The Perilous Position of the Rule of Law and the Administrative State

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Recent scholarship in the academy has turned again to an intensive study of the rule of law in the modern administrative state, a topic which I have addressed in detail in my book Design for Liberty: Private Property, Public Administration, and the Rule of Law. (1) One way to view this question is to treat it as a definitional matter. That approach, however, is not a fruitful one, for the concept of a rule of law is today not essentially contested today. Professor Shane gave a perfectly accurate definition, (2) one to which I subscribe but for which I claim no originality. Many of the essential elements of the modern account are found in the Second Treatise of Government by John Locke. (3) That vision is then further elaborated in the same form, more or less, by Lon Fuller in his book The Morality of Law. (4) The elements of this definition of the rule of law speak of known, consistent, and certain rules that are applied prospectively by neutral judges to the cases before them. The key virtue of this definition is its generality; its application does not commit any defender of the rule of law to any particular substantive view of which laws are desirable, nor does it presuppose some distinctive relationship of individuals to the state or of individuals to one another. It therefore offers a minimum condition that is consistent with, and constituent of, any just and efficient legal regime.

When the discussion turns to the modern social democratic state, however, there are deep tensions between the rule of law and the rise of the modern administrative state. In making this claim, I stress the term "modern" to direct attention to the new generation of administrative agencies that began in the United States with the adoption of the Interstate Commerce Act of 1887, (5) which was the major legislative achievement of its time. Woodrow Wilson's progressive administration continued the proliferation of administrative agencies, including the creation of the Federal Trade Commission in 1914. (6) Over the next twenty-five years, the establishment of such agencies as the Federal Radio Commission of 1926 (7) (which morphed into the Federal Communications Commission in 1934), (8) the Securities and Exchange Commission in 1934, (9) the National Labor Relations Board in 1935, (l0) and Acts such as the Fair Labor Standards Act of 1938 continued the modern trend. (11)

These modern agencies must be contrasted with the types of administrative agencies in England (12) and in the early United States (13) that were responsible for administering prisons, schools, voting and tax rolls, motor vehicle licenses, and the large set of other ministerial duties that government agencies must discharge in any developed society. Against this backdrop, it is an imprudent exaggeration to say that all public administration must necessarily conflict with the rule of law. There has been in recent years much corruption in the distribution of vehicle licenses in Illinois; (14) however, it is not just conceivable, but also eminently possible, for that state to run an efficient vehicle licensing system. The same is true of the first aggressive application of the modern administrative state, which involved the evolution and maturation of the system of ratemaking in the period from around 1887 through the end of the Second World War. (15)

Most forms of rate regulation did not generate any significant tension with the rule of law because the defined purpose of the system gave tolerably clear direction to its operation. To put the point in its simplest version, if a competitive market exists, regulators need not intervene to ensure its sound operation. In contrast, if a monopoly existed, as was common with such industries as telecommunications, electric power, and railroads, (16) regulators were forced to determine which techniques would best be able to limit the firm to a reasonable risk-adjusted rate of return without wrecking the industry in question. …