-interest whether they ave acting in private markets, purchasing consumer goods, ar in public markets, voting or sevving, as publie officials. Other scholars have challenged this view of human nature, and this challenge is explained in the next section. First, however, this section describes how the regulatory process can be explained as the product of demand and supply and discusses some of the implications of such a perspective. gu Tnterest groups are of two types. “Public” and “private” interest groups are distinguished by the type of regulation they demand. Public interest groups seek regulation that has a widely dispersed economic or social effect. Environmental groups, for example, have supported air quality regulations that benefit the thousands of persons who live in polluted areas. By comparison, private interest groups support results that have a narrowly dispersed economic effect. The Motor Vehicle Manufacturers Association is a good example. As related earlier, the Association actively opposed cfforts by the Department of ‘Transportation to promulgate a regulation requiring the installation of passive restraints in automobiles. The Association's efforts were intended to benefit the automobile manufacturers by allowing them to avoid the increased costs that would have reduced the demand for new cars. -1 The demand for and supply of regulation Private groups do not always oppose regulation, but sometimes scek it because it would be economically beneficial. The profession to be licensed, for example, has usually supported occupational licensing. One reason is that it often eliminates competitors that cannot meet the licensing standards and therefore it raises prices to consumers, Private groups can also benofit from regulation in other ways, Scholars argue, for example, that the railroads supported the creation of the Interstate Commerce Commission, to substitute more lenient federal supervision for stricter state regulation.*" Similarly, chemical manufacturers have sought federal regulation of the identification of chemical hazards to avoid inconsistent and sometimes stronger state Jaws. When interest groupe clash over whether new regulations should be adopted, the outcome will depend on which group or groups can offer the greatest rewards to the legislators oF administrators responsible for the decision. ‘The medium of exchange is ‘Theories of Heonomie Rogulation, 6 BULL JSCON. & MGMT. Sc. 385, 343 (1978); se generally, 8. Reiter & J Hughes, A Preface on Modeling he Regulated United States Beonomy, 9 HOFSTm L. REV. 1981 (L981). ‘1D, Munek, PUBLIC CHOICR TL 1 (1982); see generally, Symposium, On the Theory of Public Choice 74 VA. Le REV. 167 (1988), % Cf. 3. Rowe, supra note 1, at 198-94 (rogulations erento barrier to entry). ©°G, KoLmo, RAILROADS AND RUGULAMION, 1877-1016, at 34-39 (1965), M. JOSEPHSON, Tit: POLITICOS, 1868-1806, at 996 (1938), ut see F. Pareall, Ideas and Interests: Tusinesamen and the Interstate Commerce et, 54 J.AM, HIST, 561 (1967) (commission wae also supported as being in the public interes). ‘© See B, Sehoeder & S, Shapira, Responses to Occupational Diseaee: The Role of Marbets, Regulation, and Information, 72 G80, LJ. 1981, 1288-89 (1884).‘THE PUBLIC CHOICE EXPLANATION FOR REGULATION 19 gaz tho repayment of past favors or the creation of a stock of eredits useful for obtaining future favors. In the case of elected officials, the favors concern activities that will affect the person’s chanees for reelection. In the case of unelected administrators, the favors concern activities that will affect the person’s carcer objectives. The activities could improve the person’s professional advancement (a better job outside of the agency), bureaucratic advancement (a bigger budget and more prestige for the agency), or political advancement (increased opportunity for elected office). §1.7.2 Theories of capture Decisionmakers can be expoctod to favor those groupe that can benefit them the most in the ways just montionod, Many times, however, many of the people who will be affected by a regulatory decision will not be represented by any group. In those circumstances, a phenomenon called “agency capture” could occur. An agency is captured when it favors the concerns of the industry it regulates, which is well: represented by its trade groups and lawyers, over the interests of the general public, which is often unrepresented.” Private groups participate more than public groups in the formulation of poliey because most regulatory decisions have a much greater impact on manufacturers and producers than they do on consumers, For example, some regulations confer a small economic benefit on each member of the public at a large cost borne by the few members of an industry. ‘The benefits of cleaner air are spread over the entire population of an area, but the costs will be borne by electrical utilities and other ‘manufacturors who pollute. Other regulations will impose small costs on each member of the public for the significant benefit of « few. The cost of milk price supports is spread over the population who buys milk, but the benefits accrue to a fairly small number of milk producers. In each of these instances, most members of the public will be only marginally affected by policy changes. As a result, only industry members find it economically worthwhile to pay the substantial costs of forming an organization to influence policy decisions.” Although private interests have a better incentive to organize, public groups have had considerable success in influencing Congress and the agencies. For example, Professor Weidenbaum has identified forty-two federal laws passed between 1962 and 1978 that constitute “major” expansions of government: regulation of business.” There are two reasons for this success. First, public interest groups are able to lower their B. Weingast, Regulation, Reregulation, and Deregulation: The Political Foundations of Agency Clientele Relationships, 44 LAW & CONTIMP. PROMS. 147, 10-85 (Winter 1981}, "Soe P. QUIRK, INDUSTRY TNPLURNCE IN FRDEKAL REGULATORY AGENCIES (1961); W. NISKANE, Buazavcnacy No Repnesenranvi CovEMNNaNT (L972); G. TuLLcK, TH Polatics oP BUREAUCRACY (1965); J. Buchanan & G. TuLLocK, Tus CaLCULUS OF CONSINT. LOGICAL, FOUNDATIONS DI Constre0110NA1, Denocracy (1963};.. DOWNS, AN ECONOMIC THEORY OF DEMOCRACY (paper texted. 1965) (957) Soe S. Shapiro, Regulatory Capture: The Complexity of Diagnosis and Remediation, 17 Rot ‘winstams L. Ru. 101 (2012), 8. Peltaman, supra note 64, at 212, Re Posner, supra pote 68, ab S41—43, see lao M, BkANSTEIN, REGULATING BUSINESS BY INDEPEND BT COMMISSION’ 90-95 (158) (eapttre ooeure when consumer coliton that caused sgeney to be formed dies out) 115. Q. Wilson, The Polities of Regulation, in TW PoLavICS OF REOULATION 250-72 (B.Q. Wilson ea 1980), TEM, Wemmensauns, BUSINES, GovERNBLN AND THE PUBLIC 7-10 (2 ed. 1981)20 "THE POLITICAL NATURE OF THE ADMINISTRATIVE PROCESS cha organizational costs and inerease their effectiveness when they can capitalize on the altruism of their donors, the efficiency of direct-mail fund raising, the support of foundations, the advantage of friendly media coverage, and the sympathy of friendly members of Congress and the bureaucracy, Second, public interest groups are successful when they can create a political climate to offset the organizational advantages of private groups. Fer example, former Vice-President Al Gore's efforts to publicize the threat of global climate change have helped transform the political climate, At the time of this edition, the political climate is shifting towards support of governmental efforts to address this problem despite the opposition of President Bush. and many industries." §1.8 The Relationship of the Public Interest and Public Choice Explanations ‘The public choice perspective has been challenged by scholars who believe that it offers useful insights into public behavior, but it fails as an all encompassing explanation for such bebavior.” One problem with public choice theory is that many political acts ave better explained as the result of altruism or ideology than as the product of self-interested behavior. As two thoughtful erities of public choice conclude, “no theory of government can ignore the powerful forces of individual self-interest. It is one-sided, however, to lose sight of the role of civie virtue.” According to this counter- interpretation of public life, social decisions provide an opportunity for eitizons to give cortain things @ higher valuation than individuals choose, for one reason or another, in their private activities,” ‘Another problem with the public choice perspective is that it assumes that regulators will always use their discretion to adopt regulations favoring regulated entities, but this ignores the existence of rewards and influences that push regulators towards the adoption of regulations that favor the public interest.” For example, agency behavior can be influenced by the existence of organizational norms. Organizations aro structured so that decisionmakers will consider whether actions they wish {o take will serve the purposes of the organization, When the organization is an agency, decisionmakers will defend their actions in terms of the public interest because that is the purpose of those organizations. In addition, public behavior can be influenced by legal norms, In agencies, the decisionmaking process is structured by egal procedures that require an administrator to take actions only when they serve the public purpose for which the agency waa eroated. The nature and effect of these two constraints is explained further in the next two sections, "CA, Gon, AN INCONVENIENTRUTIE Tit Catsi6 OF GLOBAL WARMING (2007). % Soe 8, CROLAY, supra note 16; D. CikeRN & 1. SHAPIRO, PATHOLOGIES OF RATIONAL. CHOLCH THEORY? A ‘Cumque oP ApPLications ht PournicaL SCE (1994); C. Farina & J. Rachlinski, Forward. Post-Public (Choice, 87 CORNELL L, REV. 267 (2002), ‘SD, PanBER & P, FRUCKHY, LAV AND PUBLIC CHOICE: A CRITICAL INTHODUCTION 11 (1991; eee als B, Rubin, Beyond Public Choi: Comprehensive Rationality in the Writing and Reading of Stotutes, 66 NYU, T. Rev.1 0090} H, Hovenkamp, Legislation, Well-Being, and Public Choice, 67 U. CH, Le REV. 68 (2990) * Bayon Sitte-Iranest (J. Mansbridge ed, 19%);’TH Pow OF PUBLIC IDEAS OR. Reieh ed, 1988) see also E. Rubin, Public Cholee, Phenomenology, and the Meaning of the Modern State: Keep the Hathwater, but Throw Out That Bay, 8? CORNELL, 1. RIV. 308 (2002), See M. Levine 8. Porrenes, Regulatory Capture, Public Tuterest, and the Public Agendas Toward A hesis, FL. BCON. & ORC. 187 (19) (epoca edition).go ORGANIZATIONAL NORMS $1.9 Organizational Norms Sociologists argue that because organizations exist for a purpose, members will establish “norms” or mutual expectations of what constitutes acceplable behavior ‘These can be quite indefinite and general, in the form of unwritten purposes and values, or quite specific, in the form of written guidelines. Members are expected to justify their actions in terme of these norms. As a result, the acceptability of various actions to other members will be based on the strength of the logical connection between the reasons given for the actions and the principles, values, or guidelines, to which they rolave.” Decisionmakers in agencies will find it in their self-interest to justify their actions in terms of the purposes for which their agency exists to obtain the support and approval of other members of the organization. Decisions will be justified in terms of the organization's purpose also as a matter of professional socialization Decisionmakers are often trained as lawyors, scientists, engineers, public administrators, or economists, where the emphacia is to solve problems by the use of rational analysis rather than by political negotiation and accommodation. Choices concerning the structure of government agencies have been made to create stronger organizational norms. ‘The civil service system, for example, was created in the belief that persons hired, trained, and retained on the basis of expertise and job performance will be more acceptable as decisionmakers than those persons whose sole qualifications are their political contacte.* There are clear limits to the influonce of organizational norms, however. If the expectations produced by organizational and professional pressures are sufficiently general and abstract, administrators will feel free to respond to their self-interest to a greater degree. For example, the scientific evidence used by agencies like EPA, OSHA and FDA to determine whether a chemical is carcinogenic is often indefinite and subject to conflicting interpretations by various experts, In this circumstance, an administrator can choose any one of several answers concerning the level of exposure at which a chemical becomes dangerous. The administrator therefore is free to make a policy judgment that can be influenced by the dynamies of publie choice theory.®? In addition, the role of the political leadership in any administration powerfully affects the operation of organizational norms. The number of political as opposed to civil service positions in administrative agencies, for example, makes political choices D, Nonet, The Legitimation of Purposive Decisions, 68 Cata L. REV. 263, 268-73 (1980). Por un ‘excellent account ofthe role of organizational and professional influences in administrative decisionmaking seed. Mastin, BUREAUCRATIC JUSTICE (1982), ey Shapiro & Ronald Wright, The Mature of the Administrative Presidency: Turning ‘Adminietrative Law Inside Out, & Miso L. REV. 877 (2010), . Emerging Conflicts in the Doctrines of Public Administration, ix ‘Tak Pouerics ov 71m AL, BURKALCHACY 75 (A. Altshuler ed. 1968) (“The slogan of the noutrel competence eshool Lecame, “Take administration out of polities"); «fH. Hie.o, A GOVERNMENT OF STRANGERS EXECUTIVE POLIS IN WasitincTon 240-64 (1977) (eugacsting that woll-ongansead, higher carcer evil service is the lcy to better control by politically appointed wiministeators). © See K. Schroeder & 8, Shapiro, sypra note 68, at 601-07, . MeGovity, Substantive ond Procedural Diseretion in Administrative Resolution of Science Policy Questions: Regulating Careinogens in EPA and OSHA, 67 Gro. Ld. 728, 781-82 (1979); D. Barslon, Coping With Technolagy Through the Legal Process, 62 Conntut L. Rev. 817, 821 (197.22 ‘THE POLITICAL NATURE OF THE ADMINISTRATIVE PROCESS Chat more prevalent. The Bush Administration has increased the number of political appointeas in an effort to control the regulatory process.*# Sometimes, however, the administration can achieve its goals better by not appointing members of an agency ‘This seems to be the case with the Consumer Products Safety Commission, where a decision by the Bush administration to leave a Commission seat vacant prevented the Commission from enacting regulations." § 1.10 Legal Norms Under the public choice model of politics, the decisionmaker will make that decision which satisfies the largest number of groups possible and minimizes the digpleasure of the others. The nature of decisionmaking is “interactive” because it is a bargaining process where the decisionmaker attempts to reconcile competing claims with the agreement of those who advocate them. Under a legal system of decisionmaking, the emphasis is on the advocacy of conflicting viewpoints and their logical resolution by the decisionmaker. ‘The process is a “rational” one in the sense that the decision that is reached must be justified in terms of the applicable legal rules and preeedent.8 ‘There are two such sources of administrative law and precedent, The Constitution places limitations on Congress and on administrative agencies concerning the types of powers they can possess and the methods by which those powers can be executed Congress further sets the limits of acceptable agency action when it establishes the laws under which an agency will operate. For the administrator, any accommodation of interest groups must be justifiable under the applicable constitutional and legislative Limitations. Particularly, the administrator must be able to defend the decision as being one that serves the economic and social purposes for which the agency was created. ‘The influence of legal norms, like organizational norms, will be limited if the applicable constitutional and legislative rules under which an agency operates are too general and abstract. In these circumstances, the administrator will have more discretion to interact with interest groups because the results of any bargain ean be more easily defended as being consistent with vague and broad limitations, than with specific and narrow constraints.® ‘See RAVORT OF THR NATIONAL Cows! o Sinvice I: URcunr BUSINESS FoR ‘AMpnick: REVILALLZING 1H FEDERAL GOVERNARNT FOR THE 2187 CENTURY 36 (2003) (Volcker Commission) (political leadership positions rose from 914 under President Clinton to 8,961 under Present Bush. %9, Labaton, Senate Votes to Strengthen Product Safety Commission, NY, TIMES, Mar. 7, 2008, at “© Sue 0, LINDBOM & D. ColthN, USABLE KNOWLuDGE: SOCIAL, SGIBNCE AND SOCIAT, PROBLIM SOLVING 929 "Soe A, Scalia, ulomahing os Politics, 4 ADMIN. L. REv.xxY (1982) (Chairman's mossage, Summer 198,