[Paleopsych] U. Chi. L. Rev.: Madison's Nightmare

[Premise Checker]

Madison's Nightmare.
University of Chicago Law Review
SPRING, 1990
57 U. Chi. L. Rev. 335

Richard B. Stewart

Assistant Attorney General, Environment and Natural Resources Division, U.S. 
Department of Justice. The views expressed here do not necessarily reflect 
those of the Department of Justice or the United States. The assistance of 
Jonathan Wiener in the preparation of this article is gratefully acknowledged.

SUMMARY:
    ... The separation of powers within the national government would provide an 
additional safeguard against domination by factions while preventing the growth 
of excessive and irresponsible central power. ... Originally the states 
performed the bulk of the regulation, but eventually the national government 
stepped in as decentralized regulation in a federal system of numerous states 
proved to be hampered by several factors. ... The courts' relaxation of 
traditional separation of powers limitations freed the national government to 
meet these demands. ... The task of controlling these new federal powers was 
largely assumed by the federal courts, which developed new subconstitutional 
principles of administrative law to replace the now waning separation of powers 
jurisprudence that had previously limited the scope of the national government. 
... Rather, it has made clear that Congress and the states retain political 
discretion to determine and change the content of the benefits afforded. ... 
Even more liberalized standing, ready judicial review of administrative 
discretion, more stringent procedural requirements, assured access for public 
advocacy groups, greater judicial control of agency discretion through 
statutory construction and other techniques, and more expansive judicial 
remedies (especially against state and local government), are affirmed as the 
solution to the ills of the centralized regulatory welfare state. ... The 
national government would focus on the general plan of reconstitution, 
foregoing detailed central planning of social and economic life. ...

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   [*335] I. THE SPECIAL INTEREST REGULATORY WELFARE STATE

James Madison identified domination by economic and ideological factions as the 
central problem in a liberal polity. He argued that such domination was more 
likely to occur in smaller, territorially limited units of government than in 
the proposed national government. An extended republic would encompass so many 
diverse and scattered factions that no single interest group could gain 
dominance, nor could permanent coalitions be maintained. Liberated from 
servitude to faction, federal officials would forswear parochial and partisan 
loyalties and adopt measures for the common good. 1 The separation of powers 
within the national government would provide an additional safeguard against 
domination by factions while preventing the growth of excessive and 
irresponsible central power. 2 The form of national political integration 
achieved through the new Constitution's legal structure would thus ensure 
government in the public interest.

Economic integration and development would accompany political integration, 
aided by federally guaranteed free movement of labor, goods, and capital within 
a multi-state economy. Furthering Madison's vision, the federal courts during 
the nineteenth century provided security for interstate contracts and 
investments, encouraged [*336] the growth of multi-state business corporations, 
curbed state protectionism, and fostered the development of a common commercial 
law. These measures, together with Congress's creation of a national currency 
and its investment, along with the states, in a transportation infrastructure, 
promoted economic growth and the rise of regional and national markets. Other 
aspects of economic policy and virtually the entire field of social life were 
left to the states and localities. With the striking exception of slavery, 
events throughout the nineteenth century amply justified Madison's optimism.

By the end of the nineteenth century economic growth had resulted in full-scale 
industrialization and spawned giant multi-state business corporations. 3 These 
developments generated demands for political control of the new leviathans -- 
demands asserted not only by consumers and workers but also by business, as 
small businesses sought protection against the competition of large 
enterprises, and the large enterprises sought governmental measures to 
stabilize the vicissitudes of the market. The courts could not or would not 
provide such protection. Private adjudication was inherently ill-suited to 
addressing the collective consequences of industrialization. Moreover, most 
judges were firmly committed to market competition as the preferred mode for 
organizing economic activity. Legislatures responded more favorably to these 
demands, but generally rejected government ownership of industrial enterprises 
as a solution. Instead, they chose regulation.

Originally the states performed the bulk of the regulation, but eventually the 
national government stepped in as decentralized regulation in a federal system 
of numerous states proved to be hampered by several factors. First, the 
interstate mobility of capital and commodities, which the federal courts have 
so zealously promoted, undermines the willingness of states to impose stringent 
controls on business enterprises. States fear that such measures will handicap 
their own industries in competition with those of other states, and also drive 
business investment elsewhere. Second, many of the smaller states have far 
fewer administrative resources than the corporations that they seek to 
regulate. Finally, coordination problems make a system of decentralized state 
regulations especially ill-suited for controlling national transportation 
systems and product markets. Thus, federal regulation was first enacted in 
these areas.

   [*337] The dominant form of government regulation, whether at the state or 
national level, was a "command and control" system implemented by specialized 
administrative agencies. This system was first developed in railroad 
regulation, where price, entry, and service controls were used to combat the 
perceived evils of market power. It was later extended to such diverse fields 
as pharmaceuticals, trade practices, and broadcasting. 4 Then came the Great 
Depression, a vivid lesson in economic interdependence. Fresh political demands 
arose for ambitious new federal regulatory programs aimed at stabilizing the 
national economy. The command and control system of regulation was extended to 
labor relations, securities, agriculture, trucking, aeronautics, and other 
sectors.

The New Deal also produced the first wave of large-scale national social 
insurance and welfare programs, including the social security and unemployment 
systems. These and later national social welfare programs responded to the 
states' inability to meet the growing demand for government provision of social 
services and assistance. As theorists of fiscal federalism have shown, there 
are grave structural impediments to providing such benefits through a system of 
decentralized government. 5 The interstate mobility of commodities and capital 
discourages states from raising taxes to fund generous social programs because 
states fear burdening their own businesses and triggering an exit of wealth. An 
additional disincentive is the mobility of individuals among states -- a 
mobility that has been legally guaranteed by the federal courts. States fear 
that if they adopt generous social programs, they will attract an influx of the 
needy, necessitating further tax increases. On the other hand, this fear may be 
overstated, because in practice many poor, ill, aged, or otherwise needy 
individuals cannot readily move and may remain trapped in poorer states or 
localities that lack the fiscal resources to adequately provide for them. 6

Two basic types of national measures have been enacted by Congress to deal with 
these fiscal federalism problems. One consists of the federal government 
delivering benefits to individuals in the form of cash (social security 
retirement and disability payments)  [*338] or near-cash (food stamps and 
payment of medical expenses). The other consists of federal grants to states 
and localities to support various state and local social services (education, 
housing, health care services, rehabilitation, transportation) that otherwise 
might not be adequately funded because of the factors previously noted. These 
grants are generally conditioned on the states and localities dedicating the 
funds to specific purposes, supplying matching funds, and complying with 
various other requirements. 7

When these and similar regulatory and social welfare programs were challenged 
on constitutional grounds, the Supreme Court sustained them, repudiating 
earlier dual federalism jurisprudence that had sought to allocate distinct 
roles to the state and federal governments. In doing so, the Court not only had 
to construe Congress's taxing, spending, and commerce powers very broadly, but 
also had to reject claims that these exertions of national authority violated 
structural principles of federalism protecting state autonomy. Moreover, the 
implementation of these federal programs required the development of vast and 
unprecedented federal bureaucracies. In sustaining the validity of these new 
bureaucratic arrangements, the Court allowed Congress to delegate broad 
lawmaking powers to administrative agencies, invest them with adjudicatory 
powers that would traditionally have been exercised by courts, and limit the 
President's power to remove and thus control their directors. At the same time, 
the Court abandoned constitutional protection for common law economic rights 
and liberties. This was the New Deal constitutional revolution. 8 In its 
aftermath, majoritarian politics determined economic and social policy, 
creating a system of competitive federalism in which either the federal 
government or the states could adopt and implement such policies.

Increasingly, it was the national government that was best able to meet rising 
political demands for economic stabilization, growth, and economic justice. The 
courts' relaxation of traditional separation of powers limitations freed the 
national government to meet these demands. Congress created the regulatory and 
social welfare programs of the New Deal and Great Society, and established 
[*339] vast administrative bureaucracies to implement these programs.

The abandonment by the Supreme Court of dual federalism and other structural 
principles of constitutional law was little mourned. 9 Commentators found 
adequate safeguards for federalism in the political structuring of the 
Constitution, which provided for territorially-based representation in Congress 
and in the presidential electoral college. Also, the national political parties 
have a decentralized structure based primarily on states and large cities. This 
system was thought to ensure the effective representation of state and local 
interests in Congress. Given this composition, Congress would accordingly be 
sensitive to federalism values and not enact new national programs unless 
necessary to meet overriding national need. 10

Moreover, the several branches of the federal government were increasingly 
viewed as more responsive to racial and other minorities than state or local 
governments. As federal civil rights legislation extended and enforced the 
initiatives of the federal courts during the late 1960s and early 1970s, the 
successes of the civil rights movement were emulated by advocates for the poor 
and for consumer and environmental interests. The advocates asserted that their 
constituents were not adequately served either by the market or by state and 
local governments. They thus sought appropriate protection from the federal 
courts and Congress.

In the period 1965-1980, Congress adopted sweeping new environmental, health, 
safety, and antidiscrimination regulatory statutes. There are at present over 
sixty major federal programs regulating business and non-profit organizations. 
Congress dramatically increased funding for direct federal social insurance and 
assistance programs, many of which also apply to state and local governments. 
Congress also greatly increased federal funding of conditional grant programs 
to states and localities. They now impose over one thousand different sets of 
conditions and requirements on state and local governments. Nonprofit 
organizations such as universities and health care institutions that receive 
federal grants are also subject to these conditions. In many cases, these 
grants regulate [*340] not only the recipients' substantive policies, but their 
organizational structure, employment practices, and decisionmaking procedures 
as well. State and local governments submit to these requirements because of 
irresistible pressures from local interest group constituencies that stand to 
benefit from the federal funds. 11

On Madisonian premises, the growth of these federal programs should be welcomed 
as an authentic expression of the public interest and an appropriate 
consequence of the national government's superior performance in promoting that 
interest. The Founders, one could argue, clearly intended for a politics of the 
national good to override state and local measures. National regulatory and 
social programs can be understood as correctives for state and local neglect 
fostered by indifference, the local entrenchment of privilege, or the 
structural impediments in a federal system to decentralized regulation and 
redistribution.

These confident assumptions of latter-day champions of national control have, 
however, been badly shaken during the past decade. It is now widely understood 
that the processes through which national measures are adopted and enforced do 
not always ensure that assertions of national power serve the general 
interests. Instead, they can invite the very domination by faction that Madison 
so desired to prevent. This realization has been sharpened by the rise of 
public choice theory, which applies the methodology of economics to political 
conduct. 12 Public choice theorists use a more detailed formulation of 
Madison's faction analysis to look beyond stated public interest goals and to 
focus on political incentives and their interplay with institutional 
arrangements. Genuine aspirations for social and economic progress may be 
subverted by institutional structures that fail to properly reconcile the 
incentives of the various decisionmakers.

Several factors explain the vulnerability of national policy to factional 
control. First, the strength of traditional territorially-based political 
parties has been sapped by the rise of a new political system, one based on the 
national media, mass mailings, and single issue political contributions. This 
system is dominated by nationally-organized economic and ideological interest 
groups of single issue rather that majoritarian politics.

   [*341] Second, federal conditional grant programs, sometimes celebrated as a 
form of "cooperative federalism," 13 are used to co-opt state and local 
interest groups and officials. The programs do so by exploiting such groups' 
dependency on federal monies to convert them into supporters of federal 
measures rather than defenders of state and local independence.

Third, the dominant reliance on legalistic "command and control" strategies to 
achieve national goals inevitably involves a substantial shift of 
decisionmaking power from Congress and the President to federal bureaucracies 
and courts, sidestepping the already weakened federalism and separation of 
powers safeguards against factions.

Command and control regulatory strategies attempt to achieve national goals by 
requiring or proscribing specific conduct on the part of regulated entities, 
such as the use of specific pollution control technologies, or the adoption of 
particular workplace safety measures. The rapid growth of federal controls has 
outstripped the capacity of Congress or the President to responsibly make the 
thousands of decisions required to dictate conduct throughout a vast, diverse, 
and dynamic nation. Such decisions are either delegated within Congress to 
subcommittees that are subject to only weak political accountability, or 
outside the legislative branch to federal bureaucracies and courts -- whose 
political accountability is even weaker.

The exercise of administrative discretion is heavily influenced by organized 
economic and ideological interest groups, who offer political support, threaten 
political opposition, and deploy legal remedies to block or delay 
administrative actions. Since the 1960s, it has been popular wisdom that 
regulatory agencies are typically "captured" by the industries that they are 
supposed to regulate. But economic interests beyond the regulated entities have 
also played a major role in influencing agency decisionmaking. These include 
labor, government contractors, agricultural interests, and other client groups. 
In recent years, a variety of new ideological interest groups, including 
organizations championing the environment, consumers, religion, the 
handicapped, women, abortion rights, unborn children, and others, have arisen 
to join the "regulation game." 14

   [*342] Rather than offsetting each other through mechanisms of countervailing 
power, as Madison envisaged, these groups have instead divided power among 
themselves. This parcelling of power has been accomplished though congressional 
delegations of authority to functionally specialized bureaucracies. Each of 
these new power centers is dominated by the officials of the agency in question 
and the small number of legislators and private groups interested in that 
agency's decisions.

Madison identified the problem of factional domination in teritorially limited 
government. The growth of the national regulatory welfare state, however, has 
spawned a new form of factional domination. By an irony of inversion, Madison's 
centralizing solution to the problem of faction has produced Madison's 
Nightmare: A faction-ridden maze of fragmented and often irresponsible 
micro-politics within the government. 15 The post-New Deal constitutional 
jurisprudence of majoritarian politics has helped produce this result, because 
the demands for national regulatory and spending programs have outstripped the 
capacity of the national legislative process to make decisions that are 
accountable and politically responsive to the general interest. This has 
subverted the very premises of Madisonian politics.

ATTEMPTING TO CURE MADISON'S NIGHTMARE THROUGH ADMINISTRATIVE LAW: ENTITLEMENTS 
AND PUBLIC INTEREST LAW

The shortcomings of the new bureaucratic system, at once centralized and 
fractionalized, constitute Madison's Nightmare. Affected political 
constituencies have viewed these shortcomings from two basic perspectives. The 
constituencies that were supposed to have benefited from new bureaucratic and 
regulating programs -- the poor and disadvantaged, environmentalists, 
consumers, and workers' organizations -- have found the benefits delivered to 
be far below those promised. The constituencies whose conduct has been 
centrally regulated in order to provide these benefits -- state and local 
governments, businesses, and large nonprofit organizations -- believe that 
their institutional autonomy and freedom of initiative have been unduly and 
arbitrarily curtailed. Both problems can be traced to the inherent difficulty 
in attempting to order a vast and dynamic country through the Federal Register 
and the Federal Reports.

   [*343] The legal commands adopted by central agencies are necessarily crude, 
dysfunctional in many applications, and rapidly obsolescent. These 
characteristics, which have received much publicity in the United States in 
recent years and helped fuel the political movement for deregulation, are the 
inescapable result of centralization. Bureaucrats in Washington simply cannot 
gather and process the vast amount of information needed to tailor regulations 
to the nation's many variations in circumstances and the constant changes in 
relevant conditions. In order to reduce decisionmaking costs, national 
officials adopt uniform regulations that are inevitably procrustean in 
application. 16 The same problems that have plagued the Soviet effort at 
central management of the economy hamper American efforts to plan selected 
aspects of the economy through centralized regulations.

These dysfunctions not only overburden the regulated entities but also cause 
them to fail at their intended goals. Legal blueprints drafted in Washington 
inevitably fall short of their postulated outcomes and produce unintended side 
effects when officials attempt to apply them to unforseen or changed 
conditions. The problem of "implementation gaps" is exacerbated by the 
dependence of the federal government on the states to enforce federal 
regulations. This enforcement problem is vast. 17

Furthermore, the Supreme Court has steadfastly refused to preempt the growth of 
the centralized regulatory welfare state. During the 1980s, attacks on the 
system's shortcomings became politically popular. The Reagan administration 
even attacked its constitutional underpinnings, which had remained virtually 
unchanged and unchallenged since their New Deal foundation. With a few wavering 
exceptions, however, the Court refused to reconsider key, long-established 
rulings that had construed Congress's commerce and spending powers in sweeping 
terms, unconstrained [*344] by federalism concerns. 18 The Court meanwhile 
abandoned received separation of powers understandings in order to allow 
Congress to delegate its own lawmaking authority to administrative 
bureaucracies effectively insulated from political control. At the same time 
and fueled in important part by powerful civil rights concerns, state and local 
governments were induced by conditioned grants of funds or directly coerced by 
federal regulators to implement federal programs and to conform their own 
programs to federal standards. The task of controlling these new federal powers 
was largely assumed by the federal courts, which developed new 
subconstitutional principles of administrative law to replace the now waning 
separation of powers jurisprudence that had previously limited the scope of the 
national government.

Administrative agencies in the United States have long been required to follow 
adjudicatory hearing procedures in making decisions, and their decisions have 
been subject to judicial review. But review was traditionally afforded only to 
regulated actors subject to coercive orders. Beginning in the late 1960s, the 
federal courts created new remedies for the beneficiaries of social programs by 
recognizing individual claims to benefits as entitlements protected by 
procedural due process. Following Charles Reich's logic, 19 courts held that 
benefits analogous to traditional common law property rights -- including 
social insurance, assistance payments, housing, and employment -- could not be 
withheld by the government without affording the affected individual an 
administrative hearing and judicial review. This stratagem was, however, of 
limited reach because of the government's need to readjust the content of most 
broad benefits in light of changing economic and social conditions.

   [*345] The federal courts accordingly developed other remedies for the 
beneficiaries of collective benefits such as a cleaner environment, safer 
workplaces and products, or a better-informed consumer market. Reacting to the 
emerging perception of "capture" of regulatory agencies by regulated entities, 
federal courts in the late 1960s began to extend rights to administrative 
hearings and judicial review to consumer representatives, environmental and 
civil rights groups, and other collective interests affected by agency 
decisions. The result was a new "interest representation" model of 
administrative law in which all affected groups have the right to participate 
in agency decisionmaking procedures and obtain judicial review in order to 
ensure that the agency has adequately considered their interests. 20 The key 
developments included greatly expanded principles of standing to obtain 
judicial review; a changed approach to statutory interpretation that recognized 
legally enforceable agency obligations to protect the interests of program 
beneficiaries; the creation of "paper hearing" rulemaking procedures that 
afforded all interested groups an opportunity to submit data, analyses, and 
comments to an administrative record without hobbling the agency process under 
trial-type adjudicatory procedures; and the creation of a "hard look" standard 
of review of administrative discretion to ensure that an agency's decision 
addressed in a reasoned fashion the concerns and contentions of the interested 
parties.

The interest representation model attempted to cure Madison's Nightmare by 
frankly acknowledging the delegation of legislative discretion to 
administrators and creating a judicial forum in which all interests could 
participate. The hope was that decisions in furtherance of the public interest 
would emerge out of the judicially-supervised clash of factions.

The new system of administrative law sought to cure "implementation gaps" by 
giving new legal remedies to consumer, environmental, and other "public 
interest" groups. In addition to securing review of administrative action or 
inaction, courts empowered these groups to enforce federal controls directly 
against regulated firms or state and local governments. The protections of the 
interest representation process were not, however, limited to the beneficiaries 
of federal programs. The heavy reliance on central mandates to carry out these 
programs bore heavily on business firms, state and local governments, and 
nonprofit organizations.  [*346] The courts thus also sought to provide relief 
to those regulated, by requiring agencies to pay greater attention to 
compliance burdens and to ameliorate the arbitrary consequences of uniform 
rules.

III. THERMIDOR

The attempt to cure Madison's Nightmare through new systems of administrative 
law has produced improvements, but may in the end only succeed in entrenching 
the nightmare. The "new property" ideal -- to afford individual social program 
benefits the same security as traditional property rights -- could not be fully 
reconciled with the exigencies of bureaucratic administration and the 
inevitable limitations on the legal resources available to claimants. The 
security of traditional property interests lay as much in market forces as in 
their legal underpinnings. The administrative capacities and traditions 
necessary to equivalent protection of special program beneficiaries were and 
remain sadly underdeveloped. Formal adjudicative hearings cannot provide a 
substitute without creating intolerable delay, cost, and other burdens. 
Moreover, the interests affected even by programs that provide individual 
benefits have a collective character that cannot be reduced to bipolar 
adjudication.

The interest representation version of administrative law frankly recognizes 
these collective elements. But it puts a premium on organizational and legal 
resources, and these resources are unevenly distributed. Once the traditional 
model of adjudication is abandoned in favor of an interest representation 
approach, there is no feasible way to ensure that all affected interests are 
represented, or that the litigants truly represent the broader constituencies 
for which they claim to speak. A combination of bureaucratic hearings and 
review by unelected judges is an unlikely process for selecting and 
implementing measures in the general interest. Courts and agencies are buried 
in lengthy adversary hearings that often take many years to resolve. Federalism 
values are severely undermined because interest groups can circumvent state and 
local political processes by bringing federal court actions to force local 
officials to carry out national directives. No one bears clear responsibility 
for decisions. The already severe fragmentation of central authority is 
exacerbated by treating each agency decision as an isolated event to be 
judicially reviewed on the basis of its separate [*347] evidentiary record. The 
result is a self-contradictory attempt at "central planning through 
litigation." 21

The Supreme Court has reacted to the burdens and dysfunctions of Great Society 
administrative jurisprudence only by priming its growth; it has failed either 
to reject the new approach or to develop any alternative systemic remedy for 
Madison's Nightmare. The Court has, however, taken several steps to ameliorate 
the inevitable difficulties of subjecting administrative management to 
trial-type adjudicatory procedures in the name of the "new property." Thus, it 
has refused to recognize substantive constitutional entitlements to social 
benefits such as assistance payments, education, and housing. Rather, it has 
made clear that Congress and the states retain political discretion to 
determine and change the content of the benefits afforded. The judicial role is 
limited to ensuring adequate procedural guarantees for whatever advantages the 
political authorities choose to provide, regardless of claimants' needs or 
their expectations of entitlement. 22 In addition, the procedural protections 
afforded have in almost all instances been sharply depreciated from the 
judicial adjudication model through use of a cost-benefit calculation that 
gives considerable weight to administrators' concerns for managerial 
efficiency. 23 Goldberg v Kelly 24 remains an isolated high water mark of a 
reformist tide long ebbed.

The Court has also pulled back from full implementation of the interest 
representation model for protection of collective interests. Liberal standing 
to secure judicial review still prevails, with only a few trimmings at the 
margins. But the ability of regulatory program beneficiaries to mandate 
affirmative protection by federal agencies or state authorities has been 
restricted. 25 The Supreme Court has underscored the broad discretion of 
agencies to determine the substantive content of administrative policies, 26 
and has given them a similar discretion in shaping administrative procedures. 
27 These accommodations to political-managerial interests in [*348] the context 
of collective benefits closely resemble the similar accommodation the courts 
have made in the "new property" context.

The accommodations have often been accompanied, in judicial opinions and more 
explicitly in academic commentary, by invocations of the superiority of 
political processes for resolving issues of social and economic policy. These 
invocations, however, seldom betray real enthusiasm for these political 
processes. The case for cutbacks in Great Society administrative jurisprudence 
rests far more on discontent with its burden than on affirmative support for 
any particular alternative. The problem of Madison's Nightmare therefore 
persists.

IV. CURING MADISON'S NIGHTMARE

Political and academic discourse identifies three prevailing cures for 
Madison's Nightmare: reinvigoration of judicial controls over the 
administrative state; structural change to restore political responsibility; 
and dissolution of the regulatory welfare state through deregulation and 
devolution. This essay briefly considers each of these alternatives and offers 
a fourth -- reconstitute law.

A. Reinvigoration of Administrative Law

Many hold that the Supreme Court's retreat from Great Society administrative 
jurisprudence is a mistake, and that reinvigorated judicial supervision of the 
regulatory welfare state is the best cure for Madison's Nightmare. Even more 
liberalized standing, ready judicial review of administrative discretion, more 
stringent procedural requirements, assured access for public advocacy groups, 
greater judicial control of agency discretion through statutory construction 
and other techniques, and more expansive judicial remedies (especially against 
state and local government), are affirmed as the solution to the ills of the 
centralized regulatory welfare state.

The author himself has joined parts of this chorus, believing that the Supreme 
Court has sometimes spoken in too sweeping terms and that a more 
finely-tailored adjustment of judicial controls was preferable. 28 But 
refurbishing judicial innovations of the late 1960s is not a sufficient remedy 
for Madison's Nightmare in the 1990s. These remedies respond more to the 
symptoms of the [*349] problem than its underlying roots. They may nonetheless 
be worthwhile, even if costly and burdensome; contemporary administrative law 
does afford greater access and accountability than would otherwise be 
available. But administrative law alone is not a sufficient response, as its 
most knowledgeable advocates recognize. 29 Moreover, the current and likely 
future federal judiciary has little enthusiasm for it.

B. Constitutional Fundamentalism

Critics of the national regulatory welfare state have sought to shake its 
jurisprudential foundation by advocating judicial revival of traditional 
structural principles of constitutional law. The federal courts were, for 
example, urged to revive a form of dual federalism by reserving certain 
functions or fields to the states and limiting the powers of the federal 
government in order to protect state and local independence. The Supreme Court 
attempted such a revival in its 1976 decision, National League of Cities v 
Usery, 30 invalidating as an unconstitutional invasion of state autonomy the 
application of national minimum wage laws (adopted by Congress in an exercise 
of its commerce power) to municipal employees. This decision, however, bore 
little fruit and in 1985 the Court overruled it. 31 Proposals to revive the 
constitutional principles prohibiting delegation of legislative power to 
agencies, and limiting the transfer of adjudicatory responsibilities from 
courts to federal agencies, have similarly been unavailing. 32

The problem seems to be that a full-fledged revival of traditional structural 
principles would impose serious limits on federal governmental powers and 
plunge the courts into acute and perilous political controversy. On the other 
hand, more modest efforts to use constitutional adjudication to limit federal 
power at the margins, as exemplified by National League of Cities, inevitably 
seem arbitrary.

Similarly, any judicial effort to reserve certain functions or fields of policy 
to the states runs up against the need for national [*350] measures to deal 
with the far-reaching consequences of integration in a federal system (at least 
one comprising fifty states) 33 and the impossibility of principled, a priori 
line-drawing. Alternatively, the judges could prohibit the national government 
from using certain policy instruments, such as conditions on federal grants to 
state and local governments, that are especially destructive of federalism 
values. But such instruments may sometimes be necessary to achieve common 
goals. And if such measures were prohibited, Congress could devise alternatives 
(such as total federal preemption) that are equally or perhaps even more 
destructive. Finally, case-by-case judicial balancing of national and state 
interests leaves major national programs prey to subjective, shifting 
assessments by unelected judges. The court's overruling of National League of 
Cities reflects its unwillingness to venture these hazards.

Another possible constitutional cure for Madison's Nightmare is invalidation of 
broad congressional delegations of regulatory authority to federal 
administrative agencies. 34 Advocates claim that forcing Congress to make 
detailed policy choices would restore political accountability, reinvigorate 
the political safeguard of federalism, and ensure more responsible decisions in 
the general interest. But such a step would also amount to a constitutional 
counterrevolution. The Supreme Court has only twice invalidated national 
statutes as unconstitutional delegations of legislative power. 35 These 
decisions, rendered early in the New Deal period, were soon abandoned. The 
Court concluded that it should not, save in the most extreme and improbable 
circumstances, second-guess congressional decisions that broad delegations are 
necessary and proper means of realizing regulatory and welfare goals. 36 
Resurrecting the doctrine against delegation of legislative powers would force 
the courts to make essentially subjective and standardless judgments about 
which delegations are constitutionally permissible [*351] and which are not. 
Similar difficulties would attend judicial efforts to impose strict limits on 
Congress's transfer of adjudicatory authority from courts to agencies.

Even if the courts did enforce the non-delegation doctrine rigorously and in 
doing so invalidated many current federal programs, it seems likely that 
Congress would react by passing the writing of detailed measures on to its own 
legislative subcommittees. Experience with Congress's use of the legislative 
veto of agency regulations suggests the hazards inherent in this approach. 37 
Subcommittees are subject to the same interest group influences as 
administrative agencies. Moreover, the safeguards of public hearings and 
judicial review that apply to federal administrative agencies do not apply to 
Congress or its subcommittees. Increased internal delegations by Congress could 
well have the effect not of ending but of prolonging Madison's Nightmare.

Some changes in structural jurisprudence may nonetheless be justified as 
enhancing political responsibility and accountability. For example, the Supreme 
Court's decisions in INS v Chadha 38 and Bowsher v Synar 39 have properly 
restrained Congress's efforts to exercise ongoing controls over powers 
delegated to the executive. In addition, the freedom of the President and his 
staff to deliberate with and advise administrative officials deserves firmer 
elaboration and protection. Finally, the issues of campaign financing and 
incumbent entrenchment require systematic examination in concert with more 
traditional discussions of the legal foundation of national governance and 
politics. But such measures alone will not cure Madison's Nightmare.

C. Deregulation and Devolution

The Reagan administration's New Federalism program proposed that much of the 
national regulatory welfare state be dismantled through a combination of 
deregulation and devolution of responsibilities to state and local governments. 
Many forms of economic regulation are indeed unjustified. Greater reliance on 
market competition in many areas will enhance consumer welfare. 40 Much of the 
deregulation accomplished in the United States in recent years in fields such 
as energy, transportation, communications, [*352] and financial services has 
been a success. But markets alone cannot be relied upon to resolve many of the 
environmental, health, safety, and consumer problems created by 
industrialization and mass marketing. Moreover, state and local governments 
cannot deal effectively with these problems of market failure in the face of 
economically integrated national markets, product and capital mobility, and the 
rise of large multi-state businesses. Similarly, the mobility of commodities, 
capital, and people, as well as disparities in resources, prevents states and 
localities from adequately meeting social welfare needs. National measures are 
thus required to deal with the problems generated by a national economy.

D. Reconstitutive Law

The most promising solution to Madison's Nightmare is not indiscriminate 
devolution and deregulation. Neither is it a constitutional counterrevolution 
by the courts, nor stiffer judicial controls on administrators through 
administrative law. The best solution is to adopt new strategies for achieving 
national goals in lieu of the centralizing command and control techniques 
relied upon so heavily in recent decades.

The ultimate goal of national measures is to ensure that decisions by state and 
local governments, individuals, businesses, and nonprofit organizations promote 
national norms and goals. Command and control regulation attempts to achieve 
such harmonization by dictating the precise outcome of specific decisions 
within these various institutional systems. Rather than dictating conduct 
within other institutions, the national government can instead use more 
indirect methods to achieve "strategic coupling" of the institutions' decisions 
with national norms and goals. 41 The laws governing these institutions can be 
reconstituted in order to steer the overall tendency of institutions' decisions 
in the desired direction without attempting to dictate particular outcomes in 
every situation. Reconstitutive law can in many areas replace command law as a 
means of promoting national goals. 42 For example, the National Labor Relations 
Act transformed the structure of decisionmaking in labor relations from a model 
of private employer-employee contract to one of collective bargaining, 
reconstituting the labor market to emphasize the collective and inframarginal 
voice of [*353] workers, and collective decisions by employers, rather than 
relying on the signals given by marginal worker mobility. 43 The "bubble" and 
other emissions trading innovations adopted by the Environmental Protection 
Agency allowed regulatory permissions to be bought and sold, creating a new 
form of market property and a reconstituted market. 44 Antitrust law 
reconstituted the terms of market competition. A related form of reconstitution 
is to substitute one form of regulatory structure for another: during the 1930s 
federal legislation adopted for many sectors of the economy a system of 
administrative price, quantity and service controls in lieu of a system of 
markets governed by antitrust. In the economic deregulation movement of the 
past fifteen years, this process was reversed.

Many of the social regulatory goals -- including environmental, health, and 
worker and consumer protection -- that have received priority in recent decades 
can also be promoted through reconstitutive measures. For example, the 
elaborate existing system of central regulatory controls on air and water 
pollution in the United States could be replaced by a system of transferable 
pollution permits that would simultaneously limit the total amounts of 
pollution permitted and allow authorizations to pollute to be freely bought and 
sold among polluters. The government would have to monitor emissions to ensure 
that no source was polluting in excess of its permit rights. But the national 
government would no longer attempt to dictate through uniform regulations how 
much each plant may emit, or what control technologies to employ. The total 
costs of pollution control -- currently over $ 60 billion annually in the 
United States -- would likely be reduced 50 percent or more because each plant 
could adopt the most cost-effective control method available to it, and plants 
that could control more cheaply would assume more of the clean-up burden and 
hold fewer permits. There would be a strong economic incentive for all firms to 
pollute less, conserve resources, develop innovative technologies, and sell 
excess permits. States or regional authorities could be [*354] given a major 
role in the initial allocation of permits and the subsequent management of the 
pollution permits market. 45

In other areas of regulation, different reconstitutive strategies could be 
used. For example, the current reliance on central administrative commands to 
promote occupational health and safety in the United States could be 
significantly reduced if measures were taken to promote greater efforts by 
employers and employees to address health and safety problems. Such measures 
could include disclosure of information about workplace hazards, joint 
employer-employee selection of occupational hazard officers, and steps to 
promote resolution of health and safety issues through collective bargaining. 
This approach would substitute flexibility and innovation for the current 
system of rigid and relatively ineffective central commands. 46

The problem of ensuring adequate provisions of social services to the needy by 
states and localities could be resolved by adopting a general system of 
horizontal income transfers among states and localities in place of the 
existing overgrown and fragmented system of federal conditional rights. The 
federal tax system would be used to transfer resources from states with strong 
revenue bases or few needy persons to states and localities with few revenue 
bases and many needy persons. States and localities receiving these transfers 
would enjoy wide discretion on how the monies would be spent. Such a system 
would reduce disparities among states and localities in the resources available 
to meet social needs. It would also help avoid the frustrating combination of 
exiting wealth and entering needy individuals that threatens state efforts to 
increase benefits through higher taxes. 47

Wider adoption of such reconstitutive strategies would go far towards curing 
Madison's Nightmare. Renunciation of efforts to centrally mandate the decisions 
of states, localities, businesses, and nonprofit organizations would promote 
federalism values by restoring decisionmaking responsibility and flexibility to 
these institutions. The operational overload imposed on all branches of the 
federal government by the current command and control strategy would be greatly 
eased. The national government would focus on the general plan of 
reconstitution, foregoing detailed central planning of social and economic 
life.

   [*355] Eliminating central overload would also help restore political 
responsibility to the center. The main goals and measures of reconstitution 
could be debated and resolved by Congress and the President, reducing the 
delegation of vast decisionmaking responsibility to unelected bureaucrats and 
judges. The political safeguards of federalism and separation of powers 
principles would both be reinvigorated. And the current system of faction 
dominated, legal-bureaucratic micropolitics would be gradually transformed into 
one closer to Madison's vision of a politics of the national good.

Such change cannot be accomplished through constitutional adjudication by 
judges. In an integrated federal system of many states, it is not possible to 
achieve social and economic justice, restore federalism values, and promote a 
more responsible politics of the national good by simply cutting back on the 
role of the central government and reintroducing other structural limitations 
on national authority. What is needed is not a reduction in national authority, 
but its affirmative exercise in new ways. What is needed is not judicial 
limitations on national authority, but the replacement of command law with 
reconstitutive law. The courts are powerless to dictate such a change to 
Congress and the President. This change can only be accomplished through 
political initiatives.

What reason is there to expect that a new politics, one more favorable to 
reconstitutive strategies, will arise? It can hardly be expected that the 
factions that have entrenched themselves in the congressional and bureaucratic 
subsystems of centralized power will lightly yield place. Current conditions, 
however, seem favorable to the emergence of a new politics. The public has not 
abandoned its aversion to centralized controls -- an aversion that propelled 
Ronald Reagan into the White House. The deregulatory and decentralizing 
initiatives of the Reagan presidency were a necessary and salutary check on the 
growth of Madison's Nightmare. Those initiatives that have succeeded enjoy 
continued support and are unlikely to be reversed to any great extent. But at 
the same time, the public is committed to national goals of social and economic 
justice, public health and safety, and the protection of the environment. 
Reconstitutive strategies can respond to these public sentiments and create a 
third course between indiscriminate deregulation and devolution on the one 
hand, and attempted government by central decree on the other.

Moreover, there are two powerful external constraints that will force the 
United States to develop less cumbersome, more cost-effective alternatives to 
the dominant command and control form of regulation. The first is the political 
constraint on increased federal [*356] spending. The current system of command 
regulation, which requires tremendous centralization of information and 
decisionmaking, is generally far more costly for the government to administer 
than alternatives that place greater reliance on market incentives. In 
addition, command and control regulation typically gives away valuable public 
resources and privileges for free, including use of the air and water to emit 
industrial residuals, radio and television frequencies, and airport landing 
slots. Regulatory programs that use market-based approaches are far more likely 
to generate appropriate revenues for the government. 48

The second invigorating constraint is international competitiveness. The 
command and control approach penalizes investment and innovation because of 
high compliance costs, the restrictions imposed by uniform, inflexible 
directives, and the delay and uncertainty created by protracted litigation and 
administrative licensing and standard-setting proceedings. As it strives to 
restore the international vitality of its key industries, the United States can 
no longer afford to maintain a regulatory system that puts it at a severe 
disadvantage in competing with other developed nations. Greater use of 
market-based and other reconstitutive strategies will be needed in order to 
reduce compliance burdens and encourage diversity, flexibility, and innovation 
on the part of businesses, consumers, nonprofit organizations, and state and 
local governments. Such strategies will permit the United States to meet social 
goals that it deservedly holds important, without compromising the nation's 
productivity and its economic standing in the world community.

FOOTNOTES:


n1 See Federalist 10 (Madison) in Clinton Rossiter, ed, The Federalist Papers 
77, 77-78 (New Am Lib, 1961).

n2 See Federalist 51 (Madison) in id at 320, 323-35.

n3 See Alfred D. Chandler, Jr., The Visible Hand: The Managerial Revolution in 
American Business (Harvard, 1977).

n4 Stephen Breyer, in Regulation and its Reform (Harvard, 1982), analyzes the 
functional relations between different types of market activity thought to 
require government modification, and different types of tools (including 
command and control measures) that government might use to regulate such 
activity.

n5 See, for example, Wallace E. Oates, Fiscal Federalism (Harcourt Brace 
Jovanovich, 1972).

n6 See Oates, Fiscal Federalism at 49-53; and Richard B. Stewart, Federalism 
and Rights, 19 Ga L Rev 917, 949-50 (1985).

n7 Another technique, adopted by Congress in the 1930s to deal with 
unemployment compensation, is to impose a federal tax on business but recognize 
an offsetting credit if a state imposes a similar tax and uses the proceeds in 
ways specified by Congress. See Steward Machine Co. v Davis, 301 US 548 (1937) 
(upholding constitutionality of Title IX of the Social Security Act).

n8 See Bruce A. Ackerman, The Storrs Lectures: Discovering the Constitution, 93 
Yale LJ 1013, 1069 (1984).

n9 See Edward S. Corwin, The Passing of Dual Federalism, 36 Va L Rev 1, 21-23 
(1950).

n10 See Morton Grodzins, The American System 254-89 (Rand McNally, 1966); 
Herbert Wechsler, The Political Safeguards of Federalism: The Role of the 
States in the Composition and Selection of the National Government in Arthur W. 
MacMahon, ed, Federalism: Mature and Emergent 97 (Russell & Russell, 1962). 
This view remains popular today. See Garcia v San Antonio Metropolitan Transit 
Authority, 469 US 528, 551-52 (1985) (states should look to Congress, not 
courts, for protection of their interests).

n11 Richard B. Cappalli, 2 Federal Grants and Cooperative Agreements § 11:24 at 
54-55 (Callaghan, 1982).

n12 See, for example, Daniel A. Farber and Philip P. Frickey, The Jurisprudence 
of Public Choice, 65 Tex L Rev 873 (1987); James M. Buchanan and Gordon 
Tullock, The Calculus of Consent (U Mich, 1962).

n13 See Grodzins, The American System at 25-48 (cited in note 10).

n14 See Bruce M. Owen and Ronald Braeutigam, The Regulation Game: Strategic 
Uses of the Administrative Process 2-30 (Ballinger, 1978). Various theories of 
the regulatory process are explored in Barry M. Mitnick, The Political Economy 
of Regulation 79-167 (Columbia, 1980).

n15 See Theodore J. Lowi, The End of Liberalism 200-06 (Norton, 2d ed 1978).

n16 See Eugene Bardach and Robert A. Kagan, Going By the Book (Temple, 1981).

n17 There are over 200,000 industrial sources of air pollution, 200,000 sources 
of water pollution, and over one million generators of hazardous wastes subject 
to national regulation. Since states and municipalities have already 
established regulatory authority in these areas and are thus well-equipped to 
monitor and enforce, national programs related to the environment and many 
other fields rely heavily on state implementation and enforcement. Such 
reliance is also inherent in the conditional grant programs. States, however, 
are reluctant, for reasons already noted, to enforce national regulations 
against their own industries or raise taxes in order to comply with costly 
federal grant conditions. See page 3 above. In order to prevent state 
backsliding, federal officials have resorted to court actions and other 
coercive measures to command compliance. This coercion directly short-circuits 
state and local political processes.

n18 The Court had decades earlier established Congress' broad authority under 
the spending power, see, for example, Helvering v Davis, 301 US 619 (1937) 
(upholding old age benefits); and Steward Machine Co. v Davis, 301 US 548 
(upholding unemployment compensation), and the commerce clause, see, for 
example, Wickard v Filburn, 317 US 111 (1942) (upholding the Agricultural 
Adjustment Act); United States v Darby, 312 US 100 (1941) (upholding the Fair 
Labor Standards Act); NLRB v Jones & Laughlin Steel Co., 301 US 1 (1937) 
(upholding the National Labor Relations Act); and West Coast Hotel v Parrish, 
300 US 379 (1937) (upholding minimum wage and maximum hour rules). The 
Rehnquist Court's general refusal to depart from these precedents is 
illustrated in its reversal of field from National League of Cities to Garcia, 
discussed in the text at notes 30-32, and in, for example, South Dakota v Dole, 
483 US 203 (1987) (upholding federal law conditioning state receipt of federal 
highway funds on state passage of 21-year-old minimum drinking age); Hodel v 
Virginia Mining & Reclamation Assn., 452 US 264 (majority), 307 (Rehnquist 
concurring in the judgment) (1981) (upholding Surface Mining Conservation and 
Reclamation Act under, among other things, commerce powers).

n19 In Charles A. Reich, The New Property 73 Yale L J 733 (1964).

n20 See Richard B. Stewart, Reformation of American Administrative Law, 88 Harv 
L Rev 1669, 1760-90 (1975).

n21 See Richard B. Stewart, The Discontents of Legalism: Interest Group 
Relations in Administrative Regulation, 1985 Wis L Rev 655, 655.

n22 Dandridge v Williams, 397 US 471, 487 (1970); and Bishop v Wood, 426 US 
341, 349-50 (1976).

n23 Mathews v Eldridge, 424 US 319, 343-47 (1976); and Heckler v Campbell, 461 
US 458, 465-68 (1983).

n24 397 US 254 (1970).

n25 Heckler v Chaney, 470 US 821, 837-38 (1985).

n26 Chevron U.S.A., Inc. v NRDC, 467 US 837 (1984); and Campbell, 461 US 458.

n27 Vermont Yankee Nuclear Power Corp. v NRDC, 435 US 519 (1978).

n28 Richard B. Stewart, Vermont Yankee and the Evolution of Administrative 
Procedure, 91 Harv L Rev 1805, 1821 (1978); and Richard B. Stewart and Cass R. 
Sunstein, Public Programs and Private Rights, 95 Harv L Rev 1193, 1305-07 
(1982).

n29 Cass R. Sunstein, Constitutionalism After the New Deal, 101 Harv L Rev 421, 
485-91 (1987); Cass R. Sunstein, Interpreting Statutes in the Regulatory State, 
103 Harv L Rev 405, 505 (1989); Christopher F. Edley, Jr., Administrative Law 
(Yale, 1990).

n30 426 US 833 (1976).

n31 Garcia v San Antonio Metropolitan Transit Authority, 469 US 528 (1985).

n32 Such proposals are reflected in, for example, Justice Rehnquist's opinions 
in Industrial Union Dept. v American Petroleum Institute, 448 US 607, 671 
(1980) (concurring in the judgment), and American Textile Manufacturers 
Institute v Donovan, 452 US 490, 543 (1981) (dissenting).

n33 Experience in Canada and the Federal Republic of Germany suggests that in a 
federal system that has a smaller number of states and constitutionally derived 
reservations to the states of power in specific fields, the states may be able 
to agree on common measures to deal effectively with the effects of economic 
integration. For example, in Germany broadcast regulation is the responsibility 
of the Lander, but a largely unified system of governmental policy has 
nonetheless emerged.

n34 This remedy is advocated in Lowi, The End of Liberalism at 128-56 (cited in 
note 15), which documents the rise of factional micropolitics within the 
national regulatory welfare state.

n35 See Panama Refining Co. v Ryan, 293 US 388 (1935); and A.L.A. Schechter 
Poultry Corp. v United States, 295 US 495 (1935).

n36 See Stephen G. Breyer and Richard B. Stewart, Administrative Law and 
Regulatory Policy 68-95 (Little, Brown, 2d ed 1985).

n37 See Harold H. Bruff and Ernest Gellhorn, Congressional Control of 
Administrative Regulation: A Study of Legislative Vetoes, 90 Harv L Rev 1369, 
1433-37 (1977).

n38 462 US 919 (1983).

n39 478 US 714 (1986).

n40 See Breyer, Regulation and Its Reform ch 8 (cited in note 4).

n41 The concept of "strategic coupling" is developed in Gunther Teubner, After 
Legal Instrumentalism? Strategic Models of Post-Regulatory Law, 12 Intl J Soc L 
375 (1984).

n42 The notion of "reconstitutive law" is explained in Richard B. Stewart, 
Reconstitutive Law, 46 Md L Rev 86 (1986).

n43 See, for example, Richard Freeman and James Medoff, What Do Unions Do? 
(Basic Books, 1984); Paul Weiler, Governing the Workplace (Harvard, forthcoming 
1990).

n44 See, for example, Bruce A. Ackerman and Richard B. Stewart, Reforming 
Environmental Law, 37 Stan L Rev 1333 (1985); Robert W. Hahn and Gordon L. 
Hester, Marketable Permits: Lessons for Theory and Practice, 16 Ecol L Q 361 
(1989); James T.B. Tripp and Daniel J. Dudek, Institutional Guidelines for 
Designing Successful Transferable Rights Programs, 6 Yale J Reg 369 (1989); 
U.S. Environmental Protection Agency, Emissions Trading Policy Statement, 51 
Fed Reg 43814 (1986).

n45 See Ackerman and Stewart, 37 Stan L Rev at 1355-59 (cited in note 44).

n46 See W. Kip Viscusi, Risk by Choice 156-62 (Harvard, 1983).

n47 See Richard B. Stewart, Federalism and Rights, 19 Ga L Rev 917, 975-79 
(1985) for further development of this proposal.

n48 See Ackerman and Stewart, 37 Stan L Rev at 1343-44 (cited in note 44).