News Scrapbook 1985

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Los Angeles, Calif. Town Hall Reporter (Cir.M.)

which private J oadcasters send out their sig_nals. So_ there is a combinati~n of management and regulation that Is car- ried out by the Federal Communications Commission (FCC). In addition, there is government prohibition , mainly in criminal law, whereby some actions are regarded evil in themselves, such as murder, theft, embezzlement, fraud , etc. These activities are forbidden , not regulated, while toy pro- duction or mining are regulated but not forbidden. But here, too, there are some gray areas, such as the prohibition of the sale of certain drugs over the counter that is the result of government regulatory judgment. Nevertheless, for all prac- tical purposes the three categories are clearly distinguishable-regulation, management, and prohibition. I will be concerned with arguments for and against regulation. -Z95S°' LEGAL ORIGINS There are two sources that establish the legal validity of government regulation: the U.S. Constitution and the cancept of police power. The U.S. Constitution empowered Congress to regulate commerce among the several states, mainly to eliminate interstate tariffs, but this power was later invoked to justify federal government regulation of commerce general- ly. Police power is a concept derived from English common law and means that the state is responsible for the hygiene, morals, and well-being of those who occupy the realm. This idea derives from federal politics where the state, not in- dividuals, had been sovereign . Because the U.S. Constitu- tion did not fully prepare judges to deal with economic mat- ters, they went to English common law to obtain their understanding of the scope and limit of government power. Thus, ironically, the very system of law from which this coun- try declared its independence, was reintroduced into the new system by the back door. But what about the ethical considerations for government regulation? There are four different moral arguments in favor of regulation. The first of these arguments, advanced by Ralph Nader, is the view that since corporate commerce had original- ly been "created " by government such commerce should be regulated by government. The moral basis of regulation is that the creator of something that is its dependent is morally responsible to ensure that the dependent behaves properly. When government's primary concern had been the enhancement of commerce, it made good sense not to keep corporations on a leash. The free flow of commerce had been the main objective then. But now that significant wealth has been created by way of corporate commerce, and since pro- ductive enterprise has resulted in some negative side effects, it is time to " tame the giant corporation." The second main moral argument for government regula- tion of business rests on a very different ground. Here it is generally accepted that a free market usually encourages maximum performance. Free markets also foster responsi- ble conduct and encourage the production of goods and ser- vices that are of value to the community. But some exceptions exist. The free market sometimes fails to allocate resources efficiently. One such case is the delivery of utility services. If there were free competition to deliver gas, water, telephone, etc., we would have extensive duplication. So it is important that government restrict competition and correct market failures. Without government regulation market failures would result in the non-availability of valuable goods and services. Markets often do not respond to the real needs of, say, health care, education, and safety measures at work.

Therefore, governments should remedy the market failures by heeding citizens' calls for regulatory measures.

1985

APR

RIGHTS PROTECTION Another source of justification for government regulation of business is the belief that government is established to secure the protection of our rights, and there are many rights not widely acknowledged that are unprotected in a free market. How do we recognize these rights? Well, any moral person would have to agree, suggests the argument, that employees are due protection of their life and livelihood. Con- sumers, no less, should be warned of health problems asso- ciated with the goods and services they receive. In short , it is the right of all those who participate in the marketplace to receive considerate treatment. It should not be left merely to personal caution, consumer watchdog agencies, or the good will of traders. Rather, each person has a right against others when ii comes to participating in the marketplace. Govern- ment should, in turn, protect these rights through regulatory activities. The last argument for government regulation actually rests on a belief in the power of the free market to remedy all of its mistakes. But it points to one area where this power is ineffective-namely, public pollution. Economists call this the realm of "uninternalizable negative externalities." Generally, one who dumps wastes on the territory of another can be sued or fined . But in a wide variety of cases, assessing personal liability is not a simple matter. Placing soot in the atmosphere, for instance, may cause harm to victims who cannot be iden- tified. Similarly, it is difficult to assess which source of emis- sion caused the damage. Given the complexities in attempting to identify culprit and victim when it comes to public pollution, government regula- tion is recommended . This idea derives from the moral view- point that some things important to the public must be done even if individuals or minorities get hurt. As long as general supervision of such hurt is available-that is, as long as cost- benefit analysis guides government regulation-public pollu- tion is morally permissible. REPLIES TO JUSTIFICATION The first justification I shall call the "creature of the state" argument. I response, consider that corporations do not have to be created by governments, and they were so created only because the governments in power were then mercantilist states, not based on popular sovereignty. In the kind of com- munity that sees the individual as a sovereign citizen, such as capitalism, corporate commerce would, and does, arise without the help of governments. Such commerce is the exten- sion of the idea of freedom of association, in this case for pur- poses of making people economically prosperous. The second justification I shall call the "market failure" argu- ment. Although inefficiency is not often used to justify govern- ment regulation , there is a question as to whether establishing monopolies actually secures efficiency in the long run . For example, labor strikes would be more crippling in the case of public utilities. So, to prevent it, striking must be prohibited. But that in turn infringes on a freedom of workers. So the market failure is being remedied at the expense of a serious political failure. It would be better to live with the initial nefficienc1es. The third argument I shall call "rights versus rights." The doctrine of human rights invoked by defenders of government ( Town Hall Reporter/P13ge 5

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regulliion is very bloated . Critics point out that things of value to people are mistakenly regarded as rights of people. Con- sider the right to a fair wage or health care. For these rights, other people would have to be legally compelled to supply the fair wage or the health care. Consumers may wish to pay less for some items rather than paying a fair wage for their manufacture. If the fair wage is a right , consumers could be forced to pay it. This would make captives of consum~ not parties to free I rade. .?_ 9 S' .S The rebuttal to the public pollution argument is that whenever negative externalities are uninternalizable-if pro- ducers of pollution cannot be sued by their victims because it is impossible to assess liability- then they may not engage in pollution in the first place. In short, a policy of quarantine, not government regulation , is the proper response to public pollution . The case for government regulation rests on four major arguments, all of which have been criticized. I personally agree with the negative side of this debate and regard govern- ment regulation as immoral.

DR. TIBOR R. MACHAN Visiting Distinguished Associate Professor of Philosophy, University ~n Diego;_ and Senior Fellow of The Reason Foundation

"Arguments For and Against Government Regulation" 2

Government regulation is often evaluated in terms of _an economic cost/benefit analysis. Suggesting that regulal!On should also be evaluated in terms of ethics is Dr. Tibor Machan, a respected philosopher Dr. Machan was born in Hungary a_nd lived under communist rule for seven years before escapmg to Germany. He came to the United States in 1956 and even- tually began teaching philosophy in the New York State_Col- lege and University of California systems. He was a National Fellow at the Hoover Institution in 1975-76 and now teaches at the University of San Diego. He has pubhshed a~d ed,~ed numerous scholarly works, usually in the field of hbertanan philosophy By government regulation I mean the process of_ setting an_d enforcing standards of conducting legitimate act1v1t1es_. I_will focus on government regulation of business by municipal , county, state, and federal politicians and bureaucrats. Government regulation differs from governm~n_t manage- ment and prohibition . The first involves the adm1nistrat1on of the properties and realms that government or the public owns. For example, the national parks and forests are mana_ged by government, not regulated. So is the inter~t~te highway system. In contrast, toy manufacturing, an act1v1ty of private business, is regulated by government, as are the_manufac- ture and sale of many foods and drugs, the product1_on of cars, the practice of law, medicine, and pest extermination. There are some gray areas. of course. The government regulates broadcasting , but it also mana~es the a1r:,vaves. The elec- tromagnetic spectrum was nationalized in 1927, an_d the federal government has been leasing out the freque c1es on Presented to Town Hall Legislation & Administration of Justice Section Chaired by Peter Kllka

Peter Klika, Rapporteur

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April 1985

April 1985