Public Interest Law: An Economic and Institutional Analysis [Reprint 2019 ed.] 9780520310803

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Public Interest Law

Burton A. Weisbrod, Study Director in collaboration with Joel F. Handler and Neil K. Komesar

Public Interest Law An Economic and Institutional Analysis

University of California Press Berkeley, Los Angeles, London

University of California Press Berkeley and Los Angeles, California University of California Press, Ltd. London, England Copyright © 1978 by The Regents of the University of California ISBN 0-520-03355-8 Library of Congress Catalog Card Number: 76-48367 Printed in the United States of America 1 2 3 4 5 6 7 8 9

Contents

Preface

vii

Foreword

ix

P A R T I. I N T R O D U C T I O N

1. Introduction

AND THEORETIC

ANALYSIS

1

Burton A. Weisbrod

2. Conceptual Perspective on the Public Interest: An Economic Analysis

4

Burton A. Weisbrod

3. Problems of Enhancing the Public Interest: Toward a Model of Government Failures Burton A. Weisbrod

4. The Public Interest Law Industry

42

Joel F. Handler, Betsy Ginsberg and Arthur

Snow

5. The Public Interest Law Firm: A Behavioral Analysis

80

Neil K. Komesar and Burton A. Weisbrod

6. What Might Public Interest Law Accomplish: Distributional Effects

102

Burton A. Weisbrod P A R T II.

AREA

STUDIES: PUBLIC INTEREST

L A W IN

ACTION

7. Environmental Defense I: Introduction to Interest Group Advocacy

151

David M. Trubek

8. Environmental Defense II: Examining the Limits of Interest Group Advocacy David M. Trubek and William J. Gillen

9. Housing, Zoning, and the Public Interest

218

Neil K. Komesar

10. Public Interest Law and Employment Discrimination

251

Joel F. Handler with George Edgar and Russell F. Settle

11. Occupational Safety and Health and the Public Interest Russell F. Settle and Burton A. Weisbrod

12. Public Interest Law Activities in Education

313

A. James Lee and Burton A. Weisbrod

13. The Medical Marketplace and Public Interest Law

349

Parti. David Mechanic, Part II. Philip J. Leaf

14. Consumerism, Consumers and Public Interest Law

395

A rthur Snow and Burton A. Weisbrod

15. Public Interest Law and Federal Income Taxes Thomas C. Heller

446

285

195

vi P A R T III.

OTHER

Contents

STUDIES

16. Non-Law Public Interest Advocacy: Advertising on Children's Television

473

Gerald J. Thain with Arthur Snow

17. Public Interest Law Activities Outside the U.S.A.

502

Ellen Sward and Burton A. Weisbrod

18. Financing Public Interest Law: An Evaluation of Alternative Financing Arrangements Russell F. Settle and Burton A. Weisbrod

19. Conclusions

551

Burton A. Weisbrod

Contributors - Biographical Sketches Table of Cases Index

565

563

561

Preface

The term public interest law (PIL) is new to the language, as is the institution known as a public interest law firm. Within the last decade, the types of activities associated with Ralph Nader and his consumer organizations, with the Sierra G u b and its environmental programs, and with a new institutional form embodied in law firms that characterize their activities as partly or wholly "public interest" law have proliferated. They draw ever-increasing attention in the general interest press and are the subject of specialized literary efforts as well. With the appearance of financial support from a number of private foundations, and more recently, with the official blessing of the American Bar Association, PIL activities have multiplied, as has talk about their future. This study is an attempt to evaluate this new set of activities and its institutionalization in the public interest law firm. We seek to learn not whether particular lawyers or PIL firms have acted wisely, successfully, or efficiently, but rather whether such an institution is well suited to deal with specific problems. We regard it as axiomatic that there are always alternative ways for society t o deal with its economic and other problems. We seek to cast light on the probable consequences and effectiveness of one set of alternatives — PIL activities — in general and in particular problem areas. While many persons have authored or coauthored chapters in this study, and although economists, lawyers, and sociologists have all made contributions, this is not a collection of independent contributions set between a pair of multidisciplinary covers. The outline for the volume was developed after a year-long seminar that I directed and in which most of the contributors to this volume participated. The structure for each of the case-study chapters on public interest

law in action, found in Part Two of this volume, was designed to reflect the concepts developed in the predominantly theoretic chapters of Part One, especially Chapter Two. The area-study chapters in Part Two reflect attempts to relate the experience of public interest law efforts in each area to a common evaluative framework. Each chapter was thus treated from the outset as a part of an integrated project, with careful attention in the initial conception of the chapter to its content and to how it would fit into the overall study. Moreover, every chapter was presented and discussed in at least one Project Seminar, and was critiqued in draft form by at least two of the three senior authors of this volume. If we have failed to produce a cohesive study, it was not for lack of effort. Our work was supported by a grant from the Ford Foundation to Joel F. Handler and me. We cannot overemphasize, however, that we were entirely free t o pursue our research wherever good scholarship required. We want to make it clear that we did not attempt to evaluate the efforts of any particular PIL group, whether it received Ford Foundation support or not; our work was broader — on PIL as an institution. While I was Director of the study, Handler and Neil K. Komesar helped in making policy decisions as the project developed, shared in the critiquing of papers, and served as an unofficial board of directors, in addition to writing particular chapters. When we began this study we set up a small outside advisory board of eminent people f r o m a number of disciplines. We were fortunate to obtain the assistance of James M. Buchanan (economist); Lawrence M. Friedman (professor of law); Albert Jenner (attorney); Julius Margolis (economist); Gilbert Steiner (political scientist); Peter O. Steiner (economist); the late Joseph

Preface Weintraub (jurist); and Stanton Wheeler (sociologist). The group assembled semi-annually and met with project personnel to discuss the work in progress, to react to our plans for additional research, and to suggest alternative research approaches. Satisfying a diverse group of able and experienced persons from economics, political science, and sociology, in addition to an academic lawyer, a practicing attorney, and a jurist, provided a challenge to our ability to tackle problems from a number of research perspectives and to convey our findings with rigor and clarity. The diversity of our board, however, reflected the multiplicity of perspectives we believed were relevant and the multiple audiences we hoped our study would attract. The advisory board was indeed valuable to us. The study also benefited from as fine a pair of staff assistants as any study director could imagine. Delores (Dee) Juszczak was Administrative Assistant, secretary, and "Person Friday" during most of the study. She managed arrangements with our advisory board, handled much of the

viii manuscript typing for the mounting number of chapter drafts and redrafts, and assisted me in countless ways to cope with the budgetary, administrative, and management aspects of the Project. Ellen Sward was Editorial Associate, a title that fails seriously to convey her vital role. She not only co-authored a chapter, but she critiqued most other chapters and handled the major task of final editorial revision and coordination. My debt to Ellen Sward and Dee Juszczak is great, and it is a pleasure to acknowledge it. In short, the study has benefited, from beginning to end, from the efforts of many. I wish to thank the Ford Foundation for making this study possible. I also want to thank the authors, research assistants, Advisory Board members, and others whose combined efforts produced not only this volume but a study group and an associated intellectual atmosphere in which ideas germinated, struggled for survival, and on occasion blossomed. Burton A. Weisbrod

Foreword

Standard economic theory and analysis have concentrated primarily on the workings of the private sector. Study of the public sector has been secondary and has centered on the impact of the government on the private sector — mainly the impact of taxes, but also the effects of debt and expenditures. Theoretical studies most often have been concerned with establishing criteria for justifying government intervention or the evaluation of government performance. The dominant theme in discussions of government intervention has been that of market failure. It is generally presumed that under certain conditions the private sector will allocate resources efficiently, but that the market cannot always be depended upon to accomplish this end. Failure of the market may occur when increasing returns to scale inhibit competition, or when individual behavior produces externalities, that is, positive or negative effects on the welfare of others. Awareness of the externalities has become a major theme of modern politics, after having been neglected for too long. There is general agreement that the government should intervene to restore efficiency when the private sector cannot do so — for example, by increasing expenditures for pollution prevention or for national defense. We have also come to think of government as the guardian of equity and the interests of future generations. Perceptions about the nature and extent of government's responsibility for such matters differ sharply, of course; controversy in these realms can never be completely resolved. But few would now deny that the government has at least some responsibility for counteracting the market's pressure at the bottom end of income distribution and for avoiding discrimination against particular groups. At no time in history, however, has the cor-

rection of market failure been regarded as a government monopoly. What might be called the "voluntary public sector" has always played an important part, at least in Great Britain and the United States. Private charity was the only floor for the market-generated income distribution until government assumed responsibility in the 1930s. In the past, reform movements, frequently spear-headed by churches and synagogues, have helped correct the deficiencies of the market. Private activity might be regarded as making up for government's inaction. But in another sense much of it is specifically directed toward more general government failure, a concept parallel to that of private market failure. When private groups urge reform legislation, they are essentially seeking to repair government's own deficiencies. As government regulation on all levels has increased, a need has arisen for intermediaries between individuals seeking redress and the bureaucratic agencies. It is in this context that Burton Weisbrod and his collaborators have brought forth this monumental study. It concentrates on a particular example of voluntary activity - public interest law firms, which are concerned with the repair of market and government failures. Public interest law is a relatively new field, although the legal activities of the National Association for the Advancement of Colored People began as long ago as 1909 and the American Civil Liberties Union emerged in the early 1920s. But the number of public interest law firms burgeoned after 1960. Weisbrod and his collaborators subject the public interest law industry to a thorough economic analysis — sympathetic but critical. They begin by detailing the fundamental principles of the public interest and the role of public interest

X

law firms in achieving their goals. Law firms are then studied as though they were industrial organizations. This is followed by analyses of public interest law activities in eight different areas: environmental affairs, housing and zoning, employment discrimination, occupational safety and health, education, medical practice, consumer protection, and income taxation. Each study examines the degree to which the criteria of efficiency and equity are satisfied. The analysis is very far from mechanical, however; the concepts of efficiency and equity are flexibly interpreted for the individual cases, while an underlying unity is preserved. Various methods of analysis are used, including quantitative studies in tabular form, regression relationships, and case studies. The roles of particular institutional situations and the problems of financing also receive consideration. The authors recognize that although litigation is the primary instrument of public interest law activity, it is by no means the only one. They

Foreword study the effects of publicity, lobbying and information dissemination as alternative and complementary routes to changing government policy. When there is indication that the outcome of some public interest activity has been deleterious, the authors do not hesitate to criticize. Here is a rich body of materials to serve as the basis for improvements in both practice and theory, providing a challenge to the well-known "free rider" doctrine. This book shows that there are in fact private interests, though possibly of a nonconventional sort, in public interest activity, and that there is a public motivation for both individuals and foundations who have financed so much of the public interest law activity. We learn that the structure and activities of the public interest law industry do not differ greatly from the private sector. The similarities and differences suggest the potential for fruitful theorizing. Kenneth J. Arrow

Chapter One

Introduction Burton A. Weisbrod

The struggle to solve social and economic problems is never-ending. It is in part a process of discovery, of recognition that particular problems exist; it is in part a process of redefinition, of deciding that some particular conditions constitute a problem; and it is in part a process of invention, of the development of new mechanisms, instruments, and institutions for dealing with problems once they have been discovered or recognized. This book is an attempt to understand and assess the role of one recent, and still fledgling, institutional innovation, "public interest law," and the public interest law firm. The economics literature on the behavior of the private, for-profit sector recognizes the existence of conditions under which a decentralized private market cannot be expected to allocate resources efficiently — that is, to their most valuable uses. In addition to such allocative-efficiency failures, distributional equity failures of the for-profit market are also likely. That is, the distribution of income, wealth, and access to opportunity that result from the private market may not be judged socially satisfactory. In the face of evidence and theoretic analyses pointing up the limits on the effectiveness of the decentralized private for-profit system, contemporary economic theory focuses attention on the institutions of government. Government can regulate, provide subsidies, levy taxes, and become a producer itself, in order to alter the market's production of goods and services. Thus at least in theory, the allocative-efficiency failures of the private market are correctable. Similarly, if a social consensus is reached that there is too much (or too little) inequality of income or opportunity, government can use its power of compulsion to tax and to transfer money or services, and to

affect the distribution of economic well-being in other ways. Just as there are limits to what can be expected from the institution of the private market, there are also limits to what can be expected from the institution of government. No single institutional form is without handicaps and constraints. The search therefore continues for solutions to complex social problems, including means for enhancing the allocative efficiency of the economy and the equity with which it functions. Still other forms of institutions are sought for complementing the successes and correcting the failures of the private market and governmental mechanisms. The voluntary non-profit sector constitutes another class of organizations which may have a useful role to perform. Organizations in this little-studied sector are subject neither to the direct political pressures acting on governments nor to the profit pressures of the private sector of the economy, although they surely confront other pressures and limitations. It is within this multi-sector context that we examine public interest law activities and that recent social invention, the public interest law firm. We seek to learn whether this type of non-profit institution — organized and financed as it is, doing the types of things it is doing, using the particular law-oriented instruments that it uses - should be expected to be a useful part in a pluralistic system for dealing with inefficiency and inequity. Subsequently we examine a wide variety of actual activities of these public interest law organizations and attempt to evaluate not only their actual accomplishments but also their prospects. To summarize, our overall perspective is as

2 follows. No single mechanism is capable of dealing effectively with the manifold social problems encompassed by the concepts of allocative efficiency and distributional equity. The private marketplace and the institutions of government have capabilities for contributing to society's efficiency and equity goals, but they also face limitations. Institutions within the private (voluntary) non-profit sector, combining some characteristics of each of the other two sectors, also can contribute, but they, too, confront limitations. In this book we examine a recent institutional innovation within the non-profit sector in order to broaden understanding of interactions among social-economic institutions, and to assess the current and prospective consequences of this new institutional form.

Introduction and Theoretic Analysis interest goals. In Chapter Four we move out of the abstract, conceptual level in order to describe the public interest law industry as it currently exists; we portray its size, composition, and activities. Chapter Five combines theory and empirical information in an analysis of the kind of behavior that can be expected from a public interest law firm, given the types of people who make its decisions, the nature of its financing, and, in general, the kinds of incentives that confront it; particular attention is directed at the factors affecting the firms' choice of cases to handle and the methods used in pursuing the cases. The final chapter of Part One, Chapter Six, develops the point that both in theory and in fact, public interest law activities do not benefit simply some abstract "public" interest, but benefit particular population sub-groups. This chapter uses opinion polls and other information in order to portray the likely distribution of benefits from public interest law activities among people with various demographic characteristics.

The conceptual framework of our analysis is fundamentally that of an economist, even though authors of a number of the applied chapters are lawyers or sociologists. Our economic perspective, however, is a broad one, encompassing a wide range of social goals. Nevertheless, were this Part Two contains studies of actual public study given the orientation of a political, soci- interest law activities in each of eight problem ological, or legal analyst, it would doubtless areas. In each of these area-study chapters, the differ in its emphasis, for example, on efficiency author does three things: (1) describes the types relative to equity and other social goals, and on of problems dealt with; (2) analyzes whether the outcomes compared with procedures. objective, if attained, would contribute to effiIn the remainder of Part One we will set the ciency in resource use, or to distributional equifoundation and analytic perspective. Chapter ty, or both; and (3) assesses the "success" of the Two develops our approach at the theoretic level public interest law intervention. Special note is and defines terms. The analytic structure it sets taken of the distinction between success at the forth is the foundation for the balance of the judicial level and success at the real, behavioral book. It discusses such matters as how we define level. the "public interest," how the term "public inWhile the area-study chapters have much in terest law" relates to legal aid and pro bono common — all are guided by the conceptual activities, how the potential role of not-for-profit framework of Chapter Two — each makes a organizations relates to the success of govern- unique contribution which complements the mental efforts to correct failures of the private, others. Chapters Seven and Eight, on environfor-profit sector of the economy, how the role of mental advocacy, focus on the difficulty public the law, particularly litigation, relates to alterna- interest law faces in dealing with disputes that tive instruments for achieving public interest are complicated by any of a variety of factors, goals, and how public interest activities are likely such as the technical difficulty of the subject to affect the relative well-being of various sub- matter or the multiple loci of decision-making. groups of the population. Chapter Nine, on land use and housing issues, Chapter Three expands on the sources of gov- illustrates the potential conflicts among public ernmental failures, thereby highlighting the rea- interest law advocates, showing that both sides of sons for believing that some new mechanism — a dispute may be represented by public interest an extra-governmental and extra-private market law firms; thus, there are no clear criteria for mechanism - has at least a potentially useful role choosing clients. Chapter Ten describes public to perform in helping us to reach our public interest law advocacy in the employment dis-

3 crimination area, which is one of the few areas where public interest law firms are primarily seeking equity objectives. Chapter Eleven focuses on occupational safety and health, and suggests that public interest law activity may not be justified in areas where there is substantial privatefor-profit or governmental activity. In Chapter Twelve, public interest law activity is portrayed as part of a broad social movement — involving a wide array of private, governmental, and not-for profit organizations — seeking a single objective, in this case education finance reform. Chapter Thirteen focuses on the health care delivery system in order to contrast the ability of public interest law to resolve " f u n d a m e n t a l " problems, such as the inequitable distribution of physician services, with its ability to resolve more narrow problems, such as the failure of mental health care systems to provide adequate treatment for involuntarily confined mental patients. Chapter Fourteen discusses public interest law advocacy in the consumer area, which was one of the first areas that public interest law became involved in, and is still one of the most important in terms of volume. The final chapter in Part Two, Chapter Fifteen, looks at public interest law efforts to improve the efficiency and equity of taxation, an area where certain minority interests seem to have a stronger voice than majority interests. Throughout Part Two the analyses focus less on the specific public interest law activities than on the generalized ability of public interest law groups to deal effectively with the problems in each area. If public interest law efforts may be thought of as the outputs of the public interest law industry, the chapters in Part Two also show the enormous variety of products being produced by this industry, and suggest how complex is the task of determining the consequences of the industry's existence. Part Three includes, in addition to a summingup chapter, three extensions of our main objec-

Introduction tive, which is to identify and assess the economic and social consequences of public interest law activities. In one extension, we look at public interest advocacy by "non-law" groups, and discuss the circumstances under which non-law advocacy may be more useful than law advocacy. In another, we broaden our geographical focus from the United States to the rest of the world, examining some of the variety of institutional mechanisms — private for-profit, governmental, private not-for-profit, and combinations of these — that are used in other countries. The third chapter of Part Three discusses the problem of financing public interest law, the sources of actual and potential support, and the efficiency and equity of each. This volume represents an effort by a multidisciplinary team to assess the economic and social consequences of a recent institutional innovation, the public interest law organization. In order t o perform the assessment we have found it necessary to develop a conceptual structure, a perspective, and to use a set of analytic tools, primarily from economics but also from the law and from sociology. We hope that we have contributed to an understanding of what this new institution is likely to be able to achieve, and why it can be expected to behave in particular ways. We also hope that in the process of studying one institutional form we have contributed somewhat to a methodology for examining the consequences of other institutional forms that have been or may be developed for pursuing the public interest. Because our focus is on the role of institutions as components of an interdependent economic-political-social system, our analytic structure and evaluation approach can be of interest, we believe, to political scientists, sociologists, and social historians as well as to lawyers, economists, and others who are concerned with the continuing pursuit of a more efficient and just system.

Chapter Two

Conceptual Perspective on the Public Interest: An Economic Analysis Burton

The objective of this chapter is to introduce the theoretical perspective from which our study of the economic and social consequences of public interest law activities proceeds. The emphasis here is on concepts — on ways of looking at issues; in later chapters we will attempt to make the concepts operational. Our broad interest throughout the book is in evaluation — evaluation of a recent institutional innovation that has come to be termed "public interest law" (PIL). To perform the evaluation, to assess the usefulness of this new institution, we must define our terms and make explicit our evaluative criteria. We must, in short, not only decide what would constitute "success" for PIL activities, but we must also define a PIL activity — that is, we must define the essential characteristics of the institution whose consequences we are examining and evaluating. By "essential" characteristics we mean the characteristics that distinguish a PIL from a non-PIL activity or organization. An explicit definition is necessary because, as we shall see, there are other activities and institutions with similar goals, and to assess the consequences of PIL activities requires that they be demarcated from the others.

The Public Interest: Equity and Efficiency The concept of the "public interest" is complex and not susceptible of any simple definition. The author thanks Robert Haveman, Mitchell Polinsky and participants in the Public Interest Law Project for their comments and suggestions.

A.

Weisbrod

While the term "public interest" has been used in many contexts through the ages, there has developed no consensus as to what it means, even in an approximate sense (see the chapter Appendix). It is not our hope — at least, not realistically — that we can succeed here in defining the "public interest" in a manner that will resolve the matter and end debate. Nonetheless, since we have set out to identify the nature and consequences of public interest law activities, and also have set out to make some assessment of the effectiveness of such activities in actually contributing to the public interest, we will attempt to come to grips with the problem of defining the public interest. There are many facets to the "public interest," which is why it has been so difficult to arrive at a consensus definition. It seems, however, that many of these facets can be grouped under two principal headings: efficiency and equity. Efficiency, in this context, concerns the size of society's output "pie," while equity involves judgments about the relative amounts of the "pie" that go to various people, and the process by which (or the "procedural justice" with which) the amounts are decided. Some elaboration of what we mean by economic efficiency and equity can be helpful at this point. First, efficiency. We want to focus attention on one of the two key economic concepts of efficiency, allocative efficiency, as distinguished from technical efficiency. The latter may be thought of as involving the provision at the lowest cost possible of whatever particular set of commodities and their quantities are being

5 produced. Such cost minimization or technical efficiency requires every producer to consider the alternatives available for producing a given c o m m o d i t y , and the costs of the labor, machinery, and other resources required by each technique, in order t o discover the least costly process. Insofar as producers act as profit maximizers, they would be led to minimize the total cost of producing whatever they p r o d u c e d . In so doing, they would be acting in a technically efficient way. The opportunities for a producer t o make technically efficient choices may be constrained, however, by legal restrictions such as those on e m p l o y m e n t discrimination and on " u n s a f e " or " u n h e a l t h f u l " production processes. The allocative efficiency c o n c e p t , however, is of greater concern here. It has to d o with the degree to which productive resources of all kinds are p u t t o their most "valuable" uses. If, for example, a worker were to value an additional h o u r of leisure time at, say, $4 ( t h a t is, he would prefer not to w o r k the extra h o u r unless he could be paid at least $4), while at the same time a prospective e m p l o y e r valued an additional h o u r of the labor of a person with the skills of that worker at $5, then it would be "allocatively e f f i c i e n t " for the worker t o work the extra h o u r rather than to take the leisure; b o t h the worker and the employer would be made better off if they negotiated an agreement at some wage between $4 and $5 rather than have the worker remain idle and the employer forego the o u t p u t to which the worker would contribute. Similarly, if that worker were indifferent about a choice between working for employer A, who valued the worker's labor input at $5 per h o u r , and employer B, w h o valued it at $ 6 per h o u r , then allocative efficiency requires that the worker work for e m p l o y e r B. The same concept of allocative efficiency applies to all resources; efficiency requires that they be put to their most valuable uses, b u t n o t e that one possible " u s e " is to retain the resource in an unused (leisure) f o r m , at least temporarily. If markets are operating well - that is, if ( 1 ) resource owners, including workers and households, k n o w what they can earn in various uses of their time, if (2) producers know the prices at which they can sell added o u t p u t , and if ( 3 ) the prices that producers can get are close a p p r o x i m a t i o n s of the prices that consumers are willing to pay — then competitive forces can be

Conceptual

Perspective

expected t o bring about allocative efficiency. If, however — to anticipate the type of example to which we will frequently refer in Part T w o of this b o o k - condition (3) does not h o l d , so that producers are unable t o capture consumers' demands and then translate t h e m into d e m a n d for productive resources, then t o o few resources will c o m e t o be devoted t o production of the comm o d i t y involved. Resources would be misallocated; there would be an inefficiently low level of resources allocated t o that c o m m o d i t y . This would occur if, for example, individual consumers did n o t transmit their true demands ( t h a t is, their willingness and ability-to-pay), perhaps because each consumer h o p e d t o benefit (as a "free-rider") f r o m the expenditures of other consumers for "collective-type" goods such as roads, scenic areas and environmental preservation. But whatever the causes - and we will discuss t h e m f u r t h e r , below — allocative inefficiency will result unless consumer economic demands are fully — b u t n o t more than fully — transmitted t o producers. Allocative efficiency thus requires that conditions (1), (2), and (3) h o l d ; consumers and producers must be well informed and consumers must be able t o transmit their well-informed demands to producers capable of meeting t h e m . With regard to equity, there is a public interest in achieving an equitable division of the society's income and other rewards, and of opportunity for individuals to improve their own positions, although, to be sure, the precise definitions of the terms " e q u i t a b l e " and " o p p o r t u n i t y " are controversial. Equity is itself a multi-dimensional social objective about which many volumes have been written. 1 Sometimes the emphasis is on m o n e y income, sometimes on a broader class of society's rewards, including n o t only goods and services but also social status, esteem, and justice. A distinction has been drawn between treating people equitably and treating them equally, the difference reflecting the j u d g m e n t that since people differ in their capacities and needs, it is inequitable to treat people equally. Of particular n o t e is the distinction between the equity of the process 1. See for example, Robert J. Lampman, "Recent Thought on Egalitarianism," Quarterly Journal of Economics, LXXI (May 1957), pp. 234-266; EdmundS. Phelps, ed., Economic Justice (Harmondsworth, Middlesex, England: Penguin Books Ltd., 1973); and John Rawls, A Theory of Justice (Cambridge, Mass.: Harvard University Press, The Belknap Press, 1971).

6 by which social decisions are made and the equity of the outcome of that process. In deciding how equitable the economic system is, some people emphasize the process by which it determines how income (purchasing power) is divided; others concentrate on the results of the process — for example, the degree of inequality of money income. Others focus on the degree of inequality, not of total purchasing power, but of actual purchases of certain "basic" goods and services such as housing, food, medical care and, perhaps, legal representation. We will not attempt here a complete survey of the variety of conceptions of equity; suffice it to say that they have in common a view that society is, and should be, concerned with how its largesse — in whatever form, tangible or intangible — comes to be divided among the population. Efficiency and equity are not necessarily mutually exclusive social goals. The goal of allocative efficiency does not involve preoccupation with a narrow concept of cutting costs regardless of its effect on the quantity and quality of the resulting output. Neither does efficiency imply the converse of equity; that is, it is both efficient and, most people would agree, equitable, to organize the economic system so that ( ^ c o n sumers are able to obtain the goods and services that they want, not the goods some planner or other authority has decided they should have; and that (2) at least to some extent, more of society's limited goods and services should go to persons who have been more productive in contributing to the society's output of those goods and services. An efficient allocation of resources would do both of these things. People differ, of course, in their views about the degree to which (other) consumers should have what they want, and they differ as to the degree to which output should be divided according to one's contribution - that is, according to one's earnings and purchasing power (which are similar though not identical terms).' Nevertheless, insofar as there is some consensus that (1) and (2) above are desirable attributes of a socio-economic system, it 2. For example, if some consumers are too poor to have much, or any, effective demand for certain goods and services, then even though the economy is not operating inefficiently when it fails to provide such goods for those consumers, we may (or may not) judge that the economy is operating inequitably.

Introduction and Theoretic Analysis follows that the requirements of economic efficiency and distributional equity sometimes coincide or, at least, overlap. In short, we suggest that there is a public interest in obtaining an efficient use of resources, and in dividing in an equitable way the fruits of the use of those resources. When, in our applied work below, we examine actual PIL activities, we will attempt to identify when the apparent objective and the consequences of those activities involve primarily equity issues - that is, issues regarding the distribution of goods, services, and other rewards among people (either the actual distribution or the procedural mechanism by which the distribution is determined) - and when the PIL activities are focused on efficiency considerations. 3 To make this distinction is not to imply that one is more important than the other. Solutions, however, are likely to differ depending on what the source of the problem is. Moreover, we shall see later, when we examine the potential role for public interest law activities, that the distinction between efficiency and equity will help us to draw some useful distinctions among conventional pro bono legal work (work performed by private attorneys for no fee or for a reduced fee), legal aid for the poor, and public interest law, and will then help us to relate these activities to the larger economic system. While the equity-efficiency distinction, and the trade-off it implies, is useful, it should be recognized as being essentially arbitrary (in the sense that efficiency and equity are interrelated, and therefore difficult to distinguish), notwithstanding its conventional use in economics. As with all classification systems, its usefulness is the key issue — not whether it is "correct." In this study we find it useful to distinguish between those (PIL or other) activities that primarily involve benefiting one group at the expense of another — and that therefore must be evaluated in distributional-equity terms — and those activi3. On the conflict between equity and efficiency, see Arthur M. Okun, Equality and Efficiency: The Big Tradeoff (Washington, D.C.: The Brookings Institution, 1975), and Martin C. McGuire and Henry Aaron, "Efficiency and Equity in the Optimal Supply of a Public Good," Review of Economics and Statistics, LI (February 1969), pp. 31-39. Also see I.M.D. Little, A Critique of Welfare Economics (Oxford: Clarendon Press, 1950), especially Chap. 6, and E. J. Mishan, "A Survey of Welfare Economics, 1939-1959," Economic Journal LXX (June 1960), pp. 197-256.

7 ties for which the anticipated result is an enlargement of total benefits for everyone — efficiencybased activities. The logic of this distinction rests on the view that the latter class of activities may be less controversial as to its desirability and hence easier to evaluate, although we will see that this is by no means true in all cases. The conceptual distinction between efficiency and equity is too neat, however. Even at the theoretic level it is clear that programs that may be "potentially" efficient, in the sense that they could conceivably make everyone better off, do not in fact benefit everyone. No matter how efficient a particular use of resources may be that is, no matter how large the excess of the total value of the output over the total cost of the inputs — it is almost certain that some people will be hurt by the change in the allocation of resources. The output may be such that even though many people reap great benefit from it — for example, from decreased pollution of streams and waters — some will be adversely affected, such as the producers who must find alternative, higher-cost means for waste disposal, and the consumers who buy their products. Even if no one is adversely affected by the output effects of a change in resource use, some people could be hurt by the input price effects. Any reallocation of resources — any shifting of resources from one use to another — will also shift patterns of demand for various types of labor, land, and capital equipment; some resource owners will find that the prices and wages they receive increase, while others find decreases. Moreover, whether a person is made better or worse off by changes in output and input markets, his economic well-being could be affected by the size of his gain or loss relative to those of other people - the envy effect - and by the size of his gain or loss relative to what he anticipated. In short, whether through changes in output prices, in input prices, or in other ways such as the dislike that some people may have for activities that many other people like a great deal, 4 there is a strong presumption that even a highly efficient use of resources will bring redistributional equity effects, and these may or may not be judged to be desirable. Just as efficient programs are almost certain 4 . See C h a p t e r Six for f u r t h e r analysis of the relationship of preferences to distributional e q u i t y effects.

Conceptual Perspective to have distributional-equity consequences, redistributional programs also normally affect the efficiency with which the society's resources are used. Any attempt to redistribute income or access to it will inevitably alter the incentives that people face - incentives to work, to save, to invest, to consume one class of products or another, and so forth. This is the case bccause the means adopted to bring about the redistribution, such as taxes, subsidies, and allocational rules, have the effect (whether intended or not) of encouraging certain kinds of actions and discouraging others; the result is that resources come to be used differently than they would have been used if the redistributional effort had not been made. Part of the difference would simply be the result of the altered income distribution, since those people whose incomes were increased will generally not spend the income in the same manner as would those people whose incomes were decreased. This is the "income effect" of the redistribution, and it does not affect resource-allocational efficiency. But part of the impact of redistribution is to reduce allocational efficiency by providing explicit or implicit incentives for people to change behavior and thereby change the amounts of money, goods, or opportunities that they receive or give up because of the redistribution program. If, for example, the redistribution operates through the income tax system, then the larger the sum being redistributed, the greater the income tax rates are likely to be, and, with that, the greater the disincentive to work and earn taxable income. The preceding discussion has pointed out that whatever the intended result of any activity may be — to enhance either economic efficiency or distributional equity — the results will be change (favorable or unfavorable) in both efficiency and equity. Nonetheless, in any given instance the actual or the anticipated effect of a program will sometimes be preponderantly of a distributional sort, and in other situations, preponderantly of an efficiency sort, as we will see in the area-study chapters of Part Two. Thus we find it useful analytically and expositionally to draw the efficiency-equity distinction, recognizing nonetheless that in the real world we do not find such neat distinctions. However instructive it may be to separate economic efficiency from distributional equity

8 considerations, the fact is that both are types of criteria for judging how well an economic system is performing. Both involve normative judgments. Both are desirable in abstract terms, and controversial in operational terms, and, while we might be able to make the controversies clearer, we will for the most part be unable to resolve them. In our applied work below, we will point up distributional consequences of public interest law activities as well as of other private and governmental activities, but the reader will be left to judge whether the distributional consequences are equitable. We will also point out how redistributional efforts can be expected to bring about efficiency effects on incentives to work and produce. It is one matter, however, to determine what those efficiency and equity effects are, another matter to reach an agreement as to whether they are desirable or not, and still a third to decide whether, if there are any undesirable effects, they are outweighed by the favorable effects. When programs are efficient and their distributional effects are deemed equitable, they may be judged clearly desirable. In our examination of the consequences of economic behavior of the private, for-profit sector, the government sector, and the voluntary, non-profit sector and its public interest law component, we will attempt to make clear in what respect each sector can be expected to contribute to the public interest in efficiency and in equity. We will also point out when the contribution to one is consistent with a contribution to the other, and when there is conflict. 5 While the concepts of equity and efficiency can be interpreted broadly enough to encompass 5. The equity-efficiency distinction is related to the notions in economics of changes in the allocation of resources that are Pareto-superior versus Paretoefficient. If a reallocation - a change in the way resources are used, producing more of some things and less of others - were to make some persons "better o f f ' and no one "worse off," the change would be termed Pareto-superior, and would be widely judged to be desirable. If, however, a reallocation of resources that had the potential for being Pareto-superior actually made some persons better off and others worse off, then the reallocation would be defined as Pareto efficient but not Pareto superior. The distinction thus involves whether, if the change harms some people, they not only can be compensated but they actually are compensated in a manner so that after the compensation no one is left worse off (as each person judges his own well-being).

Introduction and Theoretic Analysis virtually any notion of the public interest that anyone has ever suggested, we do not intend to argue that efficiency in the allocation of resources and equity in the division of the society's income, output, and opportunities necessarily constitute the only socially relevant dimensions of the public interest. We simply wish to suggest that equity and efficiency are indeed two important components of the public interest. Our objective here is to show, in a general way, how the public interest and a group of activities coming to be known as "public interest law" can be linked to each other and to other parts of the economic and social system. The concept of the public interest may also be usefully related to welfare economists' conception of a social welfare function. A social welfare function is a statement of how an index of "welfare" changes in response to changes in particular variables.6 In general, we may view a society's economic welfare — a component of total welfare — as depending on the amounts of real goods and services that each individual has, and also on the degree of inequality in the distribution of those goods and services (that is, of income). In short, this is to say that economic welfare depends on (1) efficiency, which determines the total amount of goods and services produced in the economy, and on (2) equity, for which the degree of inequality in the distribution of society's productive output is a proxy. 7 The approach in the balance of the chapter is this: first, we examine briefly the circumstances under which the public interest in efficiency and equity is likely to be achieved by the freely functioning decentralized process of the private marketplace. Following this analysis in which we discuss the conditions under which the private, for-profit sector can be expected to fail to achieve efficiency and equity, we analyze the government sector's ability to correct those effi6. On the social welfare function, see Abiam Burk (Bergson), "A Reformulation of Certain Aspects of Welfare Economics," Quarterly Journal of Economics LII (February 1938), pp. 310-334, and Jerome Rothenberg, The Measurement of Social Welfare (Englewood Cliffs: Prentice-Hall, 1961). 7. Richard Musgrave has equated the "public interest" with efficiency alone, not with equity. See his "The Public Interest: Efficiency in the Creation and Maintenance of Material Welfare," in Carl J. Friedrich, ed., Nomos V: The Public Interest (N.Y.: Atherton Press, 1962), pp. 107-114, esp. page 110.

9 ciency and equity failures. Concluding that there are also reasons to expect governments to "fail" as correctives, we consider the potential ability of the "voluntary" sector — which includes nongovernmental, not-for-profit organizations and activities - to correct the failures. The roles of "public interest law" and of non-law activities within the voluntary sector will be sketched. There are, to be sure, also reasons for expecting failures of the voluntary sector, and specifically of its public interest law (PIL) sub-sector, and we will examine these as well.

The Private Sector In this country, the bulk of economic activity traditionally has been, and is generally felt to properly be, in the private, for-profit ("free enterprise") sector of the economy. There is widespread acceptance of the ethic that private individuals should be as free as possible to engage in the production, distribution, and purchase of goods and services. Adam Smith, writing two centuries ago, argued persuasively that private markets, when comprised of competitive profitmotivated firms and utility-motivated consumers, all acting in their own self-interest, will allocate the economy's resources efficiently, under a wide variety of circumstances. This view of the general effectiveness of the private sector in achieving efficiency — one component of the public interest — is widely accepted by economists. At the same time, limitations on the private sector's ability to maximize "economic welfare" have also come to be recognized. There are circumstances under which the private sector can be expected to be incapable of promoting maximum allocative efficiency. Moreover, limitations on that sector's ability to promote "equity" in the distribution of income are acknowledged quite generally. The present discussion focuses on efficiency; equity issues are examined later in this section. The concept of economic or allocative efficiency involves fundamentally a comparison of the values to consumers and to resource suppliers of alternative uses for the economy's human and physical resources. Resources are allocated "efficiently" when every consumer gets the goods and services he wants, so long as he is willing and able to pay enough to compensate workers and other resource owners for their voluntary supply of the

Conceptual

Perspective

resources required in production of those goods and services." This concept of efficiency is derived from an individualistic ethic which holds that the social welfare is inseparable from the welfare of the individuals in the society. By such a conception it is definitionally true that an action cannot be in the "public interest" if it would make everyone worse off. More significantly, since in reality virtually any action would benefit someone, our concept of efficiency implies that it is not in the public interest - because it is not efficient - to devote resources to any specific use when the most that those persons who would benefit from it are willing and able to pay is less than what other persons are willing and able to pay for an alternative use of the resources. The efficiency concept is tied, thus, not only to a particular notion of what "society" is — it is not something apart from its members - but also to a weighting of individuals' intensity of want by their willingness and ability to pay. Clearly, other concepts of efficiency are possible. Among them is a perspective on society not as a group of people but as a functioning organism, a continuing institution transcending the individuals who comprise it at any point in time. An efficient use of resources might thus be conceived as one which maximizes the organism's ability to survive through time, subject perhaps to certain constraints involving technological feasibility and guarantees of certain "fundamental" individual rights. Another notion of efficiency would conceive of individuals as deciding not on the desirability of one allocation of resources versus another, but on a process for arriving at such decisions. Thus, a constitution can be viewed as an agreed-upon set of rules for determining and restricting what is "efficient."' The United States Constitution, 8. The concept of efficiency is more complex than can be captured in a brief discussion. For further discussion see an introductory textbook such as Economics, by Paul A. Samuelson (N.Y.: 9th edition, McGraw-Hill, 1973), especially Chapter 32; or, at a somewhat more advanced level, Peter Bohm, Social Efficiency, a Concise Introduction to Welfare Economics (N.Y.: John Wiley and Sons, 1973), Chapter 1. 9. For further discussion see James M. Buchanan and Gordon Tullock, The Calculus of Consent (Ann Arbor, Michigan: University of Michigan Press, 1962), especially Chapter 6, "A Generalized Economic Theory of Constitutions," pp. 63-84.

10 for example, provides for "due process" without explicit attention to its benefits and costs in each specific instance. Indeed, it can be argued that the cost of determining the costs and benefits of the due process guarantee in each instance is sufficiently great that it would be inefficient to make such a determination; the Constitutional guarantee can thus be thought of as the reflection of a judgment that, on average, through time, the resources required to carry out the requirements of the guarantee will bring benefits in excess of costs. We shall not attempt here to solve such difficult and complex puzzles involving the interplay of social, political, economic, and legal institutions. We will be able, fortunately, to shed some light on the role of public interest law and other "public interest" activities without examining the full scope of the issues. We shall see, for example, that even from a somewhat narrow perspective we can sometimes perceive social problems which neither private, for-profit markets nor governments are likely to handle satisfactorily. Whether some other, "public interest" institutions can do better — that is, be more efficient or more equitable - will be examined. We will attempt not to end debate about how efficiency and equity should be defined, but to be clear as to how the analysis of the role and effectiveness of public interest law and similar institutions hinges on such definitions. There are conditions under which the actions of private, profit-motivated firms are not expected to lead to efficient patterns of production and consumption. While these conditions can be stated in a variety of ways, one such classification would include the presence of (a) noncompetitive, monopolistic conditions among sellers or buyers; (b) external effects, which mean, for example, that one consumer's purchase of a commodity would bestow either benefits or costs upon other consumers or upon other "third parties"; and (c) transactions and organizational problems, which are barriers to the flow of information between consumers and producers. Frequently, it is helpful to think of another barrier to efficiency: (d) collective goods — those such as national defense or public health sanitation measures from which many consumers benefit simultaneously. While the market efficiency problems posed by collective goods — which are essentially problems of determining both individ-

Introduction and Theoretic Analysis uals' and total effective demands for the goods — can be examined as issues involving conditions (b) and (c), it will be useful to focus attention, in our study of the role of public interest law, on the collective-good problem of free-rider behavior — the tendency of self-interested people to forego their own purchases of collective goods in the private market, in the hope that some other person will pay for the goods so that they can benefit without paying. Private Market Efficiency Failures: Actual or Potential Throughout our analysis it is important to bear in mind the distinction between a "potential" and an "actual" market failure. The transactions and organizational problems mentioned in the preceding paragraph illustrate the point. When external benefits are large and dispersed among many people, transactions costs associated with the transmission of economic demands from consumers to producers tend to be large. As a result, the private sector can be expected to confront the free-rider and accompanying underprovision problems we have sketched above. 10 While we have termed the result a private market efficiency failure, that characterization is too simple. The fact that such costs exist implies only that there is a potential market efficiency failure, or that a problem exists: there is a deviation from the ideal of full transmission of information about consumer wants to prospective satisfiers of those wants. Yet in reality such an ideal cannot be attained (and would be inefficient to attain even if it were feasible) because of the real, resource-using costs of obtaining and transmitting information." To see this more clearly, assume that it were the case — if only the truth were known — that many people would benefit, and in the aggregate, substantially, from increased production of some good or service. Yet if it were truly expensive to find out what the facts are about the magnitude of such benefits relative to the cost of expanding 10. For further discussion, see Mancur Olson, Jr., The Logic of Collective Action (Cambridge: Harvard University Press, 1965). 11. See Ronald Coase, "The Problem of Social Cost," Journal of Law and Economics, III (October 1960), pp. 1-44; and Roland N. McKean and Jora R. Minasian, "On Achieving Pareto Optimality - Regardless of Cost," Western Economic Journal, V (December 1966), pp. 14-23.

11 production, then the potential market failure may not be an actual failure at all. An actual market failure may be said to occur if, and only if, the real cost of eliminating or reducing the extent of the "failure" is less than the resulting benefits. There are many circumstances under which people would like to have more information, or would like to be able to organize with other like-minded people in order to make their demands known. Only if there exists a way to diminish transactions and organizational cost barriers to the flow of information, and if the cost of doing so is less than the welfare losses now being sustained — only then would we say that there is an actual market failure. The same is true regarding the "external effects" of any other cause of market failure; only if the cost of dealing with the problem is exceeded by the benefits would it be useful to regard the private market as having "failed" — where "cost" means the value of other desired production that must be foregone. What is at issue, thus, is whether potential failures of private markets that do occur can be corrected through the efforts of governments, voluntary, non-profit organizations, or, more specifically, PIL groups, and at a cost that is less than the expected benefits. Even at the theoretic level of this discussion — where we do not examine any data — it is clear and important that the identification of a potential private market failure does not logically imply that either government, PIL or other extra-market institutions can correct the private market shortcomings at sufficiently lower cost; it remains for analysis to determine, therefore, whether all, some, or any of the potential private market failures are actual failures. In Chapter Three we consider, still at a quite abstract level, the ability of governments to correct the efficiency and equity shortcomings of private markets, and the bulk of the remainder of this book examines the ability of PIL to do so. From this point onward we use the term "private market failure" to mean a potential failure; the context of the analysis is precisely the question whether extra-market institutions, governmental or voluntary PIL or other, are likely to be able to succeed in correcting the failures of private for-profit markets. Problems of Achieving Efficiency and Equity The term "private market failure" refers traditionally to the circumstances under which decen-

Conceptual Perspective tralized private organizations, seeking to maximize their own profits, can be expected to make decisions that result in inefficient resource allocations. The economists' conventional "market failure" terminology thus applies only to the allocative efficiency aspect of the public interest, as we have defined it above; it does not refer at all to the distributional equity aspects of the public interest concept. With respect to the inefficiency problems confronting private markets, there is a considerable literature in economics and we shall not attempt to survey it here.' 2 The market failure concept generally has not been applied to the distributional effects of private sector activities because that sector has been seen as a mechanism for achieving efficiency, and, hence, as judgable only in efficiency terms. While some economists have also argued the inherent "fairness" of a private market system that rewards people according to their contribution to output, most economists have acknowledged that, even at a theoretic level, the income distribution generated by a private market would not necessarily, or even probably, be ethically desirable, even if all people began life with equal endowments of human and material capital, but especially if they did not. 1 3 Thus, the prevailing view is that it is a proper role of government to bring about an equitable income distribution. As one writer put it, "there are very few countries where the citizens accept the income distribution that comes into existence of itself in the markets.'" 4 This does not necessarily imply a denunciation of the system of private-market rewards and behavior, but is simply an observation that private markets will not generally overcome the effects of unequal intergenerational wealth transfers or of gross inequalities in ability and family background. Efficiency Failures. Unregulated private markets can be expected to fail to meet consumer 12. See, for example, Francis Bator, "The Anatomy of Market Failure," Quarterly Journal of Economics, LXXII (August 1958), esp. pp. 363-365 and 369-371; Jesse Burkhead and Jerry Miner, Public Expenditure (Chicago: Aldine, Atherton, 1971), pp. 99-141, and the bibliography, pp. 141-144. 13. Arthur M. Okun, Equality and Efficiency (note 3 above), concludes his chapter on "The Case for the Market": "Although the ethical [income distributional] case for capitalism [that is, for the private market] is totally unpersuasive, the efficiency case is thoroughly compelling to m e " (p. 64). 14. Leif Johansen, Public Economics (Chicago: Rand McNally and Co., 1965), p. 19.

12 demands whenever there are significant problems (costs) that have the effect of keeping prospective buyers and sellers apart. We have termed these "transactions costs," understanding that they include a variety of obstacles to the transmission of effective demands (willingness and ability to pay) from consumers to providers. Included are the costs to each individual of learning which characteristics of goods, services, and jobs are relevant to that person's decisions (information costs); the costs to individuals of understanding and utilizing the information ("processing" costs); the costs to firms of finding out who is willing to pay what amount of money for some commodity (communication or revelation-ofdemand costs); and the cost of collecting the money from what may be a large and dispersed group of people each of whom is willing to pay only a small amount (collection costs). All of these act as barriers to ideal, smoothly functioning private markets. The more costly it is for consumers to obtain information about product quality in understandable terms, for producers to obtain information about the extent of consumers' demands, and for firms to obtain payment from consumers for the goods produced, the greater the probable divergence between patterns of private-market production and patterns of consumer demands and, hence, the greater the failure of the private sector to use resources efficiently. Such transactions costs and, hence, the problems facing private producers, are most likely to be large when the goods or services demanded have significant external or third-party effects (the buyer and the seller are the first two parties). In the case of such collective-type goods, the value of the commodity to any one person might be small compared to the cost of the commodity, and yet the value to consumers as a whole — including the third-party beneficiaries might be far in excess of the cost. Unless some mechanism is developed whereby the aggregate net value of the commodity is (a) determined and (b) transmitted to a producer who (c) can actually collect enough from the beneficiary group to cover his (incremental) production costs, the production will not take place. If, to take one extreme case, there were only one such external beneficiary (or loser), and if that person were physically close to, and knew, the prospec-

Introduction and Theoretic Analysis tive purchaser, then these transactions cost problems would be of little consequence, and no quantitatively important deviation from efficient resource use would be likely to result in the private market. At the other extreme, however, if there were a large number of external beneficiaries, and if they were geographically dispersed and were unaware of each others' identity, then the private market might fail completely; none of the commodity might be produced, or, more generally, the actual level of production might be tiny compared to the efficient level — the higher level at which the aggregate willingness of all consumers to pay for an incremental unit of output no longer exceeded the incremental production cost. Some illustrations would be useful in order to clarify the sense in which these transactions costs are at the root of efficiency problems (market failures) in the private sector. If person or firm A's immediate neighbor would derive large benefits (or incur large losses) as a result of some action by A, then the neighbor could, we might presume, contact A and, if necessary, offer him money to encourage A to undertake (or to cease) the specific activity. The neighbor might act in this way to subsidize the painting of A's fence, for example, or to subsidize (bribe) A to cut down a tree that obstructs the neighbor's scenic view. Imagine, by contrast, the problems of organizing such people to pay such a subsidy in order to reduce pollution discharge into a river when the down-stream users number in the thousands or even millions, and they neither know each other nor even know the exact identity of the persons or firms doing the polluting. Even if the downstream users' economic demand for cleaner water were in excess of the cost to the polluters of reducing or even eliminating the pollutant discharge, the costs of determining that total demand and of collecting enough money to offer the subsidy to the polluter might well lead to inaction. Inaction could result even if these transactions costs were far smaller than the prospective net benefits from curtailment of pollution. Any one person contemplating the identification and collection process, including the cost of explaining his action to each person involved, might well conclude that the cost to him exceeded the benefits he could realize, even though the aggregate

13

Conceptual Perspective

Other examples of collective goods would include a lighthouse, from which all ships would benefit whether or not their owners contributed to the costs; aerial spraying of mosquito-breeding areas; and installation of devices for decreasing air pollution. In all such cases, action by the person who built the lighthouse, sprayed the breeding area, or added a mechanism for reducing the discharge of pollutants from his factory or auto would bring (external) benefits to many other people who could benefit without paying. In the extreme, everyone might wait for someone else to bear the costs, and so the inefficient underprovision of these goods would result. It should be emphasized that "underprovision" in this context means only that the output of cerIf it is necessary for each of a large number of tain goods and services in the private sector of consumers to contribute toward the purchase of the economy would be less than the level cona good from which they will all benefit, the costs sumers as a whole are willing and able to pay for. of their discovering who all the others are, of It connotes nothing about the "desirability" of getting together, of agreeing to a particular shar- the bundle of outputs produced by the economy ing of costs, and of enforcing that agreement can from the standpoint of equality, minimum needs, be great. These transactions costs are likely to or social justice. A private market efficiency failincrease disproportionately with the number of ure simply is a failure to be efficient — that is, to potential beneficiaries involved. Thus, we would satisfy market demands. The problem in the expect that little of a collective service such as externality, or collective-good cases is that these national defense would be provided by the pri- demands may go unregistered, untransmitted to vate, for-profit sector of the economy, even if prospective producers, as will be the case if conthat were permitted by law — little, that is, rela- sumers attempt to hide their true willingness to tive to the amount required for economic pay in the hope of benefiting from other people's actions. efficiency. benefits to downstream users could be enormous. As Kenneth Arrow put it: "In many cases there are social wrongs or social efficiencies which are quite significant in the aggregate and are perceived by a large number of people, each of whom bears a small part of the c o s t . . . . It really does not pay any particular person to sue, and if a few people do sue it does not really do the company [that is polluting] much harm.'" 5 Arrow's second statement appears to disregard the potential for class-action suits, but his principal point, involving the relationship between individual and group benefits and costs, and his implicit recognition of the costs of organizing large groups of people, each of whom has only a small interest in some outcome, is clear.

One cause of private market failure that has received growing attention from economists in recent years involves the problems of overcoming "free-rider" behavior. As we suggested above in the "collective good" example of national defense, this tendency of people to try to be freeriders, or, in any case, to disregard external benefits (or costs), can be expected to result in underprovision of the goods in the private market sector - underprovision in the efficiency sense that if added output (which is not being produced because of the free-rider problem) were produced it would be valued by its users at an amount greater than the cost of providing i t . " 15. Kenneth J. Arrow, "Social Responsibility and Economic Efficiency," Public Policy, XXI (Summer 1973), p. 312. 16. Under certain unusual, although plausible assumptions, there could be over-provision of a collective good in private markets. This would be the case if each person disregarded the benefits he would receive from,

The expectation that people will not fully disclose their valuation of collective goods flows from conventional micro-economic theory of individual optimizing behavior. It postulates a private market sector in which individual consumers and producers all behave in their narrow self-interest, taking into account all the effects of their decisions and actions on themselves, but not taking into account at all any effects on other people. Insofar as the production or consumption of some good by an individual might for example, his neighbor's mosquito-spraying efforts, and went about doing his own spraying. In the end, there might be more spraying than all consumers would wish if they could only collaborate. For other examples, see Alan Williams, "The Optimal Provisions of Public Goods in a System of Local Government," Journal of Political Economy, LXXIV (February 1966), pp. 18-33; and B u r t o n A. Weisbrod, "Benefits and Costs of Medical Research: The Case of Poliomyelitis," Journal of Political Economy, LXXIX (May-June 1971), pp. 527-544.

14 have favorable or unfavorable effects on other people, the theory predicts that these external effects will be disregarded unless those other people are able to pay or otherwise induce the individual to change his behavior. From the point of view, however, of efficient resource use in the economy as a whole, it is desirable that all consequences be taken into account, regardless of whether each individual finds it in his selfinterest to consider them himself. It follows that the private market can be expected to behave inefficiently in those cases in which there are external effects that the individual participants in the economy either do not recognize or do not take into account in their production and consumption decisions. Economic efficiency as a component of the public interest is clearer in concept than are the means for attaining it. Even at the conceptual level, however, problems of meaning are not absent. The theory of "second best" says that, given an economy in which noncompetitive markets and externality and collective-good inefficiencies are found, it is not true that an efficiency "improvement" in part of the economy will necessarily improve the allocation of resources for the economy as a whole. Neither, however, is the converse true, that an efficiency improvement in part of the economy will necessarily distort the allocation of resources even more. While we recognize this issue of the second best, 17 our evaluation of public interest law activities proceeds on the assumption or faith that, viewed not in isolation but as a policy involving many actions through time, an activity that leads to a more complete transmission of consumer demands will generally contribute to the public interest in allocative efficiency. To sum up: the factors deterring the private sector from achieving allocative efficiency can be viewed in various ways; our emphasis is on the problem that for-profit firms have in capturing the benefits of their activities to all people when any one person's purchase or usage of a com17. For more extended analysis of this theory of "second best," see R. G. Lipsey and Kelvin Lancaster, "The General Theory of Second Best," Review of Economic Studies, XXIV, No. 63 (1956-1957), pp. 11-32; and for a useful summary of the argument, see Burkhead and Miner, Public Expenditure pp. 113-116; and E. J. Mishan, "Second Thoughts on Second Best," Oxford Economic Papers, XIV (October 1962), pp. 205-217.

Introduction

and Theoretic

Analysis

modity bestows external benefits (or costs) on other people, and where large transactions costs have the effect of keeping apart potential buyers and sellers of collective-type goods. This focus is useful because of its implications for the role of public interest law and related voluntary sector activities. More will be said about this in the section below on the voluntary sector of the economy, and also in subsequent chapters. The cornerstone of our later analysis of the potential role of "public interest" organizations as contributors to economic efficiency and distributional equity will be the difficulties faced by the private sector and, as we shall see, by the government sector in responding to the real demands that go unregistered because of externalities and transactions costs. Economic and Legal Models: A Digression. It is interesting to note the similarity between the economist's faith in thorough-going competition as a requirement for allocative efficiency, and the lawyer's faith in full legal representation as a requirement for justice. Both groups recognize that the ideals of thorough-going competition or of full representation of relevant information are not always realized in practice — that both markets sometimes "fail." 1 8 To the extent that we can identify the causes of such failures, we may be able to devise instruments for corrective action. In both the legal and the economic markets, the general character of such instruments is their movement toward "fuller representation," although the concept of representation that is deemed relevant in each case varies somewhat. A comparison of the legal and economic models of representation serves to highlight questions concerning ( l ) t h e meaning of being "underrepresented," which is related to how one is represented in the legal or economic market, and (2) "absolute" versus "relative" representation, and the relevance of each. These are conceptually important issues because "representation" can take various, and sometimes subtle 18. For some discussions of the failures - theoretic and practical - of the legal adversary process as a method for resolving conflicts, see David L. Bazelon, "New Gods for Old: 'Efficient' Courts in a Democratic Society," New York University Law Review, XLVI (October 1971), pp 653-674; James Marshall, "Lawyers, Truth, and the Zero-Sum Game," Notre Dame Lawyer, XLVII (April 1972), pp. 919-926; and David Dressier, Trial by Combat in American Courts (New Haven, Conn.: Yale University Press, 1964).

15 forms, and as later chapters will show, there are often reasons to believe that in specific situations there will be more than one group whose interests are not fully represented. The typical market situation as seen by economists is one in which buyers have demands — wants together with willingness and ability to pay - and sellers are eager to satisfy those demands if they can increase their profits by doing so. In the standard case, the "interests" (as reflected by effective demands) of consumers are "represented" not by any organization or representative designated by consumers, but by private firms, each of which is pursuing its own self-interest. There is a coincidence of interests such that when the firm seeks its self-interest in profit it is led, as if by an "invisible hand" to respond to, and in this sense, to represent, consumer demands. The first point to note, therefore, is that any interest group is not necessarily underrepresented, in the allocative efficiency sense, merely because it is not organized and does not have any leader who is looking out for its interests. Under conditions of full transmission of consumer demands and competitive markets, the private market can be viewed as a complex, efficient system for representing those wants for which people are willing and able to pay. (It is not, however, an effective system for representing interests for which people are either unwilling or unable to pay.) This sketch of the private market representation model suggests that the efficiency ideal requires that each consumer's economic demands be fully transmitted to (or represented by) producers — that if there is only partial transmission of demands from prospective buyers to prospective sellers, then allocative inefficiency is the result. The issue is not so simple. It is likely that consumer demands for individual-type goods are transmitted through the private market more fully than are the demands for collective-type goods, because consumers who, acting as freeriders, attempt to benefit from collective goods without paying systematically understate their true demands for collective goods. If this is so, then the private market will allocate too few resources to collective goods and too many to private goods. Equal relative representation of demands for private and collective goods is

Conceptual

Perspective

required if allocative distortions are to be avoided. For a particular allocation decision, the relevant efficiency question asks which alternative way of using a given unit of resource is most efficient. Determining this requires a comparison of the benefits of using the given resource in each way. Thus, it is only the relative benefits (that is, the relative demands for the various goods that could be produced with the given resource) that need to be known. Even if we think of the problem somewhat more generally, as involving a comparison of benefits with costs, then we can see that if benefits and costs were equally understated (underrepresented), the resulting allocation of resources could be the same as if none were understated. In general we can think of a large (if not infinite) number of combinations of degree of representation for each alternative use of resources that would lead to the same allocation of resources. The legal model, like the economic allocational model, is essentially adversarial. The problem in the legal model is how to choose which litigant's position to support. While full representation of each litigant's "interests" is held as the theoretic ideal, the underlying logic seems to call only for a "balance" between the level (and quality) of representation for each party (or each use of resources). Thus, when choices are involved of the type for which judicial remedies are deemed appropriate, the relevant representational concept is relative representation, and the system will have failed only if the adversaries are "unequally" represented. Therefore, a demonstration that one interest group is underrepresented relative to its total (fully revealed) willingness to pay for legal counsel does not necessarily imply an efficiency failure. Its opposition interest group, if there is one, may be similarly underrepresented, in which case the judicial outcome can be the same as it would be if both interest groups were fully represented. Thus, the second point to note is that even if some collective-good interests are indeed underrepresented, there is no efficiency failure if those interests have opponents for whom the commodity is a collective "bad"and if those interests are equally underrepresented. The facts of each case need to be determined regarding the degree of underrepresentation of interests of the contesting parties, and the area-study chapters in Part Two confront this factual question.

16 One final observation is that "full representation" in the legal model of justice seems to be closer to the economic concept of equity than to the concept of efficiency, though it is related to both. Theoretically, allocative efficiency may not be a serious problem in the legal market because persons who have the ability and willingness to pay have little difficulty obtaining legal representation, although the quality of legal representation is sometimes inadequate. In a market such as the legal market, however, in which most buyers make purchases only infrequently, and in which the seller (lawyer) is far more expert on what constitutes high quality legal service than is the buyer (client), willingness to pay may not assure that a buyer will obtain what he seeks. Thus, the private legal market may fail to allocate legal resources efficiently. There is a similar problem in the medical market (see Chapter Thirteen). A more serious representational problem is that of equity; at issue is equitable representation for the poor, the uneducated, the disadvantaged — those who are either too poor to pay for full legal representation or are too illinformed to recognize its importance. For them, the problem is not a failure of the private legal market to meet their effective demands, but the "failure" of the consumer to have an effective demand. If poverty is at the root, then the lawyer's "full representation" ideal requires that the individuals receive subsidized (or even free) legal services. If ignorance of the desirability of legal representation is at the root, then a consumer educational effort may be required, or an imposition of some "expert's" judgment that the individual should be represented, or both. Equity Failures. The "modern" position of economics has been to judge the private market in terms of allocative efficiency, not distributional equity. As we have already stated, it is not true that equity has been forgotten entirely in the private market, but the tendency has been to rely on governments to bring about the income transfers and equalization of opportunity that are required for the attainment of society's equity goals, leaving the private market to concentrate on efficiency, on maximizing the size of the "output pie." Concern about the income distributional effects of private and governmental actions, however, has always been central to economic analysis — for example, in the work of

Introduction and Theoretic Analysis Adam Smith, Thomas Malthus, David Ricardo, and Karl Marx." In recent decades, with the developing thrust of economics toward the "value-free" model of the physical sciences, distributional equity has come to be sharply delineated from allocative efficiency, the latter having been accepted as a relatively noncontroversial value judgment. Economists have been increasingly unwilling to take "scientific" positions on how income and opportunity should be distributed - that is, on what is equitable. With this dichotomy between the goals of efficiency and equity, and the consensus developing around efficiency as a less controversial norm, came the emphasis on efficiency as a standard against which the behavior of the private, for-profit sector was to be gauged. It is clear that allocative efficiency in the private sector can lead to extreme inequality of income because of wide variation in ability, motivation, location, and other determinants of productivity. Indeed, efficiency requires that wages differ according to marginal productivity. Whether the resulting income inequality is equivalent to inequity is a debatable matter, but insofar as it is, even if only at the extremes of income, the private market sector is likely to fail to bring about what most people regard as an equitable distribution of income. It has recently come to be realized that the distribution of income, conventionally viewed as being analyzable only in equity terms, can be converted, at least somewhat, from a pure equity matter to one involving allocative efficiency. "Pareto-optimal" income distributions are "superior" to others in an allocative efficiency sense; if person A judges himself to be better off when some income, wealth, or opportunity is in person B's hands than when it is in person A's, and if B also prefers that he rather than A have it, 19. See Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (London: W. Strahan and T. Cadell, 1784), especially Chapter 6; Thomas Malthus, Principles of Political Economy (London: 1820); David Ricardo, On the Principles of Political Economy and Taxation, R. M. Hartwell, ed. (Baltimore, Md.: Penguin Books, 1971); Karl Marx, Capital (New York: 1889); and Karl Marx, Value, Price and Profit (New York: International Publishers Co., Inc., 1969). Also see Lionel Robbins, An Essay on the Nature and Significance of Economic Science (London: Macmillan, 1935); and John Stuart Mill, Principles of Political Economy (New York: Appleton, 1887), especially Book II.

17

then a "transfer" from A to B would be efficient. Whether such a transfer (or gift, charity, etc.) is also "equitable" is actually another matter, although the fact that such transfers often go from wealthier to poorer people has been judged by some to mean that they constitute equitable transfers. In any event, there is presently little evidence that efficient transfers will, if made, correct the bulk of what various groups regard as inequities in the economic and social systems. 20

The Government Sector The role of government is seen quite differently in different societies, but in the United States as well as in many other "private enterprise" or "mixed" economies, the economic role of government traditionally has been seen as a response to the private sector's failures in both the efficiency and equity realms. Other roles for government are also commonly postulated, for example, attaining and maintaining full employment, price stability, and economic growth. 2 1 These aspects of economic welfare and of the public interest, however, lie largely outside the domain of this study except insofar as those goals can be viewed as aspects of efficiency (unemployment does signal allocative inefficiency) and equity (inflation is a major force for redistributing income and wealth). Governmental efforts to change the results of private market activities may be seen, thus, as responses to private market failures in either an efficiency or an equity sense. With regard to private market inefficiencies, economists have seen the government as the source of the solutions to the problems of monopoly, free riders, and externalities, and, relatedly, as the mechanism for establishing a legal-structural framework of contract enforcement and adjudication of disputes within which private markets function. Before examining the role of government as a force for correcting such inefficiencies in private 20. For a discussion of the concept of Pareto-optimal redistribution, see Harold M. Hochman and James D. Rodgers, "Pareto Optimal Redistribution," American Economic Review, LIX (September 1969), pp. 542-557. 21. See Richard Musprave, The Theory of Public Finance (N.Y.: McGraw Hill, 1959), Chapter l ; a n d Leif Johansen, Public Economics, Chapter 2.

Conceptual

Perspective

markets, it is vital to note that the occurrence of third party (external) effects does not automatically produce allocative inefficiencies. We pointed out earlier that under conditions such that the external beneficiaries are relatively few in number or otherwise find it easy to organize, and when property rights are well-defined so that people know with whom they must negotiate to influence decisions - that is, in general, when information and transactions costs are low — the third-party effects will be taken into account in private markets. The external effects will be "internalized" under those conditions. The key variable is just how great these costs are. Inefficiency can be expected (a) when the externality is not internalized, and (b)when it is an externality that is Pareto-relevant - that is, relevant to incremental allocative decisions. When we consider the role of government, the question thus becomes whether the costs of determining the magnitude of external effects, of identifying the agents that bring them about, and of developing a set of rules, legislation, taxes, or subsidies for getting private decision-makers to alter their behavior, are any lower for government than for the private sector. If not, then the "inefficiency" of the private market and government are the same and there is no efficiencybased case for government action - that is, the potential private market efficiency failure is not an actual failure. (Equity considerations will be taken up later.) Sometimes the main obstacle to private decision-makers' ability to internalize external, third-party effects is lack of information. There may appear to be no general presumption that government can obtain the required information at lower cost than can private-sector buyers and sellers. Yet information is itself a commodity that is produced, and it frequently has the characteristics of a collective-type good; once produced, it can be used by persons who did not contribute to its financing. Private firms are likely to provide sub-optimal quantities of certain types of information because of the problem of collecting revenues from beneficiaries; the latter can often obtain the information without paying the producer, because the technology of information provision is such that free-rider behavior is possible, or because buyers of the information cannot be prevented from reselling

18 it — in either case undermining profitability to the prospective producer." As a result of the collective-good nature of information, there is reason to believe that government action can contribute to efficiency in resource allocation. Frequently, the obstacle to private market efficiency is not lack of information about who is causing what external effects to whom, but rather the cost of organizing the third parties so as to transmit their collective economic demands to buyers and sellers in the private market. In such situations it is plausible, though by no means assured, that government, which is not constrained by private market profitability considerations, can achieve the transmission of demands at costs lower than those the third parties would face if they attempted to organize. The key is the power of government either to compel the payment of taxes to finance provision of collective goods or to adopt rules, standards, penalties, and subsidies to compel or provide incentives for producers and consumers to take into account the external costs that their actions impose. The private sector does not have the power of compulsion, and for most purposes does not need it. All that the private sector generally needs is the ability to withhold the delivery of a good or service from an individual unless that individual pays for it. But in the case of collective-type goods, or more generally of goods having significant external effects, these goods cannot be provided to some individuals without simultaneously bestowing the external benefits on individuals who do not pay, thus posing the free-rider problem or imposing external costs on innocent third parties. Government, however, has the power to improve the allocation of resources, by increasing expenditures on, or otherwise stimulating the provision of, goods that provide substantial external benefits, and by taking contrary actions for goods that provide substantial external d/sbenefits or costs — for example, activities that cause pollution of water and air. We turn now to equity goals. If there is social dissatisfaction with inequities that result from 22. For additional analysis including distinctions among types of information, see Jack Hirshleifer, "Private and Social Value of Information and the Reward to Inventive Activity," American Economic Review, LXI (September 1971), pp. 561-574.

Introduction and Theoretic Analysis the outcome of private market activities, then the role of the government is likely to be paramount. Insofar as equity is thought of in terms of rewarding the most productive members of society regardless of why they are productive, and "productive" is defined in terms of meeting consumers' market demands, the forces driving the private market economy to be efficient will also contribute to its being equitable. This is why we have emphasized earlier that to be efficient is not necessarily to be unfair or inequitable. Standards of equity vary, but there do seem to be some areas of consensus, and we can use them as bases for assessing whether any specific p r i v a t e , governmental, or voluntary-sector activity did, or was likely to, contribute to the "public interest in equity." Among the shared standards of equity are that it is not equitable for people to live in abject poverty no matter how unproductive they may be; that it is not equitable for children to go without medical care and schooling simply because their parents are unproductive in the marketplace; that it is not equitable for non-whites, women, the aged, and other easily identified persons to suffer from discrimination whether or not it is privately efficient for employers to base hiring decisions on die low-cost information that is contained in the knowledge of a worker's color, sex, or age. Despite these norms of equity, it is clear that a private employer's drive toward profit is not consistent with paying people more than the market value of their productivity, nor with disregarding the kinds of worker information just mentioned. The result: insofar as equity goals conflict with allocative efficiency, the private market will opt for efficiency, and people will turn to government as an instrumentality for fostering equity in its many dimensions. Even so, a fuller realization of equity goals poses two broad types of problem for the governmental sector. Both types of problem involve the "costs," or adverse effects, of the equity corrective efforts. One is that resources are required to develop the rules and to provide the administrative and enforcement activities. The other is that there may be serious adverse side effects; efforts to achieve greater equity for one group — for example, through "affirmative action" — may produce inequity for another, and efforts to achieve greater equity may bring decreased efficiency. An illustration of

19 the latter might be a decreased work incentive, resulting from a high guaranteed minimum income, or the tendency of some people to buy excessive, duplicative health insurance if employer and governmental subsidies for its purchase were great. Again, we see that equity and efficiency are often entwined, although the distinction between them is nonetheless useful for making intelligent decisions. To sum up: When we examine the possible role of government in correcting private market efficiency failures or adverse equity consequences of private market activities (equity failures), we must ask whether the government can offset the free-rider problem and the related problems that result from externalities at lower cost than could the private market, and, if so, whether the benefits exceed the costs. The answer is not obvious. Insofar as the problem results from the high cost of finding out from a vast number of people the magnitude of benefits they would receive from various increments of output of the commodity, the government may have just as much difficulty as would any private firm. Insofar as these benefits are reasonably well known but the problem is essentially one of finance, of collecting money from the beneficiaries, then the government's power to compel payment through taxation gives government an advantage not shared by private firms. Thus, governmental action to correct private market failures can be efficient. In short, just as there are obstacles to the private sector's achievement of allocative efficiency and equity, so, too, does government face hurdles. Difficulties in developing legislation that reflects consumer wants and the economic demands of unorganized as well as underorganized interests, difficulties in developing incentives to induce government administrators to seek greater efficiency and equity (however that is defined), and problems in overcoming inter-agency jurisdictional conflicts and conflicts among social goals are only a few of the impediments to governmental efforts to rectify the efficiency and equity failures of the private sector. We turn now to the sources of "government failures" which will be examined in greater detail in Chapter Three. At this point, we merely sketch their character briefly.

Conceptual

Perspective

1. Even if there exist policies with which government could correct market failures, the question would remain whether information and incentives are adequate to ensure that they will be carried out. To begin with, private market efficiency failures are, by definition, the products of a one-dollar, one-vote demand mechanism, whereas the political system is, theoretically, a one-person, one-vote mechanism. There is, in general, no reason to expect that the second weighting system is capable of correcting the inefficiencies that result from the first. 2. The same factors that bring about private market failures — particularly the unequal degree of organization of various private interests — are likely to carry over into the public arena. If a private market failure results because some individual or group has an incentive to engage in some socially inefficient action, then the same incentive will operate to cause that person or group to influence governmental behavior through lobbying and through the provision of selective information. 3. Governmental effectiveness requires more than legislative action. Legislation must be administered, enforced and, often, adjudicated. At each stage in the process there are pressures to thwart individual preferences and to succumb to better-organized interests. Actions of regulatory agencies can be delayed. Actions by one administrative agency can affect other agencies, favorably or unfavorably. Costs of enforcing rules and legislation may be high. Admittedly, the private and government sectors are imperfect. Failures, at least potential ones, abound. The key question, however, is whether there are any reasons to expect that efforts in the third sector of the economy — the voluntary, non-profit sector — are more efficient than efforts in the other sectors to correct failures. We hold no presumptive position for or against the proposition that voluntary sector "public interest" groups — which have yet to be defined carefully — are capable of providing certain collective-type goods or redistributional services more efficiently than either the private or public sector. While the voluntary sector's activity is often undertaken in response to perceived failures in the other sectors, it is by no means certain that the voluntary sector can solve problems that the other sectors could not, since

20

Introduction and Theoretic Analysis

all segments of the system confront obstacles in dealing with the problems. The three sectors are all part of an interdependent system which determines how resources are used and how incomes and opportunities are divided.23 The role of the non-profit sector and, more specifically, its public interest subsector as a component of this system, is the subject matter of this book. It should be noted that while we have discussed the three sectors in a particular order, this is merely an analytic convenience. There is no implication that any of the three sectors is necessarily prior to any other in either a logical or a chronological sense."

benefits would be one that supports the interests of persons who favor, and are willing to pay for, preservation of wilderness; many consumers, whether associated with that organization or not, would benefit from its collective-good efforts, and because of organizational costs there is reason to believe that their demands are underrepresented to sellers of consumer goods. Some examples of organizations that provide external equity benefits include charitable organizations and organizations that work to counteract employment discrimination. In general, such organizations engage in activities that have both efficiency and equity effects. It should be noted that a PI organization has been defined as one which engages in PI activDefining the Voluntary, Non-Profit Sector ities; thus organizations may vary in the degree and its Public Interest Subsector to which their activities have a PI (external benefit) component. Throughout this book, an orThe voluntary sector spans a wide range of ganization (or firm) is termed a "public interest activities, which include clubs and self-help organization" if its activities have a large "public organizations as well as the "public interest" (PI) subsector and its law component. In this study, interest" component. however, we will concentrate on the public We refer to external benefits, but there could interest subsector; we define it as that portion of also be external disbenefits (costs). As we have the voluntary, non-profit class of organizations noted, it is quite likely that some persons will be that is engaged in PI activities — those activities made worse off by any activity even if it brings that have a sizeable collective-consumption, or about great benefits to others. Given the diffiexternal benefit, component.' 5 That is, we culty, however, of identifying and measuring all define a PI organization as (1) a voluntary sector the external effects - both "real" effects, involvorganization (2) the activities of which bestow ing allocational efficiency, and "pecuniary" significant external efficiency or equity effects, involving redistributions of income and benefits - benefits that are not reaped by the wealth — it is not possible to determine in organization or its members. An example of an advance whether an activity that would produce organization that provides external efficiency large external gross benefits for some people would or would not produce large, or even posi23. For some interesting discussions of the variety tive, net benefits when all the unfavorable as well of institutional mechanisms that are open to people who are dissatisfied with the system, see Alberto. as favorable external effects are considered. Hirschman, Exit, Voice and Loyalty (Cambridge, Mass.: Therefore, we define a public interest activity as Harvard University Press, 1970); and Lance E. Davis and one that, if it is successful, will bring about sigDouglas C. North, Institutional Change and American Economic Growth (Cambridge, England: University nificant external gross benefits to some persons; Press, 1971). that is, the activity provides more complete 24. I have argued elsewhere, however, that under representation for some interest that is undersome conditions the voluntary non-profit sector can be expected to precede the government sector as a provider represented in the sense that the interest has not of collective goods. See Burton A. Weisbrod, 'Toward a been fully transmitted through either the private Theory of the Voluntary Non-Profit Sector in a Threemarket or governmental channels. Sector Economy," in Edmund S. Phelps, ed., Altruism, Morality, and Economic Theory (New York: Russell Sage Foundation, 1975), pp. 171-195. 25. In this book, whenever we refer to public interest activities, we mean, unless otherwise stated, activities of the private, non-profit sector, even though it is clear that activities of the private, for-profit sector and of the government sector also contribute to the public interest in efficiency and equity.

By contrast with externality-generating organizations, a "non-profit" business or trade association, which is pursuing the interests of its members while producing few or no external benefits, would not be a public interest organization by our definition; it would, in general, not

21 be engaged in public interest activities. This is not to say that organizations such as trade associations or others whose beneficiaries are largely members of, or contributors to, the organization, are working against the public interest, but rather that we wish to focus attention on organizations that produce external benefits. Similarly, private for-profit firms in the idealized competitive model do contribute to the public interest in economic efficiency, but we do not include them in our definition of PI organizations, because we want to focus attention on the voluntary sector." Note that we are not concerned with the motives of persons or groups — only with the consequences of their actions if they are successful. We care about whether an activity has external effects - that is, increases the degree to which the interests of underrepresented groups are represented — not whether the organizers are motivated to produce external effects. Representation of interests through private, for-profit firms and representation through voluntary organizations are not mutually exclusive alternatives. Indeed, they may even occur simultaneously and in an interrelated fashion. In some cases, for-profit firms and voluntary organizations share a community of interests and thus may find it worthwhile to collaborate in support of some litigation that would benefit the firms, the voluntary organization members, and persons who, while not members of the organizations, share their collective-good interests." Let us expand on the distinction, within the voluntary non-profit sector, between groups whose activities have a substantial public interest component (because they provide external bene26. Similarly, while we will not have the occasion to use the following terminology, one could define a public interest client as a client who is a party to a public interest activity; that is, in the PIL context, a public interest client is a person, group, or organization in the voluntary, non-profit sector that (1) is the plaintiff in a legal action, where (2) that action would, if successful, bring substantial external benefits. The term, "public interest client," has been used in a recent article, though without definition; see Mark J. Green, ' T h e Perils of Public Interest Law," New Republic, September 20, 1975, pp. 20-23. 27. See Paul G. Hayes, "Mississippi Barge Foes Snag the Corps," The Milwaukee Journal, March 2, 1975, pp. Iff. This article refers to collaboration between a public interest group and an association of railroads in opposition to a lock and dam proposed by the U.S. Army Corps of Engineers.

Conceptual Perspective fits) and those whose activities provide little more than support for their own private interests. What, for example, is the essential difference between a labor union or a trade association, on the one hand, and a group whose activities are primarily in the interests of environmentalists or consumers on the other hand? At one level, the answer may be that there is no essential difference - both groups are pursuing their own private interests. Indeed, it is important to note that our definition of a public interest activity does not involve any distinction between a private interest and a public interest. We assume that all people pursue their private interests. At another level, however, we conclude that there is an essential difference between union or trade association groups and environmentalist or consumer groups, to the extent that there are differences in the relative magnitude of any external effects resulting from their actions. We might thus distinguish among groups in terms of the Public Interest Ratio - the ratio of (a) expected external benefits from an activity to (b) expected total benefits (internal plus external) of that activity!" P I R a t i o ~ ^ x t e r n a * Benefits External + Internal Benefits

If all benefits are reaped by members of the group, external benefits are zero, and the ratio will be zero. In that case, the group can be said to be a pure "private interest" group, and its behavior can be explained in terms of the usual self-interest models. By contrast, the closer the value of the ratio is to unity - that is, the greater the value of external relative to internal net benefits — the more we might be justified in calling the group a public interest group, or the activity a public interest activity. Such a name does not imply that the group is any less concerned about its own interests than is any other group of people; it may or may not be. In any event the distinction that is relevant, since our objective is to assess the consequences of non-profit PIL organizations, is one based on accomplishments 28. The PI ratio may be estimated for the entirety of some activity, or - what is generally more important - for a marginal or incremental amount of that activity. From an allocative efficiency viewpoint, it is the ratio at the margin that is relevant.

22

Introduction and Theoretic Analysis

rather than on motivations of the organizations or their clients. In the case of substantial favorable externalities, the fact would remain that the group, whatever its motives, would provide benefits to people who were not members of the group. The greater the external net benefits resulting from the activities of some group, the greater the degree to which that group is termed a public interest group. Such a name, to reiterate, is only a short way of referring to the external benefits of its activities, and in no way implies that its activities are motivated any more by "altruistic" motives than are the activities of any other group.

enforcement or implementation efforts. As we shall see in Chapter Four, however, few if any of the firms we shall identify as public interest law firms are engaged entirely in law activities; most of them also make some use of instruments, such as information dissemination and lobbying, that are less lawyer-specific. Thus, a PIL firm is one that makes use primarily of law instruments. Our conceptualization of a public interest law activity thus has the following characteristics: a PIL activity is an activity that (1) is undertaken by an organization in the voluntary sector; (2) provides fuller representation of underrepresented interests (would produce external benefits Just as it is important to consider the relation- if successful); and (3) involves the use of law ship between private and public interests, so it is instruments, primarily litigation. Any definition, necessary to consider whether "public interest" of course, is essentially arbitrary, but it is should be a singular or a plural term — is there a relevant to discuss the usefulness of our definisingle concept of the public interest that can, at tion. In this case, while our focus is on the least conceptually, allow us to rank all activities voluntary sector, it is essential to recognize that according to their degree of public-interestness; there are "similar" activities - close substior are there multiple public interests, which tutes — in both the government and the private would imply the possibility of conflict among for-profit sectors. It makes little difference whethem? As we have noted, the concept of under- ther one defines PIL activities or organizations representation that we have developed implies in terms only of the voluntary sector or in that there may be several underrepresented broader terms that encompass the related activinterests, each focusing on the same issue, and it ities in the other sectors, but one must recognize would be in the public interest to ensure equal that similar activities are found in all three sectors. The social and economic systems of any relative representation." The Public Interest Law Subsector. The PI society inevitably include a wide array of mechasubsector — comprising voluntary, non-profit nisms, formal and informal, for pursuing indiactivities with "substantial" PI ratios — may be vidual and collective interests. Thus, while PIL divided into the PI Law (PIL) and PI Non-Law organizations and activities are defined as being (PINL) subsectors. The distinction between these only in the voluntary sector, the PIL industry two subsectors involves the instruments used by comprises law-related activities in all three secthe different organizations — law versus non-law. tors that have a substantial PI ratio. Similarly, "Law instruments" are the techniques of conflict the "public interest industry" includes the PIL resolution that are used by the lawyer, the type industry as well as non-law activities in the 30 of professional that is the mainstay of the public voluntary sector that have a high PI ratio. interest law sector. Foremost among these is It is interesting to consider the question litigation, although they also include interven- whether our underrepresentation or externaltions in administrative law processes as well as benefit view of the normative basis for PIL activlitigation-related activities such as preliminary ities implies that those activities will be directed demands, negotiations and settlements, and primarily at changes that are considered to be politically more "liberal" or more "conservative"

29. For an interesting discussion of conflicts among "public interest" groups interested in various aspects of energy issues, see Elizabeth Drew, "A Reporter at Large: the Energy Bazaar," New Yorker, July 21, 1975, pp. 35ff. For example: " . . . the energy legislation was subjected to a rapid - and devastating - crossfire from public interest groups that disagreed among themselves over what constituted the public interest" (p. 54).

30. What we are proposing here is essentially an "output" definition of the PIL industry. By our definition, the PIL industry cuts across abstract sectoral divisions of the economy to include organizations that produce similar outputs, and in particular organizations that produce legal activities with PI ratios significantly above zero.

23 (as those terms are normally construed). First, with respect to the equity component of the public interest, the answer depends on whether "equity" is defined in terms of egalitarianism; insofar as equity is interpreted as including improving the position of persons at the bottom of the income distribution, then PIL efforts to bring this about will be judged as "liberal." By contrast, if equity is interpreted as minimizing taxation on earnings so as to reward effort, then the pursuit of equity through PIL efforts will be judged as "conservative." Standards as to what constitutes equity — distributional, procedural, or other — are not impossible to establish, but neither are they sufficiently well-defined to permit a confident conclusion whether the pursuit of equity is or is not "inherently" liberal or conservative, egalitarian or non-egalitarian. With respect to the efficiency component of the public interest, the issue is a factual one: are the goods for which economic demands (willingness and ability to pay) are most underrepresented through for-profit markets and governments characterizable in any neat way? About all we can say is that demands are more likely to be underrepresented for collective-type goods. Since government is a major provider of collective goods, PIL activities would tend to be directed more toward increasing than decreasing governmental involvement, and in this sense they might be regarded as predominantly "liberal" in orientation. In addition, if higher income persons have relatively greater demands for private-type goods than do lower income persons, as seems plausible,31 then underrepresentation of demands will affect high income persons relatively less than lower income persons, and in this sense also PIL activities may come to be regarded as largely liberal. Even if these broad generalizations are valid - and it is by no means certain that they are - it does not follow that all, or even the vast majority, of efficiency-based underrepresentation-of-demand instances can be characterized as "liberal" — although, to be sure, the definitions of "liberal" and "conservative" are 31. This position is argued and to some extent tested in a forthcoming study by Burton A. Weisbrod, The Voluntary Non-Profit Sector: An Economic Analysis (Lexington, Mass.: Lexington Books, D.C. Heath and Company, 1977.)

Conceptual Perspective far from clear. Is it liberal, or conservative, or neither, to support land-use zoning restrictions (see Chapter Nine)? To support stricter enforcement of occupational safety and health standards that leads to worker layoffs (see Chapter Eleven)? To fight for ending the airlines' practice of "overbooking," when the result would be that the number of unoccupied seats on each departing flight would be increased and the number of disappointed passengers who could not get reservations would correspondingly increase (see Chapter Fourteen)? The answers are not clear. Winning vs. Losing. When we turn in later chapters to assessments of PIL activities, we will f r e q u e n t l y observe that the concept of "winning" or "losing" a case is more complex than it might first appear. The important matter is the effect of PIL activities on actual behavior. A judicial victory, or, for that matter, a victory in any other forum, such as administrative departments or the legislature, is neither necessary nor sufficient for altering behavior — that is, for changing either the allocations of resources or the distribution of income and of opportunities to share in the society's tangible and intangible wealth. A PIL case may result in a judicial victory that had no effect on behavior because, for example, there is weak (costly) enforcement of the decision, or because the victory leads ultimately to a change in legislation that counteracts the judicial decision. Similarly, a judicial "defeat" may attract publicity to an issue, and provide information to consumers, voters, legislators, and regulatory-agency officials; as a result, that defeat may produce significant changes in behavior. And we are interested, after all, in the role of PIL activities in affecting behavior, not merely in winning lawsuits. While we will often refer to judicial decisions, we are far more interested in behavioral outcomes, and will, insofar as is feasible, concentrate on the latter. Assessing behavioral effects of PIL activities is, in every area that we examine, a fundamentally difficult matter, for it involves comparing one state of the world with a counter-factual state - what the world would be like i f , contrary to fact, the level of PIL effort were different. A comparison of some variable before and after a PIL intervention is a conceptually incorrect and potentially quite misleading way to identify the

24 effect of PIL activity. In an economic and social world that is changing, what we need to know is how the variable in which we are interested — for example, the degree of employment discrimination, protection of consumer interests, or environmental preservation — would differ with and without (not before and after) the PIL intervention.' 1 Substitutes for Public Interest Law. Because there are activities that are similar to voluntary sector PIL activities in the other economic sectors, we should emphasize that our use of the term PIL will designate only public interest law activities in the voluntary sector. We will, however, have occasion to note the presence of "close substitutes," of PIL-like activities in the other sectors. There are some such activities in the private sector in the form of some of the pro-bono work of private lawyers (the "test cases" rather than the individual service cases such as divorce or creditor suits), and there are government-sector PIL-like activities, including some of the activities of Attorneys-General, regulatory agencies, and so on. In addition to PIL-like activities, there are, as we have noted, public interest (externalitygenerating or representing-the-underrepresented) activities that utilize primarily non-litigation instruments. Such PI non-law activities include voluntary, non-profit sector efforts at legislative lobbying, community organizing, dissemination of information, and direct provision of goods and services. These activities are substitutes (though not necessarily perfect ones) for PIL interventions in the sense that they serve to amplify the voice of interests that, particularly because of organizational costs, are underrepresented relative to their economic demands or relative t o what society views as equitable. PI non-law activity will be described briefly in Chapter Four, and the use of non-law instruments will be illustrated in several of the area-study chapters and in Chapter Sixteen. Figure 2.1 portrays our overall perspective. 32. For some further discussion of conceptual issues in program evaluation, see Burton A. Weisbrod, "Benefits of Manpower Programs: Theoretical and Methodological Issues," in G. G. Somers and W. D. Wood, CostBenefit Analysis of Manpower Policies (Kingston, Ontario, Canada: Industrial Relations Centre, Queens University, 1969); and Robert H. Haveman and Burton A. Weisbrod, "Defining Benefits of Public Programs: Some Guidance for Policy Analysts," in Policy Analysis, 1, 1 (1975), pp. 169-196.

Introduction and Theoretic Analysis (1) The public interest is seen as comprising the achievement of allocative efficiency, equity, and various other social goals. (We concentrate on the first two, but recognize that the other goals often involve aspects of efficiency and equity, and thus are not really separate from them.) (2) The private, public, and voluntary, non-profit sectors of the economy are seen as comprising instrumentalities for achieving the public interest. (3) Our focus is on the voluntary sector, within which we distinguish organizations (actually activities, rather than organizations per se) on the basis of the external benefits they generate. We have presented a definition of the public interest that involves the degree of external benefits — not a dichotomous zero-one distinction — and so the schema in Figure 1 should be interpreted broadly. (4) Voluntary sector public interest organizations are seen as separable according t o whether they use primarily instruments of the law, in which case we term their activities public interest law (PIL), or primarily other instruments such as legislative lobbying, in which case we term them public interest non-law (PINL). (5) Within the private for-profit sector are law firms, some of whose activities are pro-bono activities, which can be divided according to the degree to which benefits accrue to persons other than the litigant(s) being represented. When such external benefits are minimal we term the activity an individual service case. When the external benefits are substantial, the activity is a "private sector PIL-like" activity (test cases). Thus we allow for the possibility of private sector substitutes for voluntary sector PIL activity. (6) The public sector is also seen as having agencies — such as Attorneys General, regulatory agencies, and Legal Services Backup Centers (defined in Chapter Four) - whose activities are closely related to the PIL efforts of the voluntary sector. (7) Whereas our principal interest is in the recent institutional innovation of voluntary sector PIL activities, it is important to bear in mind that close substitutes for those PIL activities are found both in (a) the law activities of the other sectors, and (b) the non-law activities of voluntary sector public interest groups; thus the PI industry is conceived of as having components in all three sectors." 33. For further exposition of the three-sector perspective in the context of the provision of collective goods, see Burton A. Weisbrod, "Toward a Theory of the Voluntary Non-Profit Sector" (note 24 above).

25

Conceptual Perspective

PUBLIC I N T E R E S T Efficiency in Resource Use

Private for-Profit Sector

Non-Law Firms

1 Private Law irms

Conventional Legal Activities

Equity

Voluntary Sector

Other Social Goals

Public Sector

Public Interest (external benefit generating) Organizations

Pro-Bono Activities

Individual Service Cases

Figure 2.1 The Public Interest, the Voluntary Sector, and Public Interest Law

Summary In this chapter, we have attempted to present the conceptual framework for this book. We have described the "public interest" in efficiency and equity. We have shown that there are likely to be both efficiency and equity failures in the private market, and we have suggested that government, which might be expected to correct such failures, is not always able to do so (for reasons to be

explored further in Chapter Three). Failures in the government sector might give rise to a need for a voluntary sector, including public interest law (PIL) activities. It is useful to think of the voluntary sector's role as one of supplementing the collective-good activities of the other sectors. In general, under competitive conditions, we can expect the forprofit sector to represent effectively the eco-

26 nomic demands for individual-type goods. Devices for altering these private market responses are required primarily under two sets of conditions: (l)when organization and transactions costs are high, thus serving as barriers to the transmission of economic demands from potential buyers to potential sellers (efficiency failures); and (2) when "low" income is the source of lack of economic demand, but where social consensus supports provision of some commodity or service to some group nonetheless (equity failures). When either of these conditions exists, governmental intervention can sometimes correct the failures of the private for-profit market to achieve society's goals of efficiency in resource allocation and equity in the distribution of income and opportunity. Such governmental corrective measures - for example, provision of collective-type goods such as public housing programs, and medical and legal aid — will often bear a strong resemblance to the "corrective" measures undertaken in the voluntary sector, and in particular by the PIL subsector. In this study, we focus attention on the question whether there is also a role for voluntary non-profit sector activities, and specifically for PIL activities. In doing so, however, we fully recognize, and indeed we emphasize, that the voluntary sector is not unique in its role, but rather is part of an interdependent system which determines the allocation of resources and the distribution of incomes and opportunities.

Introduction and Theoretic Analysis we presented our own definition. In this Appendix, we will review a sampling of definitions that have been offered by others. We make no effort whatever to be exhaustive, but only to give the reader a sense of the diversity of opinion on the subject. We do not attempt to categorize these definitions, nor will we evaluate them, but this small sample will demonstrate how difficult our task is. The Public Interest

It seems reasonable to begin our inquiry by examining the term "public interest," since it is the descriptive part of the phrase "public interest law."35 The term "public interest" has been used throughout history to justify everything from democracy to totalitarianism; as part of the term "public interest law," it is now being used to justify a wide range of legal actions. Whether or not those actions contribute to the public interest is the subject of this book. Many definitions of the public interest emphasize some kind of commonality of interest, a single interest that all citizens are presumed to share. Edward Banfield describes the difference between special interests and the public interest as follows: "A decision is said to serve special interests if it furthers the ends of some part of the public at the expense of the ends of the larger public. It is said to be in the public interest if it serves the ends of the whole public rather than those of some sector of the public."" Similarly, another observer says, "The public APPENDIX: Some Concepts of the Public interest... is the common interest. That which results in satisfying those wants which all memInterest and Public Interest Law bers of a community share constitutes the public interest."" Burton A. Weisbrod with There are others who believe that there is no C. Bryce Benjamin one interest which all members of a given society It is often more difficult to define a term that share. The public interest, for these people, is is in common usage than it is to explain the based on consensus among the "preponderance" meaning of a complex — but very specific — of the people. As Anthony Downs puts it: scientific term. Supreme Court Justice Potter Stewart solved the problem of defining one elu35. For more thorough reviews of the literature on sive term — pornography — with the statement "I the public interest, see, for example, Carl J. Friedrich, d . , Nomos V: The Public Interest (New York: know it when I see it,"" and we might be eAtherton Press, 1962); Virginia Held, The Public Intertempted to borrow his "definition" when we est and Individual Interests (New York: Basic Books, discuss public interest law. But if we presume to Inc., 1970); and Glendon Schubert, The Public Interest Illinois: The Free Press, 1960). study public interest law, we must have a work- (Glencoe, 36. Martin Meyerson and Edward C. Banfield, Poliable definition of the term, and in Chapter Two tics, Planning and the Public Interest (New York: The 34. In a concurring opinion in Jacobellis v. Ohio, 378 U.S. 184 (1964).

Free Press, 1955), p. 322. 37. Held, The Public Interest, Brian Barry.

p. 4, paraphrasing

27

Conceptual Perspective

The concept of public interest is closely related to the universal consensus necessary for the operation of a democratic society. This consists of an implicit agreement among the preponderance of the people concerning two main areas: the basic rules of conduct and decision-making that should be followed in the society; and general principles regarding the fundamental social policies that the government ought to carry out. 3 "

only under the direction of wise leaders. There are other ethical definitions of the public interest as well. One of the more important recent ethical delineations of the public interest comes from the philosopher John Rawls. While he does not use the term "public interest," his concept of "justice as fairness" is, essentially, an ethical public interest ideal. For Rawls,

F. Raymond Marks and others describe not a consensus but a balancing of interests when they say that the public interest is "policy resulting from the sum total of all interests in the community — possibly all of them actually private interests - which are balanced for the common good." 3 ' Some observers believe that "the public" is not capable of determining the "public interest." Supporters of the "idealist" school believe that only government officials have the knowledge and the wisdom to determine what the public interest is. This idea, anathema to democratic theorists, can be traced to Plato, 4 0 and is still with us in the twentieth century, embodied in its most extreme form in the modern totalitarian state. While Plato thought that the citizens would be happiest under the wise guidance of the philosopher-king and that the governmental organization would function better because of the well-being and happiness of the citizens, modern idealists more often emphasize the wellbeing of "society" as a whole. Anthony Downs describes modern idealists:

the primary subject of justice is the basic structure of society, or more exactly, the way in which the major social institutions distribute fundamental rights and duties and determine the division of advantages from social cooperation. By major institutions I understand the political constitution and the principal economic and social arrangements. 4 2

The idealist school believes that the public interest consists of the course of action that is best for society as a whole according to some absolute standard of values, regardless of whether any citizens actually desire this course of action. Therefore, the task of government officials is to be fully acquainted with that standard of values and to apply it to concrete situations by means of their own judgment. Public opinion need not understand the wisdom of the policies arrived a t . " For idealists, the "public interest" is a sort of ethical standard, which can be consistently met 38. Anthony Downs, "The Public Interest: Its Meaning in a Democracy," Social Research, XXIX (Spring 1962), p. 5. 39. F. Raymond Marks, with Kirk Leswing and Barbara A. Fortinsky, The Lawyer, The Public, and Professional Responsibility (Chicago: American Bar Foundation, 1972), p. 51. 40. See Plato's Republic. 41. Downs, "The Public Interest," p. 11.

The concept of "justice as fairness" consists of two parts: " ( l ) a n interpretation of the initial situation and of the problem of choice posed there, and (2) a set of principles which, it is argued, would be agreed to [in the initial situation] ," 4 3 The "initial situation" Rawls talks about is, like the initial situation in social contract theory, hypothetical. It assumes total ignorance on the part of every individual of those factors that affect his position in society: accidents of birth, "natural assets," and even "his particular psychological propensities" and his concept of the good. 4 4 In this state of ignorance, Rawls assumes, we would choose a set of principles that would be eminently fair, presumably because we would wish to protect ourselves against the possibility that an accident of birth or a particular lack of natural assets would render us poor, or would otherwise diminish our freedom. For the second part of the theory, Rawls proposes two guiding principles that he believes would be agreed to in the initial situation: First: each person is to have an equal right to the most extensive basic liberty compatible with a similar liberty for others. Second: social and economic inequities are to be arranged so that they are both (a) reasonably expected to be to everyone's advantage, and 42. John Rawls, A Theory of Justice (Cambridge: Harvard University Press, The Belknap Press, 1971), p. 7. For an interesting and important critique of Rawls, see Robert Nozick, Anarchy, State, and Utopia (New York: Basic Books, Inc. 1974). 43. Rawls, A Theory of Justice, p. 15. 44. Ibid., p. 12.

28 (b) attached all. 45

to positions and offices open t o

This second principle strongly suggests a heavy emphasis o n procedural rules for achieving justice. A number of o t h e r theorists also emphasize procedure when discussing the public interest. O f t e n , the procedure involves interest groups and depends on a pluralist conception of society. A q u o t a t i o n f r o m Gerhard Colm illustrates this: T h e mixture of personal and general interests differs in various groups and individuals, but from these varying emphases a consensus emerges as t o what constitutes the public interest within the f r a m e of reference of the particular society and culture. One of the main f u n c t i o n s of the political processes in a democracy is t o h a m m e r out this c o m m o n understanding of what is accepted as constituting the public interest. 4 6 Economists Jesse Burkhead and Jerry Miner use a legal analogy to define their position: In administrative law it is usually impossible t o define substantive d u e process, but it is not as difficult t o define procedural d u e process. If this analogy is appropriate it should be possible t o define a procedural public interest, even though its c o n t e n t cannot be specified. A procedural public interest would consist of an assurance, in the decision process, that the widest possible range of interests will be consulted. This consultation will assure that the intensities of preferences are revealed, even if these cannot be measured with precision. The esthetic cost of destroying a scenic wilderness cannot be compared with the value of power and water to be produced from a reservoir, but the intensity of reaction of affected groups can at least be assessed. A procedural public interest would b o t h establish the values that underlie the public interest and reveal the consequences of alternative policies. T h e rules of the game are i m p o r t a n t , not just the specific, isolated outcomes. 4 7

Public Interest Law The definitions that have been o f f e r e d for public interest law share one c o m m o n characteristic: they all rest on a pluralist ideal and emphasize the procedures used t o guarantee the representation of all interests. Traditionally, for the 45. Ibid., p. 60. 46. Gerhard Colm, "In Defense of the Public Interest," Social Research, XXVII (Autumn 1960), p. 301. 47. Jesse Burkhead and Jerry Miner, Public Expenditure (Chicago: Aldine, Atherton, 1971), pp. 157-158.

Introduction and Theoretic Analysis lawyer, this has m e a n t that the public interest is always represented in any legal controversy: T h e traditional view of a lawyer's role in a society with a legal system based on the c o m m o n law relies heavily on the adversary m e t h o d . A single interest — a single side of any conflict — is represented by the l a w y e r . . . . He is interested solely in seeing to it that the interest of the party he represents is as ably advanced as is h u m a n l y and professionally possible. If this is done - o n b o t h sides of any adversary conflict — it follows, according to the central assumption of the traditional view, that the result will be b o t h acceptable and j u s t . . . . In short, the traditional lawyer has seen himself as serving the public interest by simply doing his daily j o b of representing only one side of a controversy. 4 * Most lawyers w h o have discussed the public interest and public interest law d o not seem t o have any quarrel with this view; the problem, as they see it, is either that t o o m a n y "interests" are not represented at all in t h e adversary process, or that they are inadequately represented. Lawyers w h o practice "public interest law," t h e n , assume that the public interest is, indeed, a result of the legal process, and that their activities will contribute to " t h e representation of the u n d e r r e p r e s e n t e d . " One observer has noted that the "issues t o which [public interest law] directs itself may run the gamut f r o m the protection of wildlife to provision of adequate housing for the urban p o o r . " 4 ' Although public interest law is, by this definition, broader than poverty law, it has been argued that public interest law shares with poverty law a need for public financial support: Public interest law is the representation of the underrepresented, and the line separating it from poverty and civil rights law can best be defined historically. Broadened social concerns - as in the field of consumer protection and environmental quality — along with a growing b o d y of law expressing those concerns, created new needs for legal actions and legal representation. Since such actions were by definition for the benefit of large classes of people, individuals seldom could afford the cost. Defense of these broad collective 48. Marks et al, The Lawyer and Professional Responsibility, pp. 9-10. 49. W. D. Woods and C. L. Derrick, "Symposium: The Practice of Law in the Public Interest - Introduction," Arizona Law Review, XIII, No. 4 (1971), p. 797-800.

29 interests thus seemed to call for the same kind of publicly supported legal services that have been recognized as needed to protect the rights of the poor.50 If we consider "public interest law" to represent so broad a category as the "underrepresented," there is considerable room to limit or expand the definition. Some people consider public interest law to be the representation of any interest that, for whatever reason, cannot afford traditional legal fees. This would include not only dispersed interests such as consumer protection or environmental protection, which are underrepresented because their advocates cannot afford the costs of organizing potential "victims," but also traditional legal aid clients and pro bono recipients, who are underrepresented because they do not make enough money to pay a lawyer to handle ordi50. Gordon Harrison and Sanford M. Jaffe, The Public Interest Law Firm, New Voices for New Constituencies (New York: The Ford Foundation, 1973), p. 9.

Conceptual Perspective nary legal problems such as divorce or creditor suits.51 Despite the consensus on a general definition of public interest law, there is less agreement as to the meaning of being "underrepresented." Moreover, there remains the question whether the "best" way to "represent" the underrepresented is through the use of legal instruments. In short, if achievement of the "public interest" involves strengthening the voices of particular persons or groups who are deemed to be underrepresented — a view to which we subscribe — the potential effectiveness of legal representation as compared with other representational mechanisms requires careful study. 51. Legal aid is an organized program for providing legal assistance to the poor; it is usually under the sponsorship of a local bar association or government. Pro bono is a short form of "pro bono publico," literally, "for the public good." Pro bono activity is legal work provided by members of private law firms, either on the firm's time or their own, for no fee or reduced fees. Most pro bono work is performed on behalf of individuals. See Chapter Four for a discussion of these and other forms of legal assistance.

Chapter Three

Problems of Enhancing the Public Interest: Toward a Model of Governmental Failures Burton A. Weisbrod

In Chapter Two, we saw how constraints on government are likely to lead to levels of provision of collective-type goods at which some undersatisfied demand exists. In Chapter Three we explore further the process of governmental decision-making and the points at which it can be expected to act in a less than fully satisfactory way. Some of these failures are likely to be more amenable than are others to correction by voluntary sector efforts, and some are more likely to yield to law-oriented efforts, while others may succumb to informational, lobbying (advocacy), or interest-group organization efforts. There is an extensive economics literature that analyzes the causes of private market efficiency failures. It concludes that correction of these efficiency failures can be brought about by appropriate governmental policy of regulation, taxation, or subsidization of the private sector, or of governmental production.' Insofar as the problem is not allocative inefficiency of the private sector, but rather what is socially judged to be inequity in the distribution of opportunity and income generated by the private market, The author thanks Julius Margolis, Eugene Smolensky, and Arthur Snow for comments on an earlier draft of this chapter. 1. For a summary discussion, see Otto A. Davis and Morton I. Kamien, "Externalities, Information and Alternative Collective Action," in Robert H. Haveman and Julius Margolis, eds., Public Expenditure and Policy Analysis (Chicago: Markham Publishing Co., 1970), pp. 74-95.

again the solution has been seen as calling for governmental taxation and redistribution programs, on one hand, and restructuring of the "rules of the game" - laws, property rights, and so on — which influence the access that various individuals and groups have to the society's material and other rewards, on the other hand. In short, reliance on government to correct both the inefficiencies and the inequities of private markets has been extensive. Until very recently this implicit confidence by economists in government was largely detached from any analysis of whether that confidence was justified. 1 Political scientists, sociologists, legal analysts, and others were examining the behavior of governments at all levels, pointing up the rigidities of bureaucracy, the lack of responsiveness of governments to citizen wants, and the tendencies of government to exacerbate privatesector failures, 3 but only recently have these two strains of research begun to merge, as economists have begun to question the reasonableness of 2. See, for example, Richard A. Musgrave, Fiscal Systems (New Haven: Yale University Press, 1969) and William Baumol, Welfare Economics and the Theory of the State (Cambridge: Harvard University Press, 1965). 3. See James G. March and Herbert A. Simon, Organizations (New York: John Wiley, 1958); Peter M. Blau and W. Richard Scott, Formal Organizations (San Francisco: Chandler Publishing Co., 1962); Peter M. Blau, The Dynamics of Bureaucracy (Chicago: University of Chicago Press, 1963); and see generally, James G. March, Handbook of Organizations (Chicago: RandMcNally, 1965).

31 the conventionally held faith in governmental processes. In recent years, economists and other analysts of governmental behavior have increasingly come to recognize that even under relatively idealized, textbook-like assumptions, governments comprised of people who, like most people, can be expected to act according to their own self-interest rather than according to some abstract notion of public interest, will not necessarily act in pursuit of the public interest. 4 The bulk of recent economic research in this area has focused on building "positive," predictive models of how governments — especially administrative agencies, but also legislatures, and, most recently, the judicial and law enforcement systems actually behave.5 So far there has been little attention given to the behavioral question on which we focus here: to what extent is the government in a mixed but basically privatemarket economy able to take the steps required by the pursuit of the public interest in efficiency and equity? In this spirit we now direct attention to the process of governmental decision-making. The objective is to identify the factors inhibiting government's ability to be fully responsive to the citizenry and, hence, to achieve the "public interest." 4. For some examples of this type of analysis, see Anthony Downs, An Economic Theory of Democracy (New York: Harper and Row, 1957); James M. Buchanan and Gordon Tullock, The Calculus of Consent (Ann Arbor: University of Michigan Press, 1962); Roland N. McKean, Public Spending (New York: McGraw-Hill, 1968); James M. Buchanan and Charles J. Goetz, "Efficiency Limits of Fiscal Mobility: An Assessment of the Tiebout Model," Journal of Public Economics I (April 1972), pp. 25-44; and Michael J. Boskin, "Local Government Tax and Product Competition and the Optimal Provision of Public Goods," Journal of Political Economy, LXXXI (January-February 1973), pp. 203-210. 5. For example, on administrative agencies, see William A. Niskanen, Bureaucracy and Representative Government (Chicago: Aldine, Atherton, 1971). On legislatures, see Jesse Burkhead and Jerry Miner, Public Expenditure (Chicago: Aldine, Atherton, 1971), especially Chapter 5; and Gordon Tullock, "Problems of Majority V oting," Journal of Political Economy, LXVII, 6 (1959) pp. 571-579. On judicial and law enforcement systems, see William M. Landes, "An Economic Analysis of the Courts," Journal of Law and Economics, XIV (April 1971), pp. 61-107. See also Richard A. Posner, Economic Analysis of Law (Boston: Little, Brown, 1972), and the report of a Universities-National Bureau Conference, "Economic Analysis of Political Behavior," in The Journal of Law and Economics, XVIII (December 1975).

Enhancing the Public Interest Sources of Governmental

Failures

Just as there are circumstances in which private markets can be expected to fail to be allocatively efficient, so, too, there are circumstances in which governments will fail to correct these inefficiencies and will also fail to correct the income-distributional inequities that derive from the private marketplace in conjunction with initial individual endowments of ability, motivation, education, and family background — in general, endowments of human and financial capital. Not only can government not correct all these failures, but government can itself be a cause of additional market failures and inequities. Even if it is granted that governmental failures occur, it does not follow that the voluntary sector in general, or PIL groups in particular, can or do succeed where the government and private for-profit sectors fail. Our objective in this chapter is two-fold: first, to move toward a systematic understanding of the sources of governmental failures, a concept analogous to the notion in economics of private market failures; and second, to determine the potential role for public interest law and other voluntary sector activities. Regarding the second objective, we can be better judges of the likelihood that PIL efforts will be effective if we understand which shortcomings of government they attack. A fundamental difference exists between the economist's established concept of a private market failure, on the one hand, and the concept of a governmental failure that is being developed here. While we do intend to draw the parallel as closely as possible, seeking to set forth conditions under which failures may be presumed to occur, our concept of a "failure" will differ for the private and governmental sectors. As we pointed out in Chapter Two, the private market has generally been seen by economists as a system for promoting allocative efficiency. 6 While some writers have also extolled its merit as a determinant of the desirable distribution of income and opportunity, they have been a 6. See, for example, Arthur M. Okun, Equality and Efficiency: The Big Tradeoff (Washington, D.C.: The Brookings Institution, 1975), especially Chapter l ; a n d Jan deV. Graaff, Theoretical Welfare Economics (London: Cambridge 1957).

32 minority. 7 The preponderant view has been that distributional "inequities" produced by the private market's efficiency-oriented behavior require correction by government. Transfers to the poor and the needy, and taxes on the rich have been seen as the appropriate - indeed, the efficient — redistribution mechanism. Since we accept the preponderant view, our concept of governmental failure must be broader than that of private market failure. Government is responsible for correcting income distributional inequities as well as for correcting the failures of the private market to allocate resources efficiently. Thus, we propose to appraise governmental - legislative, judicial, and administrative - success and failure against the ideal of achieving both an equitable income distribution and a correcting of private market inefficiencies resulting from monopoly, external effects, and collective goods. In a sense, measuring governmental success in terms of two social goals (or even more than two, if we consider other goals such as economic growth, full employment, price stability, and equal opportunity) while measuring privatemarket success in terms of only one goal, efficiency, sets a more lofty and less attainable target for government. This is true, but our objective in this chapter is not to give an academic "grade" to the two sectors. Rather, we wish to identify the respects in which a role exists for the voluntary sector and its PIL component, and to do this we must identify the character of the shortcomings of the private and government sectors - for it is correction of these shortcomings that constitutes a target of PIL and other voluntary institutions. There is no reason to presume, of course, that the voluntary sector and its PIL component can go far, or indeed, any distance toward the target. It remains for us to examine, first at the theoretic level, and then, in our applied "area" studies, the prospects for success of specific PIL activities. To understand the nature of governmental failures we might usefully consider the process by which the preferences and economic demands of individual voters, consumers, and producers are translated into governmental actions. The 7. For an example of this view, see Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1962), especially Chapter X.

Introduction and Theoretic Analysis process is complex, involving multiple levels of general governments (federal, state, county, local); specialized governmental units with independent power of taxation (school districts, water districts); a wide range of administrative agencies with varying degrees of discretionary authority; and a multiplicity of overlapping judiciaries and law enforcement organizations. This network of governmental institutions is a response to the variety of problems for which the public has turned to government rather than the private marketplace for solutions. Thus, there is no reason a priori to be critical of governmental institutions simply because they and their tasks are not neatly arrayed; nevertheless, the complexity of the decision-making system that they constitute challenges our effort to analyze why and how governmental failures occur. One version of the governmental decision process, stylized and oversimplified to be sure, is portrayed in Figure 3.1. We will complicate it shortly, but to begin with it serves as a useful caricature of the governmental process. Figure 3.1 suggests that among the decision points, or links, in an idealized (and to some extent in the actual) decision process are the following: individual voter preferences (1), determine legislation (2), as well as the system for adjudicating disputes (3); the legislation is administered (4) in its intended manner; controversy regarding the form of legislation or the manner of its administration and enforcement is adjudicated (the links between 3 and 2, 4 and 5); judicial decisions are enforced (5); and enforcement produces the desired behavioral response (6). Insofar as this model is a reasonable first approximation of reality, governments will succeed in correcting those failures of the private market that a majority of voters wishes to correct. The reality of governmental behavior, however, is a good deal more complicated than Figure 3.1 shows, since we cannot design institutions, governmental or other, that work perfectly. Therefore, we require organizational redundancies, with overlapping and even conflicting responsibilities. We also need feedback mechanisms so that governmental units and, indeed, voters, can learn the consequences of their actions and readjust behavior when those consequences are undesired. A more

complete version of the actual

33

Enhancing the Public Interest

(6) Individual and G r o u p Behavior (Satisfaction of Preferences)

Figure 3.1 A Stylized Model of the Governmental Decision Process: I process - and, given the uncertainties, probably the desirable process as well - is given in Figure 3.2. It includes some of the links through which dissatisfaction at one stage is transmitted to other stages where corrective actions can be taken. Figure 3.2 simply adds the idea that every link in Figure 3.1 runs in both directions. Thus, not only do voter preferences influence legislation (even if they do not entirely determine it), but those preferences are themselves partly shaped by the legislative framework of the society. Not only does legislation establish and fund, and in those senses affect, administration (4), but so, too, do administrative agency actions influence the pattern of legislation, both directly and through client groups. And so on, with interactions occurring among all the decision-making points.

The discussion that follows examines the problems, at each decision point, that hamper the ability of that particular governmental institution to correct the private-market efficiency and equity failures for which it was devised. The general theme is that there are two key determinants of behavior — and, hence, of failures — at each stage in the decision process of any organization, governmental or not; these are (1) the information available to decision-makers, and (2) the incentives (reward system) faced by decision-makers. The general question is to what extent does the combination of available information and incentives at each decision point contribute to the attainment of equity and efficiency goals. The linkages sketched in Figure 3.2 show the principal points at which governmental failures may occur.

34

Introduction and Theoretic Analysis

Figure 3.2 A Stylized Model of t h e G o v e r n m e n t a l Decision Process: II Legislative Failure Turning first to the transmission of preferences to the legislative process, we note that a majority-vote rule cannot correct inefficiencies in private market allocations at the prevailing income distribution unless vote-trading, log-rolling, or side-payments are permitted and are relatively costless to utilize; this is so because the distributions of voting power (the political mechanism) and of economic demands (the private market mechanism) are not the same. That is, if the political process were successful in distributing voting rights equally, it would not lead to legislation that reflects information about the private market's weighting system — one dollar, one vote — but rather that which reflects a oneperson, one-vote political decision process." It 8. For a recent thoughtful discussion of political rights versus economic demands, see Arthur M. Okun, Equality and Efficiency, especially Chapter 1.

would be only by extreme chance that the political process would be able to correct efficiency failures in the private marketplace.' This is so because private market "failures" are defined (by economists) relative to economic demand, while a pure majority-vote political process (without log-rolling and side-payments) would weight preferences of all persons equally, regardless of willingness and ability to pay. Quite apart from the important deviation between the distribution of voting power and preferences on one hand, and economic power and demand on the other, the link between preferences and legislation will be "weakened" in the sense that legislation will not fully reflect voter preferences - if voters confront unequal 9. There is normative meaning to the fact that a country's political process reflects a majoritarian ethic, but the goals of satisfying majority preferences and being "allocatively efficient" are not the same.

35

Enhancing the Public Interest

costs or benefits of transmitting information about the intensity of their preferences to legislators. After all, voters elect legislators rather than vote directly on legislation. In reality, the transmission of preference information from voters to legislators is not costless; thus, if either the costs or the expected benefits of informing legislators varies among voters, legislation will tend to reflect not the actual voter preferences but only the transmitted or legislator-perceived preferences. If, for example, some people in the society are better organized, as in labor unions or business trade associations, then the cost of their transmitting their preferences to legislators will tend to be smaller than it is for poorly organized people.10

suboptimal weight to the interests of diffuse groups, thereby tending to exacerbate the private market efficiency failures. Thus essentially the same forces — involving unequal transmission of wants or economic demands for various commodities and from various persons or groups — produce failures in both the for-profit and the government sectors. Such imbalances in the degree of representation of interests should not be exaggerated. Differences certainly exist in the organizational power of various interests, but the differences are generally of degree; rarely does a well-organized interest confront a totally unorganized interest where the latter is weak only because of organization obstacles rather than because of weak Similarly, the potential benefits from a partic- preferences or weak economic demands by its ular piece of proposed legislation are likely to constituents. The distinction between weakness vary among individuals, and the resulting differ- resulting from organizational obstacles and weakences in intensity of concerns can be expected to ness resulting from non-intensity of concerns is lead to differential efforts by voters to com- important. In some situations, organizational municate their preferences to legislators. For weakness is the result of conflicts among interest example, since people are likely to perceive their groups, in which case organizational weakness interests as wage earners or producers as more reflects the absence of a widely held economic important than their interests as consumers, we demand, or even a widely held preference. In the can expect that the preferences of workers and environmental area, for example, both organizabusiness will be more fully transmitted to legisla- tional obstacles and preference diversity are to tors than will the interests of consumers. In some extent at work. While "conservationist short, on both cost and benefit grounds — be- Davids" have been described as "Fighting Goliath cause of variance among people in both the bene- Without a Slingshot," it has also been observed fits of legislative change and in the costs of that the conservationist movement "is one of informing legislators — preferences as actually loosely organized special-interest groups, fragtransmitted to legislators will be a biased repre- mented by ideology and tactics."" sentation of true preferences. As a result, legislaOn the other hand, to some extent the diftion will tend to favor particular population seg- ferential degree of organization of interests may ments. Not only is information regarding some reflect the familiar problems relating to collective people's preferences likely to be more available goods, free-riders, and organizational difficulties to legislators than information regarding others' associated with geographically and otherwise preferences, but the incentives that legislators dispersed interests when individual interests are perceive lead them to pay more attention to small even though collective interests are large. In some preferences than to others. Legislators, be- such a case, differences in degree of organization cause they are interested in collecting campaign do not necessarily reflect differences in intensity funds and perhaps thinking about job prospects of demand. outside government, have an incentive to pay Shortcomings of the legislative process, resultmore attention to the interests of organized ing from informational and incentive problems, groups than is warranted by the number of votes constitute "governmental legislative failure" the members of those groups cast. The combina- when judged by the standard of an "ideal" tion of differential incentives and unequal infor- political process in which all voter preferences mation serves to cause legislators to give socially are known to legislators and are reflected in 10. "Transmitting" encompasses lobbying, providing "information," and otherwise informing legislators about how citizens wish the legislators to vote.

11. John H. Douglas, "Fighting Goliath Without a Slingshot," Science News, June 8, 1974, pp. 371-372; quotation on p. 371.

36

Introduction and Theoretic Analysis

legislator actions. Whether these shortcomings constitute actual governmental failures in the real world in which information about preferences is costly to obtain and transmit, and incentives for government decision-makers to pursue the public interest are costly to devise and implement, is another matter. This distinction between governmental failures under ideal versus real conditions is analogous to the conventional economic distinction between "potential" and "actual" failures of private markets (see Chapter Two). The key factor involved in these distinctions is whether the cost of correcting a failure is less than the benefit. If it is, then there is an actual failure; if it is not, then there is a potential, but not an actual failure. As a conceptual matter, the question is whether the potential governmental failures that exist at the legislative stage can or cannot be corrected by voluntary sector public interest law or other groups, and at a cost that is less than the resulting benefits.

discretion is exercised. Just as there is variation among people in the private costs and benefits of influencing legislators, so, too, these variations carry over to the influencing of administrative agencies. Thus, the often-cited tendency for regulatory agencies to become controlled by the very industries and groups they are ostensibly established to control, is a likely — indeed an expected — outcome of a process in which a minority of the population has a strong interest in the way legislation is administered, and that minority is well organized to carry its case to the administrative agency involved.12 This we term a "governmental administrative failure." It results largely from the same factors underlying legislative failures: information and incentives. Administrative agencies, in need of information and inevitably lacking staff to obtain complete information, can hardly be faulted for obtaining information from whatever sources are available, and the industry experts are an obvious source. It is useful to recognize that there are real With regard to incentives, agency decision-makers resource costs to perfecting both private markets do not face the need that legislators do for and governmental processes. In the following dis- campaign financing, but the incentive effect of cussion the term "governmental failure" will possible post-government-service employment by 13 refer to potential failures — that is, the standard a firm in the regulated industry is operative. for comparison will be the ideal — but we will Not all administrative agencies regulate induswant to bear in mind that an assessment of PIL tries, and of those that do, not all have responsiactivities hinges on whether the cost of correc- bility for designated industries. While the Civil ting such failures through PIL efforts is less than Aeronautics Board and the Federal Communicathe social value of the correction. Recognizing tions Commission regulate the commercial airthat all deviations from ideals are not avoidable 12. A well-known statement of this effect is John at reasonable cost, we want to emphasize that Kenneth Galbraith, The New Industrial State (Boston: systematic variation among people in the costs or Houghton-Mifflin, 1967); see also Mary B. Peterson, The benefits of transmitting their preferences to legis- Regulated Consumer (Los Angeles: Nash Publishing, 1971). A witness before a Congressional committee lators do create a presumption that governmental noted the effect on regulators of continuous represenfailures occur at the legislative stage in the tation of just one set of interests: "agency staff as well governmental process. Such failures at this stage as top officials tend over time to lose sight of those views and interests that are not regularly and effectively may also occur, as we have seen, even with full communicated to agency staff and officials." (U.S. Contransmission of preferences, since legislators' gress, Senate, To Establish an Independent Consumer interests are not fully served by voting the prefer- Protection Agency, Joint Hearings before the Subcommittee on Reorganization, Research and International ences of a majority of their constituents on each Organizations and the Sub-Committee on Consumers of the Senate Committee on Commerce, 93rd Congress, 1st issue. Administrative Failure The problems at the link between legislation and administration (points 2 and 3, Figure 3.2) are essentially the same as those at the first link, between voter preferences and legislation: administration of any law inevitably requires discretion, and the combination of information and incentives acts to affect the manner in which the

Session, March 21, 22, 27, 28; April 5; and June 28, 1973, p. 175.) An example of the results of administrative failure is the finding of one investigator that "regulation has imposed considerable costs on public utility company operations without providing compensating benefits." (Paul W. MacAvoy, The Crisis of the Regulatory Commissions [New York: W. W. Norton and Company, 1970J, p. viii.) 13. Eugene Smolensky has pointed out that it is not clear whether the post-government employment incentive works to make government administrators more generous to regulatees, or less.

37 lines and broadcast media, respectively, the Environmental Protection Agency and Consumer Product Safety Commission have responsibilities that cut across industry lines, thereby weakening their attachment to any industry. Still other administrative agencies - the Social Security Administration, for example, - deal primarily with individuals rather than with organized producer or trade-union interest groups. Even if powerful interest groups are absent from the forces influencing agency behavior, there are other sources of incentive problems causing administrative failures. These have been less fully explored, but they relate to the difficulties of devising low cost measures of "output" for the agency. Lacking the kind of easily obtainable measure that the private for-profit sector has — profit — legislators and budget offices struggle to develop measures of organizational "success" that will confront agencies with incentives to be both efficient and equitable in their stewardship. Even if it were entirely clear what the legislature intended that a particular agency should be trying to do, what it should be optimizing, there is a major task in bridging the gap from conceptual goals to operational measures. The problem of developing operational measures of "success" for governmental administrative or regulatory agencies is frequently a serious obstacle to achievement of legislative goals. Informational requirements are high when, as is typically the case, these goals are multiple, involving both resource allocation and distributional objectives. In addition, unless administrations are confronted by a reward-incentive structure that provides appropriate signals as to the relative importance of (incremental achievement of) each goal, they will, in general, not make the optimal choices among competing projects. Establishing appropriate incentive structures is difficult, however, largely because of the information required to determine how fully each goal is attained. When incentives are incorrectly specified, they do not reward, and thus do not encourage, the desired efficient and equitable behavior. Information costs and unclear or misspecified incentives are the key, and interrelated, problems. Another way to see the relation between information and incentives is to recognize that information costs cause agency incentives to be

Enhancing the Public Interest oversimplified and mis-specified. That is, they cause the establishment of agency incentives that result in the maximization of stated (operational) goals rather than intended goals. Establishment of employment quotas for minorities, for example, is a low information-cost alternative to a case-by-case search for employment discrimination. The result, however, is a saving in information cost achieved by mis-specifying the target; the achievement of employment quotas is, at best, a proxy for the ending of employment discrimination. Another illustration of the deviation between stated and intended goals is the phenomenon of "creaming." In administering a training program for "hard-core" unemployed, for example, a program administrator may confront an operational incentive to take into his program not the people who most need the training to enhance their employability (the conceptual target group), but those people whose skills, experience, and motivation make them most employable even without the training. To "cream" such a group from the larger group of unemployed persons may thus make sense from the standpoint of an administrator who is judged (operationally) by the actual employment record of his "graduates," but it does not make sense from the standpoint of, say, legislators whose (conceptual) goal may be helping the least-employable workers. In general, when operationally defined targets provide agencies with incentives to pursue policies other than the intended ones, the link between legislation and administration will be weakened and the private market failure may not be corrected. Failures at the administrative level also result because regulatory agency proceedings often pit the interests of well-organized corporations against the interests of groups such as consumers, who are less well organized. The unequal degree of organization is relevant to the ability of the adversaries to bear the legal costs of protracted hearings and investigations. "Regulatory agencies provide fine battlefields for administrative wars of attrition." M And in such wars, financial staying-power can be critical. While such stayingpower depends partly on the magnitude of financial interest of the particular disputant group, it also depends on the degree to which the group 14. Kenneth H.Bacon, "The Regulators," Wall Street Journal, October 15, 1974, p. 1.

38 has been able to organize and to mobilize its resources. The more numerous the people who share the interest in a particular agency action, the smaller their average financial interest, the more dispersed they are geographically, and the less known they are to each other, the greater the difficulty of their becoming organized well enough to convey the intensity of their interests to the regulator. It is not surprising, therefore, that such dispersed interests tend to lose in the struggles with well-organized producer interests before regulatory administrative agencies. Delay, and the associated legal costs, can be a powerful weapon in a battle of attrition.

Introduction and Theoretic Analysis

of its safety regulations on the accident rates for other modes of transportation, which may increase as tighter regulation causes people to shift their patterns of use. Similarly, a state agency administering water pollution legislation may be less responsive to the side effects of its actions on, say, downstream water users in another state, than it would be if it also had responsibility for downstream effects. The agency regulating pollution also is not likely to pay great heed to the direct or indirect effects of its actions on say, mining activities and hence on local employment, because mining and local economic development are the responsibilities of other agencies. This is not to say that all such external effects Delay, however, does not always benefit the most powerful, well-organized interest. Delay in are disregarded, but only that government agency allowing a requested rate increase to an electric administrators, just as private decision-makers, utility or transportation firm, for example, tend to emphasize the activities for which they would work to the disadvantage of those firms, are rewarded and to disregard, to some extent, and so they will oppose such delays. In general, consequences that lie outside their range of the unequal influence of the differentially responsibility unless some coordinating agency, organized interest groups in the adversary process interagency arrangement, or pricing mechanism can be expected to produce either delay or rela- brings about an internalization of the external tively swift action, depending on which would effects. most benefit the best-organized adversary. Because there is often significant discretion in Pressures on program administrators are not the administration of legislation, disputes can quite the same as those on legislators. Whereas develop regarding the wisdom, or even the the pressures from organized interest groups can legality, of administrative decisions, and persons be expected to be felt by both legislators and adversely affected by the decisions will someadministrators, the legislators are also responsible times seek to alter those decisions. To some to the electorate while the administrators are extent the agency will respond directly to such responsible to the legislature, from which their challenges by changing its procedures, and to funds are derived. In addition, legislatures are some extent it will respond indirectly, as by imperfectly informed as to how their legislation establishing an ombudsman; but to some extent is being administered — a situation that is, in it will be impervious to the efforts of affected large part, a result of the problem, noted above, persons to change its procedures. The ombudsman is a social invention for dealof defining operational measures of success. Another factor contributing to potential ing with certain governmental failures, particuadministrative failure is the occurrence of agency larly at the administrative level. Its growing use — externalities. These involve consequences, favor- throughout the world, and more recently, within able or unfavorable, of an agency's activities that, the United States — reflects a growing awareness, being outside the scope of that agency's responsi- if not the growing occurrence, of governmental bilities, are disregarded by it. The occurrence of administrative failures. Its likely contributions to such external effects is a principal source of the correction of those failures, as well as its inefficiency in the private market — that is, it is a limitations, are discussed below, and in Chapter cause of private market failure - and it has its Seventeen we will look at the institution as it counterpart in government as a source of govern- operates in other countries. mental administrative failure. An agency responsible for one mode of trans- Judicial Failure Persons who are dissatisfied with agency portation, for example, may disregard — or, at least, give little attention to — the possible effect responses may seek legislative action, or they

39 may seek judicial intervention in an attempt to force change in administrative or law-enforcement behavior, and so we turn to the 3-4 and 3-5 links in Figure 3.2, between adjudication and administration or enforcement. These links disclose another point in the governmental process at which a failure can occur; a governmental judicial failure can be defined to occur when an aggrieved party is unable to obtain his day in court with suitable legal representation. Such a failure may occur because of (a) systematic exclusion (on racial grounds, for example), (b) ignorance as to one's legal rights, (c) ignorance about how to gain access to the judicial system, (d) technical problems of obtaining legal standing, or (e) the excess of private costs of using the judicial system and obtaining adequate legal representation over the expected private benefits, regardless of what the expected social benefits may be. The last includes the situation in which expected benefits to any individual are smaller than the litigation costs, but the benefits from the litigation would accrue to many other persons who are, or may be, affected in the same way by the administrative, enforcement, or legislative actions, so that the expected total social benefits greatly exceed the costs. An ideally functioning judicial system — one in which there was no systematic failure — would not be one in which disputes were instantaneously handled by a court with outstanding attorneys representing each disputant. While this would be "ideal" in some abstract sense, it would be far from optimal in the real world, in which neither court time nor first-rate legal counsel is available in unlimited amounts. Bringing a dispute to court is one device for conflict resolution, but there are others, many of which, including compromise and arbitration, do not involve government at all. The dilemma confronting the judicial system is that while a better court system, higher quality jurists, shorter queues for getting a case heard, and greater public responsibility for legal representation are desirable, each would encourage more disputes to be brought to the judicial system rather than settled through other channels. It should be noted that existence of a governmental judicial failure, like the existence of the other governmental failures, does not necessarily imply that any government official is acting im-

Enhancing the Public Interest properly, let alone illegally. Failures occur in the governmental decision process, as they do in the private market, not necessarily because of malevolence but because the information available to decision-makers and the incentives they have to act on that information combine to produce undesirable - inefficient or inequitable - action. If, for example, a legal case is not brought because it is not profitable for any one affected party to litigate even though the social benefits would exceed the costs, the result might be termed a "failure" of the judicial link, although there is no implication whatever of any misbehavior on anyone's part. Similarly, a case not brought because the prospective complainant is unaware of his rights involves no misbehavior. Systemic failures, not individual failures, are what we are trying to identify. Nevertheless, it should at least be noted that there is a potential for corruption in all the sectors. Enforcement Failure Even if the judicial mechanism were working perfectly, in the sense that none of the conditions (a) through (e) were present, the need to enforce the actions of the judical system (or the administrative system) could still lead to a governmental failure. Thus, the 3-5 and 4-5 links in the governmental process (Figure 3.2) disclose another potential failure, a governmental enforcement (or implementation) failure. The factors influencing enforcement are of the types referred to already; in particular, the enforcement stage is another point at which organized interest groups can exert influence. Selective enforcement and non-enforcement of judicial, legislative, or administrative directives can thus vitiate the effectiveness of actions at these other stages. Behavioral Results The final stage in our simplified model of government decision-making involves altering behavior of the socio-economic system. This requires explanation. The essential point is that a change in any, or even all, stages (links) in the governmental decision process will not necessarily lead to any change in behavior. The National Environmental Policy Act can serve as an illustration. That legislation (decision point 2) required that an "environmental impact state-

40

Introduction and Theoretic Analysis

ment" be prepared before construction or other activities were initiated that might have an adverse effect on the environment. Administrative decisions (decision point 4) would, presumably, assure that the impact statements would be prepared and that they would be of satisfactory quality. In the case of the Trans-Alaska Pipeline, when some citizens felt that the impact statement was not "satisfactory," judicial intervention (decision point 3) occurred. In the final analysis, however, despite extensive legal efforts by environmental interests, the pipeline project proceeded. In this case, the "final effect" — the construction of the pipeline — was much the same as it would have been without the various interventions at the legislative, judicial, and administrative stages.

A Governmental Effort to Correct Governmental Failures: The Ombudsman

The government itself has devised a number of mechanisms for dealing with its failures. Insofar as these mechanisms are successful, the effectiveness of government in correcting private market failures is enhanced. But these correctives are, themselves, limited. To illustrate both the attempt at correction, and the difficulties it involves, we examine briefly one interesting institution that has recently gained considerable attention, the ombudsman. While the ombudsman was originally invented to deal with administrative failures (see Chapter Seventeen), most ombudsmen have had some impact at all of the links in Some students of this case — which involved a the governmental process. PIL effort - believe that the struggle did lead to Much has been written about the ombudsman some changes m construction methods, and it as a social institution, although it has received certainly led to delay. Whether changes did or little attention from economists. " The ombudsdid not occur in this specific case, our point is man is a person or office charged by a legislature that improved performance of the governmental or a government agency with the responsibility decision process need not necessarily alter final of aiding individual citizens as they try to outcomes in a significant way. While this is not negotiate their way through government bureauthe place to analyze the NEPA and its consecratic processes. The very existence of an omquences, we might suggest here that it would be budsman is evidence of the occurrence of governviewed as reflecting a legislative judgment that mental failures, but it may be asked whether too few resources were being devoted to informasuch failures are likely to be corrected in a subtion about effects that transcend the direct constantial way by the ombudsman. The ombudscerns of particular government agencies, and that man's role is to ease the individual's problem these external effects (discussed above in connec(that is, lower his cost) of transmitting his wants tion with government administrative failures) (claims) to a program administrator. Assuming should be taken into account in the decision that the ombudsman is successful in this respect, process. But even though it is likely that there the question is whether the claimant will or will has been underinvestment in information about not have his want met. external effects, and that there has been inadeThe answer would seem to depend on the quate attention to the information even when it source of the initial failure, and two sources may was available, it should be clear that having more be identified: (1) insufficent information in the information about external effects will not neceshands of the individual citizen or the agency; and sarily alter agency decisions. The external effects (2) conflicts between the goals (incentives) of the may be small. And they may be favorable, in agency and the wants of the individual citizen which case they would reinforce the wisdom of the initial decision. In any event, the point is that IS. On the ombudsmen institution see, for example, one should not assume that the correction of a The American Assembly, Columbia University, Ombudsgovernmental failure - in this case, insufficient men for American Government? (Englewood Cliffs: Prentice-Hall, 1968); Walter Gellhorn, Ombudsmen and attention to external effects, to consequences Others (Cambridge, Mass.: Harvard University Press, that go beyond the responsibility of the particu- 1966); and Stanley V. Anderson, Ombudsman Papers: lar government agency - will have a quantita- American Experience and Proposals (Berkeley: University of California, Institute of Governmental Studies, tively large effect in any specific situation, or 1969). See also the discussion and notes in Chapter even that it will have any effect at all. Seventeen.

41 with whom the conflict has occurred. If lack of information is the problem, then the ombudsman, by bringing the citizen before the right agency, and helping to inform the citizen of his rights and the agency of the relevant aspects of the specific case, can contribute substantially to resolution of the conflict. If information is not the problem, however, then the ombudsman's potential is far more limited. Before turning to a defense of this assertion, we can point out that the links in the governmental decision process, discussed above, can be broken — that is, governmental failures can occur— either because of insufficient information or because of genuine conflicts. What we have just asserted is that failures attributable to lack of information may be relieved by informational mechanisms, of which the ombudsman is one. But suppose there remains a conflict, a dispute, between a government decision-maker and some interested citizen or group after each party has become fully informed. If the interests of governmental decision-makers, given the incentives they face, are genuinely opposed to the wants of specific citizens, the information will not resolve the conflict. Perhaps a court would rule in favor of the citizen, and perhaps the legislature would also decide in the citizen's favor if it were fully informed; but it need not be true that an administrative official would decide in the same manner. And it is notable that the ombudsman traditionally has no power to make decisions; he can inform, persuade, perhaps even threaten to publicize. Fundamentally his role is that of the lubricant in a machine; he can make it run more smoothly, but he can do little to alter what it turns out. In no way should it be concluded that the ombudsman is an institution of trivial importance. Analysis of its role and potential is still in its youth. Even so, it seems clear that the ombudsman has proven to be an effective instrument for handling situations in which special circumstances and limited information conspire to produce actions that neither party - agency

Enhancing the Public Interest or individual — actually wants. On the other hand, there do seem to be genuine problems in extending the ombudsman role beyond that of a transmitter of information." Were he to have decision power he would inevitably come into conflict with one or another of the legislative, administrative, or judicial branches of government. Every government agency has its own mechanism for dealing with informational problems, citizen complaints, and the like. The ombudsman is just one example of a wide variety of institutional mechanisms within government that are established to resolve problems of incomplete information. We chose to examine the ombudsman here not because it is of differential importance, but because it illustrates both the efforts within government to seek devices for correcting at least some of its own failures, on the one hand, and the limitations of such efforts on the other.

Conclusion This chapter has sought to sketch the elements of a model for describing and understanding the failures of government to allocate resources efficiently and equitably. The existence of such governmental failures, somewhat analogous to the private-market failures with which welfare economics deals, means that government is not able to correct all the inadequacies of the private, for-profit market. The balance of this book is directed at promoting an understanding of institutions in the "third" sector — voluntary, non-profit organizations — as both potential and actual correctives for the failures of the other sectors. All three sectors, in short, are seen as an interdependent system of instruments for achieving society's goals of equity and efficiency. 16. For a discussion of what ombudsmen are typically empowered and not empowered to do, see The American Assembly, Ombudsmen for American Government, pp. 39-40.

Chapter Four

The Public Interest Law Industry Joel F. Handler, Betsy Ginsberg and Arthur Snow

In Chapter Two, we set out an abstract classification scheme for economic activities, and in that context we defined a public interest law (PIL) activity as one (1) undertaken by an organization in the voluntary sector, (2) that primarily involves the use of legal tools such as litigation, and (3) that produces significant external benefits if it is successful in bringing about change. We also noted that activities much like PIL activities are undertaken by organizations in both the private and public sectors. These activities involve the use of legal tools and have a high ratio of potential external benefits to potential total benefits, that is, a public interest (PI) ratio significantly different from zero. (See Chapter Two for a discussion of the PI ratio.) These close substitutes for PIL activities, along with PIL activities themselves, are produced by organizations in what we have called the PIL industry, a concept that cuts across the abstract division of the economy into voluntary, private, and public sectors to include any organization that devotes a significant portion of its resources to the use of legal tools in actions that generate external benefits. In this chapter we will attempt to describe the PIL industry, concentrating on those organizations in the voluntary sector that engage in PIL activities. These come the closest to matching the theoretical definition of pure PIL organizations that we presented in Chapter Two - namely, that

PIL organizations are voluntary sector organizations engaged exclusively in PIL activities. As we shall see, there are very few existing organizations that satisfy this theoretical definition of a PIL organization. Nearly all organizations we will identify as being part of the PIL industry also use, to varying degrees, the non-legal tools we associated in Chapter Two with public interest non-law (PINL) activities. In the last section of this chapter we will turn briefly to a description of the PINL industry and offer some rough estimates of its size in comparison with the PIL industry. As is usually the case when one tries to identify real, existing objects in the terms of some abstract classificatory construction, it is not always easy to distinguish PIL activities either from their close substitutes or from activities that are not PI activities. The difficulties are illustrated by some of the terminology used by lawyers. The term "law reform" refers to test case litigation; that is, litigation that has significant external effects. This would seem to correspond roughly to our definition of a public interest law activity, but it should be noted that law reform can take place in all three sectors, while our definition of public interest law activity refers only to actions in the voluntary sector. Thus, law reform can include not only PIL activities but PIL-like activities produced by oganizations outside the voluntary sector.

The authors thank Jeffrey Dorman for his assistance with the section on public interest non-law activities.

Law reform work is usually done on behalf of "social reform groups." A social reform group is an organized group actively seeking social

43

change. The group itself consists of people who will benefit — directly or indirectly — from the group's activities, but not all beneficiaries will be members of the group. (See Chapter Six for a discussion of the distributional effects of PIL activities.) It is the nature of social reform (or change) that there will be significant externalities (benefits and costs) associated with it, so most social reform probably is PI activity. But social reform groups may make use of non-legal instruments as well as legal tools, so the category of social reform actions may include PINL as well as PIL activities. In the first section of this chapter, "A History of PIL Activities," we will present a brief overview of PIL and its law-related close substitutes. While PIL organizations will not be prominent in this section, we will attempt to show how each of the activities and organizations we discuss has contributed to the development of PIL. The second section, "A Description of the PIL Industry," presents some data on the PIL industry, which, as we have noted, includes PIL organizations and some of their law-related close substitutes. These data will give us a picture of the structure of the industry and its PIL and PIL-like components, as well as a rough estimate of the size of the industry. Finally, in a section entitled "PINL Organizations," we will discuss briefly the non-law close substitutes for PIL activity.

A History of PIL Activities Various types of organizations are engaged to some significant degree in PIL or PIL-like activities. In the voluntary sector these include the "public interest law firms" that are at the core of the PIL industry. These firms are tax-exempt, and depend heavily on foundation funding or contributions from members. They generally employ at least one full-time attorney, and concentrate on litigation to accomplish their ends. In the public sector, some Legal Services Backup Centers engage in vigorous law reform activity, sometimes through direct litigation and sometimes through support services for Legal Services attorneys. There are a number of close substitutes in the private sector, though in terms of size they probably do not match either voluntary or public sector law reform activity. These include "mixed" private and public interest law

The Public Interest Law Industry firms, firms that are entirely self-funded, but which use the money they earn (primarily in their private law work) to support a substantial amount of PIL-like (externality-generating) activity. There are also formal and informal pro bono publico activities of the private bar that have a public interest (externality) effect. Most pro bono activities are "service" cases (for example, criminal cases, divorces) but some are law reform work, and it is only the law reform work that we include as part of the PIL industry. In this section, we will trace the history of PIL and PIL-like activity, showing specifically how activities in the private and public sectors have contributed to the development of the voluntary sector public interest law firms that are the primary focus of this chapter. Early Efforts The prevailing opinion in the legal profession, at least until the late nineteenth century, was that the public interest was best served through the traditional adversary system: private attorneys representing private clients for a fee. If the attorneys on both sides represented their clients to the best of their ability, it was believed that both justice and the public interest would be served.1 Nevertheless, some members of the legal profession recognized that there were people who needed legal services but who could not afford a fee, and as the legal profession was formally organized in the late nineteenth century, canons of professional ethics were promulgated urging lawyers, as part of their professional responsibilities, to represent indigent persons accused of crime. Most efforts to fulfill this responsibility were individual and unstructured, but with the promulgation of the ethical code came some efforts to organize pro bono work. The legal aid movement, which provided free or low-cost legal services to indigent persons, was started in the late nineteenth century, initially to ease the transition of European immigrants to 1. Mark J. Green, The Other Government: The Unseen Power of Washington Lawyers (New York: Grossm a n Publishers, 1975), pp. 243-244; F . R a y m o n d Marks, with Kirk Leswing and Barbara J. Fortinsky, The Lawyer, The Public, and Professional Responsibility (Chicago: American Bar Foundation, 1975), pp. 9-10; Jerold S. Auerbach, Unequal Justice: Lawyers and Social Change in Modern America (New York: Oxford University Press, 1976), p. 281.

44 the United States. Public defender offices were opened in the early 1900s under the aegis of government, but they relied on private attorneys' pro bono contributions for staffing. Legal aid and the public defender offices, however, were poorly financed and poorly organized, largely because attorneys preferred to work within the framework of the traditional adversary system.' While early pro bono efforts did not involve public interest (externality-generating) work, they did make lawyers begin to think about alternatives to the traditional adversary system. The prototype for voluntary sector PIL activities was the National Association for the Advancement of Colored People (NAACP), founded in 1909. From its inception, the NAACP relied heavily on test case (law reform) litigation. 3 At first, however, because of a lack of resources, the organization had no sustained litigation strategy, but concentrated on an occasional big case — a case that consumed a large amount of resources, but that promised wide-ranging benefits if it were won. The situation changed in 1930 when the NAACP received a $100,000 grant from the American Fund for Public Service "for a comprehensive campaign against the major disabilities from which Negroes suffer in American life — legal, political, and economic." 4 The creation in 1939 of the NAACP Legal Defense and Education Fund, Inc. (the NAACP Inc. Fund) to handle the parent organization's legal work completed the change from a reactive, ad hoc litigation effort to a unified, cohesive legal attack on racial discrimination in all its manifestations. 5 The NAACP Inc. Fund is no longer associated with the organization that spawned it. The NAACP Inc. Fund's most famous victory was the 1954 U.S. Supreme Court decision in

Brown v. Board of Education of

Topeka,

Kansas' but by that time, the Fund had already 2. Auerbach, Unequal Justice, pp. 53, 54-58; Marks et al, The Lawyer and Professional Responsibility, pp. 17-20. 3. As a result of NAACP litigation, for example, the U.S. Supreme Court invalidated racially discriminatory voting restrictions in 1915; segregated housing ordinances in 1917; and the exclusion of blacks from juries in criminal cases in 1923. 4. Robert J. Rabin, "Lawyers for Social Change: The Twentieth Century Experience," unpublished paper (July 23, 1975), pp. 16, 17. 5. Ibid. 6. 347 U.S. 483 (1954).

Introduction and Theoretic Analysis won thirty-four of the thirty-eight cases it had argued before the Supreme Court. 7 These victories had an enormous influence on the legal profession. First, they illustrated the apparent efficacy of law reform litigation; without these victories, it is doubtful whether groups concerned with other special problems would have formed to press law reform. Second, Supreme Court victories carry with them enormous prestige and publicity, and the victories made it easier for the NAACP Inc. Fund to recruit young lawyers from the country's elite law schools. While the recruits were probably socially motivated to begin with, there would have been little incentive for them to take part in law reform if they could see little chance of either affecting the course of events or advancing their careers. Another early voluntary sector organization was the American Civil Liberties Union, founded in 1920. The ACLlPs antecedents date to 1916 and the American Union Against Militarism, which opposed America's drift toward entry into World War I. In its early years, the ACLU did not view litigation as a major strategy; rather, personal influence exerted by its prominent leaders (many of whom, like Oswald Garrison Villard, counted ancestors among the abolitionists) was thought to be most effective, and lobbying, public protests, and publicity were the ACLlPs major tools." It soon became apparent, however, that personal influence was not sufficient to achieve the group's goals. After World War I, the federal government made use of the Espionage and Sedition Acts to prosecute dissidents, especially Communists, and to deport foreigners with leftist leanings, and the ACLU began to develop a litigation strategy to oppose the government. Gradually, ACLU branches were created in the n a t i o n ' s largest cities, loosely coordinated through the national office. Lacking in resources, most branches relied on volunteer attorneys who did amicus curiae work rather than on full-time staff attorneys who would have initiated litiga7. The Quiet Revolution (NAACP Legal Defense and Education Fund, Inc., May 1969), p.6. 8. Rabin, "Lawyers for Social Change," pp. 8-9; Donald O. Johnson, The Challenge to American Freedoms: World War I and the Rise of the American Gvil Liberties Union (Lexington, Ky.: University of Kentucky Press, 1963), p. 53.

45 tion.' Although the NAACP has been more prominent than the ACLU in the last three decades, the ACLU has participated in many important civil liberties cases and is well-known among lawyers concerned with civil liberties. Public Sector Activities The government became more involved in law reform activity as the twentieth century progressed and faith in laissez-faire government began to wane. It had become evident that a lack of representation for some interests sometimes led to serious representational imbalances in the system. Some of the earliest governmental efforts to correct these imbalances involved anti-trust activity, which attempted to decrease the representation of big business rather than to increase the representation of groups that were allegedly hurt by business practices. Governmental efforts began with Theodore Roosevelt's trust-busting, but it was the Great Depression and the New Deal that gave them impetus and attracted many bright young attorneys to Washington. Government anti-trust activities established two ideas that are important for voluntary sector PIL organizations. First, they established the idea that representational imbalances could be corrected, though early anti-trust lawyers tackled the imbalances from a different direction than do modern PIL firms. Second, they established a model for action, that of the private attorney who temporarily puts aside a lucrative private practice to serve the public, 10 although one cannot wholly discount as an incentive the value of the publicity, prestige, and experience the attorney may earn while serving the public. (We will examine PIL work as a generator of nonpecuniary returns and as an investment in human capital in Chapter Five). In the late fifties and early sixties, the civil rights movement captured the imagination of many public interest-minded attorneys, and the Civil Rights Division (CRD) of the Justice Department experienced an influx of young, talented lawyers. Part of the reason for this influx was the presence of dynamic personalities 9. Rabin, "Lawyers for Social Change," pp. 10-11. 10. Esther Lucille Brown, Lawyers, Law Schools and the Public Service (New York: Russell Sage Foundation, 1948), pp. 59-60; Auerbach, Unequal Justice, pp. 188-189.

The Public Interest Law Industry such as Robert Kennedy, Nicholas Katzenbach, and Ramsey Clark as Attorneys General and Burke Marshall and John Doar as heads of the CRD. During the War on Poverty in the 1960s, the government established the Office of Economic Opportunity (OEO). The OEO's Neighborhood Legal Services Program was perhaps the first major effort whose activities were modeled after those of the NAACP and the NAACP Inc. Fund. Specifically, both were involved in law reform activity on behalf of an easily identifiable disadvantaged group of citizens. Although there was, from the beginning, widespread belief that the War on Poverty should contain a legal services component, there was a great deal of controversy about whether legal services should have a law reform or a service case orientation. The controversy involved not only a philosophical, liberal-conservative question, but also a political question: would local bar associations and their members give Legal Services their much needed support if the program engaged in vigorous law reform? The proponents of law reform in Legal Services, among them the first director, E. Clinton Bamberger, ultimately triumphed, and by the spring of 1967, law reform emerged as the dominant official ideology of Legal Services, and several prominent Legal Services offices engaged extensively in law reform activity." To 11. On the controversy about law reform versus service cases, see Harry P. Stumpf, ' T h e Failure of Legal Services; or Let Them Clean Out Cellars," unpublished paper delivered to the Conference on the Delivery and Distribution of Legal Services, State University of New York at Buffalo Law School, Oct. 11-12, 1973, p. 4; Samuel Krislov, "The OEO Lawyers Fail to Constitutionalize a Right to Welfare: A Study in the Uses and Limits of Judicial Process," Minnesota Law Review, LVII1 (1973), pp. 211-245; Marks et al„ The Lawyer and Professional Responsibility, pp. 41-42; E. Clinton Bamberger, "Address to the National Conference of Bar Presidents," Feb. 19, 1966, in Harry P. Stumpf, "Law and Poverty: A Political Perspective," Wisconsin Law Review, XIII No. 3 (1968), pp. 694-733; see also address by Eail Johnson, Jr., to the Harvard Conference on Law and Poverty, March 17,1965, in Stumpf, "Law and Poverty." For additional materials on legal services, see the following: Ted Finman, "OEO Legal Services Programs and the Pursuit of Social Change: The Relationship between Program Ideology and Program Performance," Wisconsin Law Review (1971) pp. 1001-1084; H. Masotti and Jerome R. Corsi, "Legal Assistance for the Poor: An Analysis and Evaluation of Two Programs," Journal of Urban Law XLIV (Spring,

46 strengthen the law reform element, Backup Centers were created to act as informational clearinghouses for neighborhood Legal Services programs. Each Backup Center was focused on a specific area, such as health or employment discrimination. Thus, a Legal Services attorney who wished to file a suit regarding health problems for the poor would turn to the Backup Center 1967), pp. 403-502; Auerbach Corporation, Office of Legal Services Individual Project Evaluations: Final Report (1971); JohnD. Kettelle Corporation, Evaluation of Office of Economic Opportunity Legal Services Program: Final Report (1971); Richard M. Pious, "Congress, the Organized Bar, and the Legal Services Program," Wisconsin Law Review (1972), pp. 418-446; Jerome E. Carlin, Jan Howard and Sheldon Messinger, Gvil Justice and the Poor (New York: Russell Sage Foundation, 1966); Joel F. Handler and Ellen Jane Hollingsworth, "Legal Services is Alive and Well," University of Wisconsin, Madison, Institute for Research on Poverty, Discussion Paper 285-75 (1975); A. Kenneth Pye, "The Role of Legal Services in the Anti-Poverty Program," Law and Contemporary Problems XXXI (Winter, 1966), pp. 211-249; Richard M. Pious, "Policy and Public Administration: The Legal Services Program in the War on Poverty," Politics and Society, I (May 1971), pp. 365-391; Edgar S. Cahn and Jean C. Cahn, "The War on Poverty: A Civilian Perspective," Yale Law Journal, LXXIII (July 1964), pp. 1317-1352; Conference Proceedings: The Extension of Legal Services to the Poor, 1964 (Washington, 1965); Conference Proceedings: National Conference on Law and Poverty, 1965 (Washington, 1966); Harold Rothwax, 'The Law as an Instrument of Social Change," in Harold H. Weissman, ed., Justice and the Law (New York: Association Press, 1969), pp. 137-144; Fred J. Hiestand, "The Politics of Poverty Law," in Bruce Wasserstein and Mark J. Green, eds., With Justice for Some (Boston: Beacon Press, 1970), pp. 160-189; Earl Johnson, Jr., Justice and Reform: The Formative Years of the OEO Legal Services Program (New York: Russell Sage Foundation, 1974); Harry P. Stumpf, Community Politics and Legal Services: The Other Side of the Law (Beverly Hills, CA: Sage Publications, 1975); Philip J. Hannon, "Law Reform Enforcement at the Local Level: A Legal Services Case Study," Journal of Public Law, XIX, No. 1 (1971), pp. 23-48; Jerome E. Carlin, "Store Front Lawyers in San Francisco," Trans-Action, VII (April 1970), pp. 64-74; Carol Ruth Silver, "The Imminent Failure of Legal Services for the Poor: Why and How to Limit Caseload," Journal of Urban Law, XLVI (1968-69), pp. 217-248; Harry Brill, "The Uses and Abuses of Legal Assistance," Public Interest, XXXI (Spring, 1973), pp. 38-55; Communications of Jerome E. Carlin and Brill in Public Interest, XXXI (Fall, 1973), pp. 128-131; Leonard H. Goodman and Margaret A. Walker, The Legal Services Program: Resource Distribution and the Low Income Population (Washington: Bureau of Social Science Research, 1975); A. Kenneth Pye and George C. Cochran, "Legal Aid - A Proposal," North Carolina Law Review, XLVII (April, 1969), pp. 528-586; Samuel J. Brakel, Judicare: Public Funds, Private Lawyers and Poor People (Chicago: American Bar Foundation, 1974).

Introduction and Theoretic Analysis specializing in health for information and legal assistance. While most Backup Centers act only as information clearinghouses, some are directly involved in litigation. Most Legal Services cases are individual service cases such as divorces, but the Backup Centers concentrate on test cases, whether they are litigating the cases themselves or providing information and assistance for other attorneys. In addition to the Backup Centers there were other public sector programs like the Model Cities Project, the Department of Defense program for indigent servicemen, and some H.E.W. legal services experiments. Legal Services also funded paralegal training, ombudsman projects, and Judicare (a program under which low-income persons obtain legal help from a private lawyer, but attorney fees are paid, at least in part, by the federal government). In 1974 the OEO Legal Services component was replaced by the Legal Services Corporation, a public corporation whose board of directors is appointed by the President. The Legal Services budget was also increased at that time. While the financial structure and the lines of authority were changed when the corporation was formed, the activities of the neighborhood offices remain much the same and the Backup Centers (now called Support Centers) will continue many of the same functions. The Support Centers will be much more concerned with supporting the litigation activities of operating field programs, and no longer will be involved with generalized research and training. The Legal Services program had at least two important effects on the legal profession as a whole. First, it involved the organized private bar to a greater extent than did legal aid because OEO guidelines required Legal Services to operate through existing, albeit expanded, local legal aid societies or local bar programs, and because the American Bar Association was deeply involved in the birth and growth of Legal Services. Second, the OEO attorney viewed himself as a "short-term" lawyer; that is to say that the Legal Services lawyer did not think of himself (nor was he viewed by other attorneys) as having permanently left the private practice of law. This facilitated a freer interchange between public and private practice. 12 12. Marks et al., The Lawyer and Professional Responsibility, p. 42.

47 OEO Legal Services and, later, the Legal Services Corp., provided a highly visible, private bar-sanctioned model for law reform. Its success, coupled with that of the NAACP, provided an incentive to attorneys who wished to do law reform work but who did not wish to do it under the aegis of the government. Thus, Legal Services was a factor in the development of voluntary sector PIL organizations. Voluntary Sector Activities

The Public Interest Law Industry young lawyers, was on the wane in the mid1960s; many young attorneys did not want to work for government-controlled Legal Services; and Nader's movement combined missionary zeal, camaraderie, self-sacrifice (low pay), independence from both government and business, participatory democracy, and substantial publicity for the participants and their work. By the late 1960s, Nader's drawing power rivaled that of Legal Services; indeed, to many young lawyers, Nader's organizations seemed more reformoriented than did Legal Services, perhaps because Nader's organizations were autonomous structures, free of extrinsic political interference or pressures. The most recent development in the voluntary sector is the growth of foundation support for "public interest law firms." The growth began in 1970 with the Ford Foundation's decision to become "a principal source of support for public interest law organizations." 14 The number of foundations which support such firms is not large. Ford is clearly the leader both in terms of dollar support and the number of organizations supported, but about thirty other foundations — the Carnegie Corporation, the Field Foundation, the Rockefeller Brothers Fund, and the Edna McConnell Clark Foundation, to name a few — also contribute various amounts of money to public interest law orgainzations. In a later section we will look at these and other voluntary sector organizations in more detail.

After the NAACP and the ACLU, no important voluntary sector organizations of the PIL type were formed until the 1960s, when Ralph Nader formed a number of public interest organizations, several of which do some litigating. In the late 1960s and early 1970s, large foundations, such as the Ford Foundation, began to provide funding for voluntary PIL firms on a large scale. The voluntary sector, with the substantial growth entailed in these developments, has become an important proponent of law reform work. Ralph Nader became well-known after the 1965 publication of Unsafe At Any Speed, his indictment of the Corvair automobile, and General Motors' subsequent investigation of him. Nader's premise was that unrepresented consumers could defend themselves if more truthful information were available and, most importantly, if they formed strong organizations to implement their collective will. "It is abundantly clear that our institutions . . . are not performing their proper functions but are . . . serving special interest groups at the expense of voiceless citizens and c o n s u m e r s . . . . A primary goal of our work is to build countervailing forces on behalf of citizens." 1 3 Nader's work, then, involved the use of non-legal tools such as the provision of information in addition to litigation. Nader had enormous emotional appeal for young lawyers because he himself was a young lawyer, and because he believed, like many young lawyers, that the aggressive, problemsolving generalist lawyer was best suited to the work ahead. But there were also substantive appeals in the Nader movement. The civil rights movement, which might have attracted many

We have seen that pro bono work by private attorneys began in the last century, but it was not until the late 1960s that private attorneys began doing law reform work on a more systematic basis. The impetus to law reform by private attorneys came not only from the various public and voluntary sector groups that were being organized, but also from a number of private lawyers' organizations. The Lawyers' Committee for Civil Rights Under Law (LCCRUL), formed in 1963, recruited members of large private firms and sent them to Mississippi to do civil rights work. The Law Students Civil Rights Research Council, also established in 1963, sent

13. Ralph Nader, quoted in Robert F. Buckhorn, Nader: The People's Lawyer (Englewood Cliffs, N.J.: Prentice-Hall, 1972), pp. 154-155.

14. Gordon Harrison and Sanford M. Jaffe, The Public Interest Law Firm: New Voices for New Constituencies (New York: The Ford Foundation, 1973), p. 5.

Private Sector Activity

48 student volunteers to work in the South; while it is difficult to estimate their success, the volunteers did help to popularize student activism, at least in the law schools they attended. The Lawyers' Constitutional Defense Committee, formed in 1964, was also organized to send attorneys to the South for civil rights work. 15 The influence of the law reform activities of the public and voluntary sectors, and of the activist segments of the private sector, began to manifest itself in the traditional private bar during the late 1960s, when many law Arms believed that the best law school graduates would seek employment with Legal Services unless tradit i o n a l f i r m s offered attractive pro bono programs." We will examine this hypothesis in Chapter Five. For now, it is sufficient to note that belief in it led to more formalized pro bono structures in many private law firms. In particular, four organizational types were developed or refined: (1) a pro bono or public interest department, which is a permanent feature of the firm; (2) public interest coordinator programs, in which a partner or committee keeps track of the work done by individuals in the firm; (3) branch offices maintained by the firm, with personnel assigned either on a rotating or on a semipermanent basis; (4) firm participation in a legal services program, a law school clinical program, a defender office, or the like. 17 It should be noted that there has been a tendency, in the private sector, to equate pro bono with public interest law. Our own definition of public interest law, 15. On the LCCRUL, see Marks et al., The Lawyer pp. 127-128, and and Professional Responsibility, Green, The Other Government, pp. 244-245; on the Law Students Civil Rights Research Council, see the Law Students Civil Rights Council, In the American Tradition (Fall 1972). On the Lawyers' Constitutional Defense Committee, see August Meier and Elliott Rudwick, CORE: A Study in the Civil Rights Movement, 1942-1968, (New York: Oxford University Press, 1973), pp. 271-273. 16. Rita J. Simon, "Have There Been Significant Changes in the Career Aspirations and Occupational Choices of Law School Graduates in the 1960s?" Law and Society Review, VIII (Fall 1973), pp. 95-108. See also the Wall St. Journal, September 26, 1968; and May 29,1972. 17. Note on "Structuring the Public Service Efforts of Private Law Firms," Harvard Law Review, LXXXIV (1970-1971), pp. 410-423; Marna S. Tucker, "The Private Lawyer and the Public Responsibility: The Profession's Armageddon," Nebraska Law Review, LI (1971-1972), pp. 367-391.

Introduction and Theoretic Analysis which depends on the externalities generated by the activity, would include only some pro bono activity. In 1973, the American Bar Association promulgated a definition of public interest law that is much broader than the traditional definition of pro bono.1* The American Bar Association's systematic support of public interest law activity began in 1971 with a project whose purpose was "to collect, compile, and distribute information to the private sector of the bar about the newly emerging formalized efforts in private firms to handle pro bono w o r k . " " In 1973 the project was broadened into the Special Committee on Public Interest Practice, dedicated to "the challenge of enlarging the field of public interest law and the number of lawyers who practice i t . " " It was this committee that prepared the new ABA definition of public interest law. At the 1975 ABA meeting, the House of Delegates adopted the Special Committee's report endorsing the profession's responsibility to further public interest law. Other ABA activities include the Young Lawyers Section publication, Prison Law Reporter, and the sponsorship of the Food Research Office in Washington, D.C. A pilot project, the Boston Lawyers for Housing, has also been funded by the ABA. Some local bar associations, such as that in Hennepin County, Minnesota, have sponsored legal rights or legal advice clinics, Their activities vary from wellpublicized programs with services available on a regular basis to those which work with public defender programs, Legal Aid offices, or law school clinical programs. Approximately one dozen local bar associations are involved in this sort of work. There are also a few lawyers' councils, or local alternatives to the bar association. They are comprised of attorneys who are 18. Marna S. Tucker, "Pro Bono ABA?" in Ralph Nader and Mark J. Green, eds.. Verdicts on Lawyers (New York: Cornell, 1976) cites the ABA definition of pro bono as a "Legal service provided without fee or at a substantially reduced fee, which falls into one or more of the following areas: (1) Poverty L a w . . . ; (2) Civil Rights Law . . . ; (3) Public Rights Law . . . ; (4) Charitable Organization Representation . . .; (5) Administration of J u s t i c e . . . . " (pp. 30-31). 19. American Bar Association, Pro Bono Report, July 1, 1971. 20. American Bar Association, Pro Bono Report, December 1973.

49 not satisfied with the response of the traditional bar associations. The oldest and most active of these is the Chicago Council of Lawyers, founded in October 1969, which operates a lawyer referral service, evaluates the performance of judges, rates the qualifications of judicial nominees, and takes positions on local, state, and national issues. To summarize, this brief history shows us that there have been PIL-like, or externality-generating, activities in all three sectors. The earliest efforts to alter the traditional adversary model were undertaken by the private sector. While these efforts were not strictly PIL-like, in the sense that they did not for the most part generate externalities, they made lawyers start thinking in terms of alternatives to the traditional system. Gradually, the private sector was overtaken by the public and voluntary sectors. The private sector has recently increased its public interest efforts, but the most prominent organizations engaged in legal work with a public interest component today are the voluntary sector PIL firms - including the NAACP, Nader's organizations, and the independent, largely foundation-funded, firms - and the public sector's Legal Services Corporation. We are concentrating, in this book, on the voluntary sector, but it is important to recognize the close substitutes as well. This history has given us a picture of the close substitutes and a sense of their contribution to the development of PIL. We turn now to an examination of data relating to the size of the PIL sector and the scope of its close substitutes.

A Description of the PIL Industry In this section we will attempt to describe the PIL industry, its size, its use of inputs, its outputs, its financing, and the way it obtains its clients. We cannot offer a complete description of the industry because we do not have all the necessary data. The industry is comparatively young and in a state of flux, so that even the number of firms in the industry is not known with great certainty. However, we do have enough data to present some estimates of the industry's size, composition, and operation which we are confident reflect at least the actual orders of magnitude involved. The core of the PIL industry consists of organizations we shall call public interest law firms. These organizations are defined by three

The Public Interest Law Industry distinguishing characteristics: (1) they are part of the voluntary sector; (2) they use primarily legal tools such as litigation; and (3) they are involved primarily in actions which, if successful in accomplishing change, have a substantial external benefits component or high public interest (PI) ratio. That is, PIL firms are those engaged to a significant degree in PIL activities. Thus, an organization which proclaims itself to be a PIL firm may or may not meet our three criteria, and only if it does do we include it as a PIL firm in the core of the industry. The industry also includes other organizations which, although not part of the voluntary sector, engage in law-oriented activities with high PI ratios. A portion of these organizations' activities is similar to PIL activities proper but is produced outside the voluntary sector, either by private, for-profit firms or by an agency in the public sector. Most closely approaching our definition of a PIL firm, but producing in the private sector, are firms which we shall call mixed firms. These are self-proclaimed public interest law firms that provide legal services to private clients for profit and use those earnings to finance legal activities of the PIL type. (Some mixed firms, it should be noted, support themselves solely on reduced fees for their public interest work.) Legal Services Backup Centers are the most prominent organizations in the public sector devoting substantial portions of their resources to PIL-like activities. We will discuss each of these in turn: the PIL firms that form the core of the industry, the mixed firms in the private sector, and the Backup Centers in the public sector. In this chapter we will offer no analyses; our purpose is only to describe the industry. The data we will use come from four sources: ( l ) t h e National Inventory of P u b l i c Interest Law, constructed from a 1975-1976 survey of public interest organizations and mixed firms by the Council for Public Interest Law, Washington, D.C.; 2 ' (2) the Handler 21., The Council for Public Interest Law has published its findings in Balancing the Scales of Justice: Financing Public Interest Law in America (Washington, D.C.: The Council for Public Interest Law, 1976). In its statistical overview of public interest law firms (Chapter II, Part A), the Council groups together the 72 organizations we term public interest law firms with the 14 Legal Services Backup Centers which we describe separately in this chapter.

50 et al. Survey of Lawyers containing responses from a random national sample of lawyers to a survey conducted by the Institute for Research on Poverty, University of Wisconsin at Madison, during late 1973 and early 1 9 7 4 ; " (3) docket sheets, submitted to this research project by organizations responding to our request, which list the organizations' activities for various years during the period 1972-1975; and (4) interviews with organizations conducted by members of this research project during late 1974 and 1975. PIL Firms: The Core of the PIL Industry One measure of the size of an industry is the number of firms classified as in the industry. There are probably fewer than 100 firms in the core of the PIL industry. The Inventory of the Council for Public Interest Law listed 72 firms in operation at the beginning of 1976. The Council's Inventory was constructed after an extensive research effort to discover organizations that might meet the Council's criteria for inclusion in the Inventory. The Council's three criteria were that an organization must have at least one salaried lawyer, must devote at least 30 percent of its effort to legal work, and must be engaged in law reform or "impact" litigation. As noted earlier, law reform work is likely to have significant external effects, or a high PI ratio, and thus an organization in the Council's Inventory is most likely a PIL firm by our definition. A somewhat less extensive research effort designed to identify existing PIL firms was carried out in connection with the present study. Unlike the Council's research, our own did not make use of surveys or specific minimal criteria for the number of lawyers or the amount of effort devoted t o legal work, but relied more on informed judgment about whether an identified organization was engaged substantially in PIL activities. Our research uncovered 4 7 PIL firms, 14 of which were not included in the Council's Inventory. Thus, together the two investigations identified 86 organizations in operation at the beginning of 1976 that appear to meet our definition of a PIL firm. (See Appendix A at the end of this chapter for a list of the 86 PIL firms.) Both investigations tried to avoid double22. Joel F. Handler, Ellen Jane Hollingsworth, and Howard Erlanger, Lawyers and the Pursuit of Justice (New York: Academic Press, 1977, forthcoming).

Introduction

and Theoretic

Analysis

counting, that is, counting as separate firms two organizations so closely linked through funding and decision-making that one is essentially a part of the other. Some organizations, though linked, seem to behave independently, with independent sources of funding and direction, and these were counted as distinct firms. Since the decision on whether a specific organization was to be counted as a PIL firm required a fair amount of estimation, different investigators might arrive at a different number of PIL firms. But in no case is it likely that as many as 100 organizations satisfy our definition of a PIL firm, and our best estimate is that, as of early 1976, there were only 86 that did. Of the 72 organizations in the Inventory of the Council for Public Interest Law, four were established prior to 1965 with all others (94 percent of the sample) established in the years after 1965. Table 4.1 shows the number of firms operating in 1975 that were established in each of the ten years 1965-1975. The peak years of entry were 1971-1973, when half of the firms in the sample were established; more than ten firms entered in each of those years. In 1975, the last year for which we have data, two firms were established. From the information we have, we are unable to estimate the number of PIL firms that had Table 4.1 Year of Establishment of 72 PIL Firms Year

Prior to 1965 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 Total

Number of Firms

Percent of Total

4

6 -

1 2 4 8 7 11 12 13 8 2

1 3 6 11 10 15 17 18 11 3

72

100

Source for Chapter 4 Tables: Unless otherwise noted, source is unpublished data from the National Inventory of Public Interest Law Programs, Council for Public Interest Law, Washington, D.C., 1976.

51 existed but were disbanded prior to 1975. There certainly were some, just as there are firms in any industry that go out of business. However, we have information only on those firms that were still operating during 1975, so that while the data in Table 4.1 show the number of PIL firms increasing over time, this is partly an artificiality inherent in the data; it may be the case that the number of PIL firms has declined in the past few years to its present total. However, it is our judgment that the total number of firms was never substantially higher than it is at present. Included among the 72 organizations in the Inventory are two bar association law firms. The two are tax-exempt, principally foundationfunded organizations which engage in PIL activities. Other bar association law firms and the lawyers' councils discussed in the previous section are engaged chiefly in service case work, work unlikely to generate significant external benefits, and so we have excluded them from the PIL industry. Another indication of the size of the PIL industry is the number of lawyers who work in

The Public Interest Law Industry the PIL firms that make up the industry's core. In 1975, the 72 PIL firms included in the Council's Inventory either employed or had vacant salaried positions for a total of 478 lawyers, an average of seven per firm. Table 4.2 shows the distribution of PIL firms by number of lawyer positions. Most firms (55 percent) had between one and four lawyer positions; the highest number for a single firm was 35. (Recall that as a precondition for inclusion in the inventory a firm had to have at least one salaried position for a lawyer.) If the additional 14 firms that we have indentified as PIL firms each employ seven lawyers, then the total number of lawyer positions in the 86 PIL firms in the industry is 576. Table 4.2 also shows the distribution of firms by the number of salaried positions for nonlawyer professionals (including administrators, researchers, writers, and lobbyists). Most firms in the sample (78 percent) employed or had a vacant salaried position for at least one nonlawyer professional. However, 22 percent had no such position and 33 percent had only one or two, so that more than half of the firms (55

Table 4.2 Distribution of PIL Firms by Number of Positions for Lawyers and Non-Lawyer Professionals Number of Lawyer Positions

Number of Respondents

Percent of Total

10 12 8 9 5 5 5 4

14 17 11 13 7 7 7 6

0 1 2 3 4 5 6 7 8 9 10 11-20 21-30 31-40 Over 40

—

—

2 8 1 3 -

Total

72

3 11 1 4 -

100 a

Number of Non-Lawyer Positions

Number of Respondents

0 1 2 3 4 5 6 7 8 9 10 11-20 21-30 31-40 Over 40

16 16 8 8 5 7 1 4

1 1

1 1

Total

72

100 a

—

—

—

5 —

Total Non-Lawyer Positions: 384

Mean:

Mean:

a

Columns do not sum to totals because of rounding errors.

22 22 11 11 7 10 1 6

—

Total Lawyer Positions: 478 7

Percent of Total

5

7 —

52

Introduction and Theoretic Analysis

percent) had salaried positions for no more than two non-lawyer professionals. The total number of such positions was 384 or somewhat over 5 per firm. Using these figures we can estimate that the 86 firms in the industry have 454 such positions. However, one organization reported having 120 positions of this type, an exceptionally high n u m b e r . " With this organization removed, the average number of positions drops below four, and the estimated total for the industry is 440. Another measure of size is provided by income data. Table 4.3 shows the distribution of firms by total income (in thousands of dollars) for fiscal years 1972-75 from data supplied by 71 of the PIL firms in the Inventory of the Council for Public Interest Law. The 1975 incomes ranged from a low of $7,010 to a high of $4,720,000. Thirty-six of the firms, or 51 percent, had fiscal year 1975 (FY 75) incomes under $200,000. For the 71 firms in the sample, the total of all FY 75 incomes was $34.3 million, for an average

of $483,000. The top eight firms (11 percent of the sample) had a combined total income of $20.6 million — 60 percent of the total income of all firms — for an average of $2.6 million per firm. The remaining 63 firms had an average income of $217,000. We lack income data for 15 of the 86 PIL firms we have identified, but if they are like the average firm in the Council's Inventory then the total income of all PIL firms in FY 75 was $41.5 million. However, if the 15 firms for which we lack income data are like the lower 89 percent of the Council's sample, the estimated total FY 75 income is $37.5 million. The income data for FY 72 through FY 74 show that the core firms in the PIL industry have changed little in those years, in terms of income. The combined total income increases 67 percent from FY 72 to FY 75, largely because the number of firms in the sample increases by 78 percent over the period. (The reader is reminded that the Council's data, from which Table 4.3 was constructed, are only from firms operating in 1975, so that total income figures for earlier

23. The American Civil Liberties Union of New York reported 120 positions for non-lawyer professionals.

Table 4.3 Distribution of PIL Firms by Total Income for Fiscal Years 1972-1975 (thousands of current dollars) Total

$9 10 25 40 55 75 100 150 200 250 300 400 500 600 700 800 900 1000

Income

and Under - 24 - 39 - 54 -74 - 99 - 149 - 199 -249 - 299 - 399 -499 - 599 - 699 -799 - 899 - 999 and Over

FY 75

Number of PIL Firms FY 74 FY 73

5 2

3 5 4 3 12

7 6 2

3 4 2 2

5 1 3 2 1 1 6

1 3 3

FY 72

1 3 2

5 5 9 4 2 4 3 1 1

4 3 6 1 4 3 1 2

1 3

1 1

2

71

68

52

40

Total Income (thousands)

$34,278

$28,123

$25,254

$20,542

Mean Income (thousands)

$483

$414

$486

$514

Number of Firms

53 fiscal years are not intended to represent those for all PIL firms operating in those years.) Table 4.4 shows the source of income that made up the PIL firms' total incomes for FY 72 through FY 75. In each year foundation grants accounted for about 43 percent of total income, ranging from a low of just under 42 percent in FY 72 to a high of nearly 45 percent in FY 74. The second largest source was contributions and gifts, ranging from 22 percent to 26 percent of total income, and the third largest source was membership dues, ranging from 19 to 21 percent of total income. The remaining sources combined to account for about 13 percent of funds each year. Seldom is all of a PIL firm's income devoted to producing PIL activities. Very few of the firms we have been describing engage exclusively in activities that involve the use of litigationoriented instruments, and thus not all of the activities of every PIL firm satisfy our definition of public interest law activities. Table 4.5 shows the distribution of firms by their estimates of the percent of their effort (time) they devoted to activities in five categories during the past year: (1) legal work (including court litigation, negotiation, and administrative agency rule-making, adjudication, and monitoring); (2) legislative work (including lobbying, testifying, research, and drafting model legislation); (3) other research (including information dissemination); (4) internal administration (including fundraising and in-house activities); and (5) other (specified by the respondent). Only two firms indicated expending 100 percent of their effort in legal work. One other firm reported that 95 percent of its effort went to legal work; 37 firms or 51 percent of the sample indicated 60 percent or more of their effort went to legal work. Only one firm reported devoting as much as 65 percent of its effort to legislative activity, and another as much as 65 percent to informational research activity. The average firm spent 60 percent of its time on legal work, 10 percent on legislative work and 14 percent on other research. The responses in the category of "other" activity included primarily educational and other informational activities such as seminars, teaching programs, and speaking engagements. Using each firm's estimate of the percent of its effort devoted to legal work as an estimate of

The Public Interest Law Industry the percent of its income spent on legal work, we can derive an estimate of the "PIL budget" of each firm. We shall consider in a moment whether all the legal activities of these firms are public interest activities, but assuming that they are, the PIL budget can be interpreted as an estimate of the amount of money devoted to the production of PIL activities by firms in the core of the PIL industry. Table 4.6 gives the distribution of firms by total income (from Table 4.3) and by PIL budget for FY 75. While the total incomes ranged from $7,010 to $4,720,000, the PIL budgets ranged from $2,103 to $2,296,000. Where 36 firms (51 percent) had total budgets under $200,000, 37 firms (49 percent) had PIL budgets under $100,000. The average firm's PIL budget was $302,000 compared to an average total income of $483,000. The top eight firms by income (11 percent of the sample) combined to account for 62 percent of the total income of all firms, and the top eight by PIL budget accounted for 60 percent of the total PIL budget of all firms. If all of the 15 firms for which we lack budget data are like the average of the Council's sample of 71, the estimated FY 75 PIL budget for all 86 firms totals $26.0 million. If the additional 15 firms are like the lower 89 percent of the sample, the estimated total PIL budget is $23.5 million. Turning now to the output side of the core firms in the PIL industry, Table 4.7 shows the distribution of firms by the percent of their effort devoted to different "issue areas." Thirtyone percent of the firms (22) reported concentrating exclusively on one area, including 6 on "civil liberties," 5 on "environmental protection," and 4 on "media reform." (The two firms concentrating exclusively in "other" areas were concerned with "taxation" and "poverty law.") Nearly half of the firms (35, or 49 percent) concentrated 70 percent or more of their effort in a single area. Other areas of activity mentioned included "general anti-discrimination" and "government accountability." The areas in which the average firm concentrated most of its effort were "civil liberties," " environmental protection," "consumer protection," and "employment." Another aspect of PIL firms' outputs is displayed in Table 4.8, which shows the distribution of firms by their intended target group of benefi-

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Tf

vo

Tj-rocofN

VI — fíl |

l i l i

l i l i (N

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I

1 ^ 1

I

I -

I

I

I I

JB "S.

E

r-

o> >o ó Os •O Ó "O í ó

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rf —

O > 500 >$45 mil. > $29 mil.

$3 bil. NA

+ + +

51 $5 mil. $4 mil.

+

NA indicates not applicable. + indicates positive but not calculable from our data. > indicates a minimum figure.

benefits accrue to individuals who are not members or otherwise affiliated with the organizations, there is a sharp contrast between PIL and PINL organizations with respect to the sources of income financing their activities. The average PINL organization receives 95 percent of its income from dues and assessments and sales and similar receipts while the average PIL firm receives only 20 percent of its income from membership dues and 2 percent from court-awarded fees (the source for PIL firms most closely related to sales and receipts). Contributions, gifts, grants and government funds account for 76 percent of the income of the average PIL firm but only 5 percent of the income of the average PINL organization.

Summary The core of the PIL industry consists of some 86 voluntary sector PIL firms. These are nonprofit organizations engaged chiefly in PIL activities. Also included in the industry are 66 mixed private and public interest law firms that are forprofit organizations in the private sector engaged to varying but significant degrees in activities of the PIL type. Fourteen of the 24 Legal Services Backup Centers, organizations funded by the federal government, are engaged substantially in PIL-like activities and also belong in the industry. A much smaller contribution to the economy's total output of PIL and PIL-like actions is made

by the traditional private sector law firms and attorneys in solo practice through pro bono work involving law reform or impact litigation. Table 4.32 displays some summary statistics for the major producers in the PIL industry. There are a total of 166 organizations in the industry with positions for nearly 1000 lawyers and over 500 non-lawyer professionals. The total income of the industry exceeds $45 million, and the estimated total income devoted to financing PIL and PIL-like activities exceeds $29 million. As Table 4.32 also shows, voluntary sector PINL organizations dwarf the total PIL industry with over 30 times as many organizations and nearly 70 times the total income. Thus, by some measures of size PINL organizations dominate the PI industry, the non-governmental sector of the economy engaged significantly in activities that produce external benefits. Size, however, is not of necessity an indication of importance. In the chapters that follow we will attempt to assess the impact and the importance of the institutional innovation called public interest law.

APPENDIX A: PIL Firms The 72 PIL firms in the National Inventory of Public Interest Law Programs of the Council for Public Interest Law, Washington, D.C., are the following: 1. Action on Smoking and Health (Washington, D.C.)

77 2. American Civil Liberties Union (New York) 3. American Civil Liberties Union Foundation (New York) 4. Appalachian Research and Defense Fund, Inc. (Charleston, W. Va.) 5. Arizona Center for Law in the Public Interest (Phoenix) 6. Asian Law Caucus, Inc. (Oakland) 7. Beverly Hills Bar Association Law Foundation (Beverly Hills) 8. Business and Professional People for the Public Interest (Chicago) 9. California Citizen Action Group, L.A. (Los Angeles) 10. Center for Auto Safety (Washington, D.C.) 11. Center for Law and Social Policy (Washington, D.C.) 12. Center for Law in the Public Interest (Los Angeles) 13. Center for Public Representation (Madison, Wis.) 14. Citizens Communication Center (Washington, D.C.) 15. Common Cause (Washington, D.C.) 16. Concerned Citizens for Justice (Wise, Va.) 17. Connecticut Citizen Research Group (Hartford) 18. Connecticut Women's Education and Legal Fund, Inc. (New Haven) 19. Consumers Union (Washington, D.C.) 20. East Tennessee Research Corporation (Jacksonboro, Tenn.) 21. Education Law Center (Newark) 22. Employment Rights Project (New York) 23. Environmental Defense Fund (New York) 24. Equal Rights Advocates (San Francisco) 25. Food Research and Action Center (New York) 26. The Greater Upstate Law Project (Rochester, N.Y.) 27. I n d i a n a Center on Law and Poverty (Indianapolis) 28. Institute for Public Interest Representation (Washington, D.C.) 29. Kentucky Student Public Interest Research Group (Louisville) 30. Lambda Legal Defense and Education Fund, Inc. (New York) 31. Lawyer's Committee for Civil Rights under the Law (Washington, D.C.) 32. Lawyer's Committee for Civil Rights under the Law of the Boston Bar Association (Boston) 33. League of Women Voters Education Fund, Litigation Dept. (Washington, D.C.)

The Public Interest Law Industry 34. Legal Action Center of the City of New York (New York) 35. Legal Research and Services for the Elderly, National Council of Senior Citizens (Washington, D.C.) 36. Louisiana Center for the Public Interest (New Orleans) 37. Maryland Public Interest Research Group (College Park) 38. Massachusetts Advocacy Center (Boston) 39. Massachusetts Center for Public Interest Law (Boston) 40. Media Access Project (Washington, D.C.) 41. Mental Health Law Project (Washington, D.C.) 42. Mental Patient Civil Liberties Project (Philadelphia) 43. Mexican American Legal Defense and Education Fund (San Francisco) 44. Michigan Legal Services (Detroit) 45. NAACP Legal Defense and Education Fund, Inc. (New York) 46. National Committee Against Discrimination in Housing, Inc. (Washington, D.C.) 47. The National Conference of Black Lawyers (New York) 48. National Military Discharge Review Project (Washington, D.C.) 49. National Organization for the Reform of Marijuana Laws (Washington, D.C.) 50. National Public Interest Research Group (Washington, D.C.) 51. National Wildlife Federation, Resources Defense Division (Washington, D.C.) 52. Native American Rights Fund (Boulder, Colo.) 53. Natural Resources Defense Council, Inc. (New York) 54. Northwest Environmental Defense Center (Seattle) 55. Northwest Labor and Employment Law Office (Portland) 56. Ohio State Legal Services Association (Columbus) 57. 1000 Friends of Oregon (Portland) 58. Pacific Legal Foundation (Sacramento) 59. Prisoners' Rights Project (Boston) 60. Public Advocates (San Francisco) 61. Public Citizen Litigation Group (Washington, D.C.) 62. Public Communications, Inc. (Los Angeles) 63. Public Interest Law Center of Philadelphia (Philadelphia) 64. Puerto Rican Legal Defense and Educational Fund, Inc. (New York)

78 65. Sierra Club Legal Defense Fund (San Francisco) 66. Southern Poverty Law Center, Inc. (Montgomery, Ala.) 67. Tax Analysts and Advocates (Washington, D.C.) 68. The UCLA Communications Law Program (Los Angeles) 69. Washington Research Project/Children's Defense Fund (Washington, D.C.) 70. Women's Law Fund, Inc. (Cleveland) 71. Women's Law Project (Philadelphia) 72. Women's Legal Defense Fund (Washington, D.C.)

Other PIL Finns 73. Center for Constitutional Rights (New York) 74. Center for National Policy Review (Washington, D.C.) 75. Citizens Advocate Center (Washington, D.C.) 76. Community Law Office (New York) 77. Environmental Law Institute (Washington, D.C.) 78. Foundation for the New Business Ethic (Chicago) 79. Institute for Indian Law (Washington, D.C.) 80. Izaack Walton League (Washington, D.C.) 81. Law Students Civil Rights Research Council (New York) 82. Public Interest Law Center (Berkeley) 83. Public Law Education Institute (Washington, D.C.) 84. San Francisco Lawyers Committee for Urban Affairs/Housing (San Francisco) 85. Suburban Action Institute (New York) 86. United Church of Christ - Office of Communication (New York)

APPENDIX B: Mixed Firms The 55 mixed firms in the National Inventory of Public Interest Law Practice of the Council for Public Interest Law, Washington, D.C., are the following: 1. Bader, Dorsey and Kreshtool (Wilmington, Del.) 2. Baumgart and Ben-Asher (East Orange, N.J.) 3. Arthur A. Benson, III (Kansas City, Mo.) 4. Berle, Butzel and Kass (New York) 5. Blank, Goodman, Rone and Stanley (New York) 6. Boasberg, Hewes, Klores and Kass (Washington, D.C.)

Introduction and Theoretic Analysis 7. Bourhis, Bourhis and Reedy (Los Gatos, Calif.) 8. Chambers, Stein, Ferguson and Bector (Charlotte, N.C.) 9. Clenenden and Lesser (New Haven) 10. Cohen and Noterman (Washington, D.C.) 11. Cohen and Vitt (Alexandria, Va.) 12. Coppelman and Hiestard (Oakland) 13. Crawford, Blacksher and Kennedy (Mobile, Ala.) 14. C r o s l a n d , Myer, Rindskopf and Terry (Atlanta) 15. William M. Dawson, Jr. (Birmingham, Ala.) 16. Dayton, Herman and Graham (Minneapolis) 17. Dobrovir, Oakes, Gebhardt and Scull (Washington, D.C.) 18. Drake and Knowles (Tuscaloosa, Ala.) 19. Epstein, McClain and Derfner (Charleston, S.C.) 20. Robert B. Fitzpatrick (Washington, D.C.) 21. Kristin Booth Glen (New York) 22. Goetz and Madden (Bozeman, Montana) 23. Goldfarb and Singer (Washington, D.C.) 24. Green and Lackey (Toledo, Ohio) 25. Hilliard, Jackson, Barnes, Cook, Mixon and Little (Birmingham, Ala.) 26. Hornsby, Blankenship, Higgs and Smith (Huntsville, Ala.) 27. Robert J. Kafin (Glens Falls, N.Y.) 28. Lebamoff, VerWiebe and Snow (Fort Wayne, Ind.) 29. Lobel, Novins and Lamont (Washington, D.C.) 30. Howard A. Mandell (Montgomery, Ala.) 31. Merten and Saltveit (Portland, Ore.) 32. Philip W. Moore (Easton, Md.) 33. Moore, Berson and Lifflander (New York) 34. Morrow and Mainland (Seattle) 35. Nelkin and Nelkin (Houston) 36. Herbert B. Newberg (Philadelphia) 37. Olson, Dettmer and Bowerman (Traverse City, Mich.) 38. Marilyn Patel (San Francisco) 39. Lorine M. Reid (Dayton, Ohio) 40. Roisman, Kessler and Cashdan (Washington, D.C.) 41. Henry Rosenblum (Houston) 42. Sargent and Lippes (Buffalo) 43. Schwartz, Fisher, Spater, McNamara and Marshall (Columbus, Ohio) 44. Richard T. Seymour (Washington, D.C.) 45. Sheppard, Fletcher, Hand and Adams (Jacksonville, Fla.) 46. Silverglate, Shapiro and Gertner (Boston) 47. Lawrence Speiser (Washington, D.C.)

79 48. 49. 50. 51. 52.

Kent Spriggs (Tallahassee, Fla.) Susnoff, Cooper and Whitney (New Haven) Swankin and Turner (Washington, D.C.) Bruce J. Terris (Washington, D.C.) Weld, Freeland and Chelmers (San Francisco) 53. Wiggins and Strawbridge (Birmingham, Ala.) 54. Ronald J. Wilson (Washington, D.C.) 55. Youngdahl, Larrison and Agee (Little Rock)

Other Mixed Firms 56. 57. 58. 59. 60. 61. 62. 63. 64.

Cohen and Rosenblum (Washington, D.C.) Dowdey and Urbina (Washington, D.C.) Duncan, Brown (Washington, D.C.) Forer and Rein (Washington, D.C.) Goldhammer and Kaufman (Los Angeles) Philip Hirschkop (Washington, D.C.) Kafin and Needleman (Glens Falls, N.Y.) Lefwurt, Brennan (New York) M a r m a d u k e , Aschenbrenner (Portland, Oregon) 65. Rawh and Silard (Washington, D.C.) 66. Wilson and Furr (Washington, D.C.)

APPENDIX C: Legal Services Backup Centers The 14 Legal Services Backup Centers in the National Inventory of Public Interest Law

The Public Interest Law Industry Programs of the Council for Public Interest Law are the following: 1. Center for Law and Education (Cambridge, Mass.) 2. Center on Social Welfare Policy and Law (New York) 3. Legal Action Support Project of the Bureau of Social Services Research (Washington, D.C.) 4. Legal Services for the Elderly Poor (New York) 5. Migrant Legal Action Program, Inc. (Washington, D.C.) 6. National Consumer Law Center (Boston) 7. National Employment Law Project, Inc. (New York) 8. National Health Law Program (Los Angeles) 9. National Housing and Economic Development Law Project — Housing Law Division (Berkeley) 10. National Juvenile Law Center (St. Louis) 11. National Senior Citizens Law Center (Los Angeles) 12. Voluntary Defenders Committee, Inc. (Boston) 13. Western Center on Law and Poverty, Inc. (Los Angeles) 14. Youth Law Center (San Francisco)

Chapter Five

The Public Interest Law Firm: A Behavioral Analysis Neil K. Komesar and Burton A.

In this chapter we develop a framework for answering two questions: what behavior might be expected from firms of the PIL type, and how does that behavior compare with the ideal set out in Chapters Two and Three? By "behavior" we mean the selection of cases, strategies, tactics and the types of "tools" used (such as litigation, lobbying, and dissemination of information). We hope to shed some light on the probable behavior of PIL groups by comparing their structure and participants with those found in two other groups: the private law sector and the non-law public interest sector. In particular, we will investigate in the first section what objectives we might ascribe to the PIL firm. That discussion will analyze the firm primarily as an aggregation of its major input — lawyers. A study of factors affecting lawyers' choice of PIL work versus private law work is important for determining the firms' objectives, and has been included in that section. Our second area of investigation, as presented in the second section, is the various instruments available to PIL firms, and the compatibility of each with the objectives of the firm. A comparison of PIL firms with their private sector and non-law counterparts is employed in an analysis While both co-authors were actively involved in the development of the entire chapter, Weisbrod was the principal draftsman for the tlrst section, and Komesar for the last three sections. The authors thank Susan Feigenbaum, Joen Grant, and David Schodt for assistance in the preparation of this chapter.

Weisbrod

of the "comparative advantage" to PIL firms in the use of certain instruments and techniques. Following our discussion of PIL firm objectives and instrument selection, we will conclude with an investigation, in the third section, of how we could expect the objectives and funding of PIL firms to affect their output mix (number and type of cases). It is here that a discussion of demand for PIL activity, as manifested in funding availability, is relevant. This chapter examines a series of hypotheses. Wherever possible, empirical tests have been implemented; where that has not been possible, suggestions for further avenues of investigation are proposed. Data will range from survey data to the impressions of commentators —both PIL participants and outside observers. Given the scarcity of data and, indeed, the lack of previous theoretical work in this area, this chapter must be viewed as exploratory. It must be emphasized that the thrust of the discussion in this chapter is primarily "positive" rather than "normative" — what PIL groups do, rather than what they should do. While we will occasionally explore the normative implications of some of our findings, our primary objective is an analysis of the expected behavior of the PIL sector, rather than a set of recommendations for how it should function. By investigating the factors affecting PIL behavior, we hope to lay a foundation for understanding actual PIL behavior, which is investigated in the empirical chapters (the "case studies") in Part Two of this

81 book. Moreover, we hope that this positive analysis will contribute to an understanding of the strengths and weaknesses of law-oriented instruments for correcting failures of government and of private, for-profit markets, and will thus aid in the development of public policy.

Objectives of the PIL Firm Within the private sector, it is usually assumed that the entrepreneur's behavior is consistent with an attempt to maximize profits. While the assumption may not totally comport with reality, it has proved workable; pecuniary profits have proven a viable index of less measurable objectives. However, since the PIL firm falls outside this more familiar analytical setting, it becomes important to determine whether pecuniary profits can be reliably employed as the index of behavior, or whether it requires supplementation or even replacement by other indices. Theorizing on the behavior of "non-profit" organizations is in a very early and unsettled state.' The term "non-profit" is itself unclear in this context. Moreover, the behavior of a "nonprofit" provider of collective goods, such as a PIL group, is likely to be similar in many important respects to that of a for-profit organization, such as a "private" law firm. Both are constrained by available revenue; both may be able to influence somewhat the amount of 1. See, however, Joseph P. Newhouse, "Toward a Theory of Nonprofit Institutions: An Economic Model of a Hospital," American Economic Review, LX (March 1970), pp. 64-75; Mark Pauly and Michael Redisch, "The Not-for-Profit Hospital as a Physician's Cooperative," American Economic Review, LX1I (March 1973), pp. 87-100; Burton A. Weisbrod, "Toward a Theory of the Voluntary Non-Profit Sector in a Three-Sector Economy," in Edmund S. Phelps, ed., Altruism, Morality and Economic Theory (New York: Russell Sage Foundation, 1975), pp. 171-195; Richard Layard and Richard Jackman, "University Efficiency and University Finance," in Michael Paskin, ed., Essays in Modern Economics (London: Longman, 1973); James M. Buchanan, "An Economic Theory of Clubs," Economica, XXXII (February 1965), pp. 1-14; Robert Carlson, James W. Robinson, and J. Michael Ryan, "An Optimization Model of a Non-Profit Agency," Western Economic Journal, IV, No. 1 (1971), pp. 78-86; Philip Jacobs, "A Survey of Economic Models of Hospitals," Inquiry, XI, No. 2 (1974), pp. 83-97; Maw Lin Lee, "A Conspicuous Production Theory of Hospital Behavior," Southern Economic Journal, XXXVIII (July 1971), pp. 48-59; Ferdinand K. Levy, "Economic Analysis of the Non-Profit Institution - The Case of the Private University," Public Choice, IV (Spring 1968), pp. 3-17.

The Public Interest Law Industry revenue by their own decisions; both are likely to reduce output of those activities for which production costs rise most; and both can be expected to alter the use of various resource inputs as the relative prices of those inputs change. Nonetheless, there are reasons to believe that non-profit organizations are not simply profitmaximizers in another guise. We turn now to an examination of the PIL firm and its goals. To begin with, we examine the hypothesis that PIL lawyers have different preferences than their private sector counterparts for money income (or profit) relative to various non-pecuniary returns. Subsequently, we set forth a second hypothesis, tested only weakly in this chapter but also dealt with in the Part Two case-study chapters: that a PIL firm's behavior can best be approximated by thinking of it not as a maximizer of "profit" but as a maximizer of "favorable publicity." The hypothesis does not require that publicity is of itself an end for PIL groups. As we shall see, it may often be a means to effectively aid the client group or to produce or preserve the financial support of contributors such as charitable foundations. It may also be an end, providing direct satisfaction to the PIL participant. The importance of the "publicity" hypothesis is that, if true, it can provide an index — analogous to the role of pecuniary profit in the analysis of the private sector — by which PIL behavior can be charted. Neither the preference hypothesis nor the publicity hypothesis is conclusively supported by the analysis and empirical testing presented here. However, the discussion should contribute to a better understanding of the objectives, and therefore the behavior, of PIL firms. Preferences of Private and PIL Lawyers In this subsection we attempt to determine whether lawyers in PIL and in private law work have significantly different preferences. Specifically, we will examine the current salaries and expected future earnings of the two groups of lawyers. The hypothesis being tested is that PIL lawyers have a lower preference for money income relative to the desire to do "public interest" work involving representation of underrepresented collective interests and of the poor. Thus, lawyers doing PIL work are expected to have lower money incomes, other things being equal. Table 5.1, column 2, shows the mean full-time

82 earnings of lawyers with private law firms, with foundation-supported PIL firms, and with federal government legal services; data are from a national sample of lawyers. Although the sample size is limited, PIL lawyers are found to have earnings that are only 59 percent as high as the earnings of lawyers with private law firms — $21,550 compared with $36,320. (We will comment below on the meaning of the salaries of OEO legal services lawyers.) Such a raw comparison of average earnings can be misleading, however, if there is selectivity in the composition of lawyers in the three types of work. If the professional quality of lawyers, their age and experience, or other characteristics that effect their productivity and hence their earnings varied systematically among the three legal sectors, then differences in average earnings might simply reflect productivity differences. What we wish to know is whether earnings in the three sectors are different when these productivity characteristics are held constant. If earnings differentials remain after the productivity potential of lawyers is taken into account, then those remaining differentials can be attributed to differences in the nature of the work in the sectors — that is, to differences associated with "institutional form." Therefore, we have "controlled" for differences in experience and a number of other quality-related characteristics of lawyers in the various types of law practice, to determine whether PIL lawyers are still found to receive lower money earnings. (The characteristics controlled for in the linear multiple regression are listed in Table 5.2.) Our findings are presented in Table 5.1, column 3, which shows what average earnings would be in each sector if the lawyers in that sector received the same annual earnings as private lawyers who had the same earnings potential — that is, who had the same distribution of age and other productivityaffecting characteristics. We find (column 4) that PIL lawyers would receive $8,840 more earnings per year than they actually do receive - 41 percent more — if they were paid at the same rate as private lawyers who had the same characteristics (and legal services lawyers would receive 129 percent more). 1 2. It might be noted that the data in column 3 of Table S.l indicate that the average PIL (and legal services) lawyer has a lower earnings potential (productiv-

Introduction and Theoretic Analysis It should be noted that nothing in our methodology in any way guaranteed that the predicted earnings of PIL lawyers (Table 5.1 column 3) would exceed actual earnings (column 2); actual earnings could have been greater. Our finding, which is, however, the one we expected, indicates that PIL lawyers (as well as legal services lawyers) are paid less than they would have been paid had they, with their given productivity characteristics, worked for a private law firm. ity) than does the average private lawyer. As Table 5.2 shows, PIL lawyers are typically less-experienced and disproportionately women. On the other hand, PIL lawyers ranked higher in their law classes and went to " b e t t e r " law schools - factors tending to be associated with higher earnings potential. The regression equation, as estimated, for earnings of lawyers in private law firms is: SEarnings = $8,556 + $4,741 (QUARTILE 1) (.35) (.13) + $1,818 (QUARTILE 3) (.60) + $4,673 (QUARTILE 4) (.53) - $1,253 LAW R - $1,519 CLERK (.68) (.68) + $348 LSQUALITY + 828 EXP (.64) (.00) + $15,543 SEX (07) R* = .13; F g

361

= 6.67 (significant at .00 level).

Significance levels are in parentheses. Where: QUARTILES are dummy variables that refer to rank in law school graduation class (QUARTILE 2 is the omitted class), LAW R is a dummy variable for whether the individual worked on a law review (1 if yes), CLERK is a dummy variable for whether the individual had law clerk experience (1 if yes), LSQUALITY is a dummy variable for law school quality, ranging from 1, highest quality, to 6, lowest quality, EXP (experience) is the number of years since receiving the law degree, and SEX is a dummy variable (1 if male). Note: Only experience and sex are statistically significant, and being in the top quarter of the law school class is the only other variable that comes even close to being significant by customary standards. The regression estimates for QUARTILES 3 and 4, while insignificant, are surprising; they indicate a greater rate of pay for lawyers in these quartiles than in QUARTILE 2 (the omitted class) and the coefficient for QUARTILE 4 is virtually the same as for QUARTILE 1. The positive sign on LS QUALITY, suggesting that graduation from a higher quality (lower number) law school is associated with lower income, is also surprising, although the coefficient is not significant.

83

The Public Interest Law Industry

Table 5.1 Earnings of Lawyers by Type of Practice, 1973

Type of Practice

Number of Lawyers Sampled

Private law firmb PIL firm OEO legal services

370 45 102

Mean Annual Earnings

$36,320 21,550 14,310

Predicted Mean Annual Earningsa

Predicted Minus Actual Earningsa

$36,320 30,390 32,720

-

$ 8,840(41%) 18,410(129%)

a "Predicted" in the sense that these are the earnings that would be received if the lawyers in each type of practice were paid at the same rate as private law firm lawyers with the same characteristics. See Table S.2 for a list of the characteristics. Earnings data are adjusted to account for non-paying pro-bono work. Thus, the numbers in row 1, columns 2 and 3, are estimated full-time earnings of lawyers doing no pro-bono work. A private lawyer whose actual earnings were, say $30,000, and who devoted 10 percent of his "billable hours" to pro-bono work was assigned earnings of $30,000/l-.10, or $33,000.

Source: All tables in Chapter Five are based on data from the lawyer survey directed by Joel F. Handler. A more complete description and analysis of the data may be found in Joel F. Handler, Ellen Jane Hollingsworth, and Howard Erlanger, Lawyers and the Pursuit of Justice (New York: Academic Press, 1977, forthcoming).

Table 5.2 Means and Standard Deviations of Characteristics of Lawyers, by Type of Practice, 1973

Characteristic

Sex (% male) Class Rank in Law School % in 1st Quartile % in 3rd Quartile % in 4th Quartile Law Review (% members) Law Clerk (% participants) Years Since Law Degree Granted Law School Qualityc

Private Law (N = 370)

OEO Legal Services (N = 102)

PIL Firm (N = 45)

Mean (1) 98.1

S.D. (2) 13.6

Mean (3) 84.4 a

S.D. (4) 36.6

Mean (5) 95.1

S.D. (6) 21.7

51.9 18.6 2.7 25.9 10.8

50.0 39.0 16.2 43.9 31.1

68.9 15.6 2.2 33.3 24.4 a

46.8 36.6 14.9 47.7 43.5

33.3 b 21.6 6.9 8.8 b 7.8

47.4 41.3 25.4 28.5 27.0

10.9 3.1

9.6 1.6

6.4 a 1.5"

5.8 1.0

7.6 b 2.9

9.5 1.4

^Difference between means in columns 1 and 3 is significant at 0.01 level or better. Difference between means in columns 1 and 5 is significant at 0.01 level or better. Quality is measured with a subjective index developed for the Lawyers Survey. A group of legal experts were asked to rate law schools in six classes (not necessarily of equal size), ranging from 1 (highest) to 6 (lowest). c

NOTE: Except for 1st Quartile Private vs. PIL and 4th Quartile Private vs. OEO, differences between means that are not noted as a or b in columns 3 and 5 are not significant at even the 0.10 level. S.D.s are population, not sample, estimates.

Table 5.2 shows that lawyers who work for PIL organizations are indeed significantly different from their private-lawyer counterparts in a number of dimensions. PIL lawyers are more likely to be female, to have been in the top quarter of their law-school graduating class, to have participated in the Law Review, to have

served as a law clerk, and to have graduated from a high quality law school. PIL lawyers are also younger and less experienced. Not shown in the table is the finding that PIL lawyers regard themselves overwhelmingly as "liberal, or left liberal"; 87 percent of the PIL lawyers so described themselves, as compared with only 36 percent of

84 private lawyers (a difference that is statistically significant at the .01 level). If we assume that lawyers are reasonably wellinformed about their job market opportunities (so that the observed earnings patterns reflect equilibrium conditions), then the 41 percent earnings " c u t " that PIL lawyers are taking must reflect the value that these lawyers attach to the opportunity to work for a PIL firm - either because of the greater non-pecuniary returns, or because of the greater human-capital investment opportunities afforded by PIL work. Non-pecuniary returns represent those benefits a lawyer may derive directly and indirectly from PIL activity, such as the satisfaction of "doing good," the opportunity for a certain type of life style, or the chance to associate with various celebrities. The human-capital investment component is that portion of present income which a lawyer willingly foregoes because he expects to gain something from PIL activity which would enable him to recoup or exceed the present income sacrifice at some point in the future. For example, if it were true that some experience in PIL would enable a lawyer to enter a private law firm at a salary level which would exceed that of a lawyer whose only experience had been with a private firm, then PIL work would be form of investment - the PIL lawyer would suffer a temporary cut in earnings which would be made up later. Our estimate of a 41 percent earnings sacrifice may be compared with PIL lawyers' own judgments. The Lawyer Survey asked the following question: "By what percent would your income be higher (or lower) if you had never participated in PIL activity?" The 63 lawyers questioned who are, or have been, in PIL work gave a median response of 29 percent and a mean of 43 percent. 3 PIL lawyers know that they are giving up current money income to be in PIL work. 3. The responses were: Better off, 3; Worse off, 4 2 ; No different, 18. For the question "How much better o f f ? " the distribution of the three respondents was: (1) 16-20% better

6-10% 11-15% 16-20% 21-25%

1 6 7 4

2.44% 14.63% 17.07% 9.76%

26-30% 31-35% 36-40% 46-50%

4 2 1 6

Introduction

and Theoretic

Analysis

If the lower money income of PIL lawyers simply reflects their superior opportunity for experience, however, which will lead to increased money income in the future, then our finding in Table 5.1 would indicate investment in human captital. It would not support the hypothesis that PIL lawyers, compared to private lawyers, have preference functions that attach greater importance to the non-pecuniary returns associated with public interest activities than t o money income. The history of PIL firms has been too brief to provide much evidence as to the effect of PIL experience on the lifetime career earnings patterns of lawyers. What we wish to know is whether the "crossover" pattern of lifetime earnings is of the form displayed in Figure 5.1 (curve PIL-2) in which lawyers who start out in PIL work and initially obtain lower earnings, subsequently "overtake" (at Age A 0 ) lawyers who start out with a private law firm. Whether the overtaking occurs within the PIL sector or only when the PIL lawyers leave for some other type of work is not important for testing the investment hypothesis; what is important is whether the overtaking occurs, — whether the initially lower earnings of PIL lawyers remain lower, or at least no higher, than those of the private lawyers, as the PIL-1 curve portrays. Data on a small sample of PIL lawyers who have left PIL work suggest that the PIL-1 curve is more likely than the PIL-2 curve to prevail that PIL experience does not generally lead to enhanced future money earnings, at least not outside the PIL sector. Table 5.3 shows that of 37 lawyers in the Lawyer Survey who left PIL work between 1970 and 1973, the bulk, 70 percent, went into teaching, governmental, or legal rights employment where earnings are generally lower than in private sector legal work. Another source of information about the expected career and earnings pattern of PIL lawyers off; (2) 46-50% better off; and (3) Don't know. For the question "How much worse o f f ? " the distribution of the 42 respondents was:

9.76% 4.88% 2.44% 14.63%

61-65% 76-80% 96-100% 300% or more (Not ascertained

1 1 7 1 1)

2.44% 2.44% 17.07% 2.44%

100.00%

85 is the employment patterns of lawyers who began in OEO legal services. The non-pecuniary returns associated with OEO work bear similarities to those obtainable with PIL work. Table 5.1 showed that legal services lawyers received earnings that were less than half of what they could have expected in private law work; Table 5.4 indicated, however, that a larger percentage of those who have left for other employment have gone into private law firms (52%) than was the case for PIL lawyers.4 Another piece of evidence relevant to the question whether PIL work is an investment in future earnings is presented in Table 5.5. It involves the stated earnings expectations of lawyers in PIL vis a vis private law firm work. Lawyers were asked, "Looking at the rest of your career, what do you expect the financial effects of your PIL experience to be?" Of the respondents, 45 percent stated that they felt they would be worse off financially, while only 24 percent expected to be better off. The median response was expecting to be 28 percent worse off; the mean expectation was to be 21 percent worse off. Apparently PIL lawyers expect to continue to earn less than they could earn if they turned to private law work; that is, the PIL-1 pattern (Figure 5.1) rather than the PIL-2 pattern appears to be anticipated. Thus, while the evidence is limited, it does support the position that PIL work is not a stepping-stone to higher monetary earnings. We are left, therefore, with the interpretation that lawyers who go into PIL work are not there to invest in their human capital, with the expectation of increased future money earnings. Rather, they appear to be engaged in PIL work because of the non-pecuniary attractions, including the preference for doing "public interest" work. When the PIL lawyers who say that their incomes have suffered were asked "was it worth it?" 97 percent answered yes. If PIL lawyers have different preference functions than their private sector counterparts particularly regarding trade-offs (or rates of substitution) between money earnings and other 4. For detailed analysis of the career patterns of legal services lawyers, see Howard Erlanger, "The Effect of Social Reform Organizations on the Subsequent Careers of Participants: A Follow-Up Study of Early Participants in the OEO Legal Services Program," University of Wisconsin, Madison, Institute for Research on Poverty Discussion Paper No. 345-76.

The Public Interest Law Industry characteristics of the work, such as the manner in which the firm is run, the types of cases it handles, and how it handles them - then it would seem that PIL firms' behavior should not be predicted or explained on the basis of a profitmaximization model such as might be used for a private law firm. If studies of workers and managers in other non-law occupations were made and also disclosed lower earnings for persons in non-profit firms, other relevant variables being held constant this would indicate an important difference in the basic nature of such organizations, and would contribute to our ability to understand, and eventually to construct predictive models of, the behavior of nonprofit organizations. We turn now to further examination of the types of legal experience obtained by a PIL lawyer. There are reasons to believe, even without the data presented above, that PIL experience is not more valuable than private sector experience for lawyers who plan to go eventually into private law firm practice, and that, therefore, the lower earnings of PIL lawyers do not reflect investment in human capital. First, the typical big private law firm tends to place a premium on promotion from within its ranks. This preference may reflect the difficulties of determining the quality of any lawyer's work, and the trial period (5 to 10 years) before partnership may serve this function for the firm. These years may also be important if subtle experience involving personal interactions is obtainable only within the firm itself. Private sector firms may also be suspicious of the ideological views or life styles of PIL lawyers. They may fear a greater probability of dissension within the law firm about policy toward client selction, pro bono matters, and so on. In addition, while young private sector lawyers may have less exposure to responsibility and to many lawyers' tools than do their PIL counterparts, they are likely to receive more supervision of their work, and this may be important in the development of a private-sector lawyer. The reasons do not all point,however, to lower relative value for PIL experience in future private employment. Large private firms have been known to violate their "advancement from within" approach where an unexpected change in the law or an unexpected client demand requires experience beyond that present in the

86

Introduction

and Theoretic

Analysis

PIL-2 Private Law Firm —

PIL-1

Age Figure 5.1 H y p o t h e t i c a l Earning Patterns o f L a w y e r s Who Start O u t in PIL and in Private Law Firm Work

Table 5.3 Type of Job Obtained by Lawyers Leaving PIL Work, Between 1970 and 1973 Type of Work Obtained

Percent

Teaching and Government Legal Rights Private Practice Non-Law Retired

43 27 19 8 3

N = 37

100

Table 5.4 Type of Work Obtained by Lawyers Leaving OEO Work, Between 1967 and 1973 Type of Work Obtained

University Position Activist Government Agency Legal Rights Organization Counsel for Business Private Practice Non-Law Other Salaried Positions Retired

Percent"

5 7 5 3 52 7 15 7

N = 207 a Does not total to 100 percent due to rounding.

staff of the firm. These firms have often hired experienced attorneys from the public sector — in particular from the SEC, IRS, or Antitrust Division of the Justice Department. It is possible that firms may face the need for attorneys experienced in equal opportunity, consumer, or environmental litigation. Thus far the analysis has been cast solely in terms of future employment opportunities in the private sector. With regard to maximizing pecuniary returns, the private sector is the obvious first choice. PIL participation can also be analyzed, however, as an investment in human capital which is expected to produce nonpecuniary returns in the form of enhanced future employment opportunities in the public sector or in legal-teaching positions. In connection with the experience value of present PIL participation for future non-private sector alternatives, there are several factors which may put the PIL participant in a better position relative to his counterpart who is gaining experience in the private sector. The lawyer with PIL experience would seem to have an advantage in seeking employment in the public sector. The advantage stems from the possibility of greater individual responsibility within the PIL firm. This greater responsibility implies greater potential for public exposure and publicity, and for direct contact with the employees of government agencies, than his private sector counterpart has. He should be party to more information about job opportunities in government and be better

87 Table 5.5 Expectations of Future Earnings, PIL Lawyers, 1973 Responses"

Better off Worse off No difference Don't know

Percentage

24 45 19 12

N = 63 a

Responses are to the question, "Looking at the rest of your career, what do you expect the financial effects to be — that you will be better or worse off?"

Table 5.6 Case Selection Percentage of Lawyers Indicating That the Factor Is One of the Three Most Important Factors A ffecting Case Selection

Private (N = 510)

PIL (N = 50)

Novel questions of law and legal precedent Subject matter Chance of success Altruistic motives Ability of client to pay Expected duration of litigation Jurisdiction of the case

46 a

86

70" 48 b 16 50" 10

90 60 20 4 14

18a

6

a

Difference between percentages in columns 1 and 2 is significant at the .03 level or better. Difference between percentages in columns 1 and 2 is significant at the .10 level.

known to governmental agencies when employment opportunities appear. The relative opportunities of private sector and PIL sector participants in legal teaching is more difficult to assess. PIL sector activity is a relatively recent phenomenon — as is PIL participant interest in law teaching. Thus, the average law teacher is far more likely to come from private practice, but the recent additions increasingly come with PIL experience. Many have both backgrounds. When one considers pro bono or part time PIL activity, the recent additions to law faculties are likely to have more PIL experi-

The Public Interest Law Industry ence than the bar as a whole, especially holding age constant. In summary, PIL participation would appear to contribute to future public sector and academic law employment relative to private sector law work, while the PIL route is likely to be inferior to private sector participation as a means to long-term private sector opportunities. But since governmental and teaching positions pay less in money form, PIL experience is, in general, less of an investment in human capital — measured in pecuniary-income terms — than is private law firm experience. Given the moneyincome discrepancy between private and PIL lawyers, it follows that PIL participants are less motivated toward money-income maximization, even in a long-run, lifetime career sense, than are their private sector counterparts. This conclusion is supported by the financial expectation of the PIL lawyers themselves, as mentioned above; they expect to be worse off financially in the future because of their current PIL activities. As we have seen, a variety of evidence indicates that PIL lawyers' lower earning? reflect not a greater investment component in PIL experience, but a greater willingness to forego money income in order to obtain the kinds of satisfactions associated with PIL activities. One form of such satisfaction is the opportunity to engage in what those particular lawyers regard as beneficial, relevant work on behalf of attractive groups of poor persons or under-organized interests. A lawyer with a great personal interest in the environment, for example, might reap considerable satisfaction from representing an environmental interest. In addition to such preferences, lawyers engaging in PIL work may be attracted to other aspects of the total job experience. One writer has noted that PIL work provides "different external rewards — publicity, hobnobbing with Congressmen, meeting celebrities. [And a member] of the Law Commune observed that with finanical success removed as a measure of achievement, status came from handling 'sexy' cases with large attendant publicity." 8 Notoriety, publicity, exposure to important personages, and even political power are not S. Comment, ' T h e New Public Interest Lawyers," Yale Law Journal, LXXIX, No. 6 (1970), pp. 11401141 (paraphrasing Edgar Cahn).

88 available exclusively within the domain of the PIL sector; many private lawyers have garnered these non-pecuniary returns along with their higher salaries. However, there does appear to be a major difference in the timing of these returns in the private relative to the PIL sector. The PIL sector participant can expect to receive these returns considerably earlier in his career. In the private law sector these opportunities generally go to the older more experienced lawyer after a substantial apprenticeship in silence. Another form of non-pecuniary returns from PIL activity is associated with the life style. In particular, in the PIL sector there is considerably more independence in the selection of cases and associates than there is in the private sector (or in the public sector). The firms that specialize or concentrate on PIL activities tend to be much smaller, and the process of decision-making in PIL firms tends to be more democratic (or anarchistic) than in the private sector. Data from the Lawyer Survey of 370 private lawyers and 45 PIL lawyers show that the average lawyer working with a private law firm has 18 colleagues, compared with 10 for the average PIL lawyer (a difference that is significant at the .06 level).6 Publicity Maximization vs. Profit Maximization — An Hypothesis If non-profit organizations, such as PIL firms, do attract people (lawyers, in this case) whose preferences place a lower relative value on money than do the preferences of people attracted to for-profit organizations, how can the objectives of the non-profit organizations be characterized? The suggestion considered here is that they can be viewed as if they were maximizers of (good) publicity. Publicity can be important to the PIL participant in several ways. First, it may directly aid in promoting the client's cause by exposing alleged governmental failures to the public. Second, it may enhance the lawyer's reputation and thereby facilitate effective negotiation with governmental officials who can aid his clients. Third, it may increase the possiblities for "hobnobbing with Congressmen" and "meeting cele6. Moreover, the standard deviations around the mean indicate that the private Arms are more likely to be the largest firms. The standard deviation for private law firms is 33 lawyers, compared to 8 for PIL Arms.

Introduction and Theoretic Analysis brities" and the associated personal benefits. Similarly, personal fame and notoriety are direct outputs of the publicity. Fourth, the publicity may tend to increase the lawyer's employment alternatives in government, teaching, or even in a private law firm. Fifth, funding, which provides the necessary material inputs into PIL activity along with whatever pecuniary returns the PIL participant receives, is likely to flow to the PIL firms which best demonstrate success in solving social problems. Given the paucity of alternative indicators of "success," publicity is likely to be considered an important index of such success by funding sources. It is important to avoid misconception about the meaning of "publicity maximization." It is not our thesis that PIL participants singlemindedly pursue publicity as an end in itself. Many, perhaps all, PIL participants place heavy emphasis on the solution of societal problems. However, both as a long-term strategy to achieve these goals and as a short-term strategy to keep their financial heads above water, publicity is important. If reasonably good data were available, we would expect to find that the choices that PIL firms make among alternative activities will generally turn out to be those for which the expected publicity is greatest. At the same time, publicity maximization does not describe 100 percent of the behavior of the private, non-profit sector. In the analysis of any complex socn' institution, the best possible working hypothesis can only roughly approximate reality. We expect, in short, that the type of output (activity) of a PIL firm will be influenced both by the lawyer's and the firm's publicity-related objectives (supply-side considerations) and also by any existing funding constraints (demand-side considerations). Funding constraints, however, may also create incentives for the PIL firm to pursue activities that contribute to publicity. Funding sources may well act explicitly or, more likely, implicitly, in ways that encourage the use of litigation or of other strategies that maximize the PIL organization's opportunities for gaining favorable publicity. With regard to those objectives of PIL firms and their lawyers that are achievable through publicity, the choice of "test case" or "big case" litigation would seem, as we noted above, to maximize the probability of significant publicity,

89 notoriety, and exposure to famous people — at least relative to legal research and memo drafting or even to litigation enforcement cases. In terms of the interest of the ultimate clients, it might be more beneficial to use resources to enhance implementation and enforcement of law rather than to seek new case decisions, but as our preceding analysis of objectives suggests, PIL lawyers are likely to be less attracted to such work. Another implication of a publicity maximization objective is the tendency to seek out cases in new areas of social change, since such cases might prove more dramatic and startling. Again, this may not be the ideal means for social change, since enforcement work on cases already litigated might yield more for the clients. Just as the profit motive can provide imperfect signals in the private sector, so too the publicity motive has its imperfections. Publicity is often an important input into aiding client groups and fulfilling the potential PIL role outlined in Chapter Two, but it can also lead to an overemphasis on certain techniques, such as test case litigation, relative to more mundane forms of litigation, lobbying, community organization, or information provision. To the extent that PIL firms are controlled by lawyers interested in personal returns through publicity, or are answerable to imperfectly informed foundations which measure success largely through media response, emphasis on publicity may go beyond the level necessary to maximize the interests of clients. In the balance of this chapter we will provide some additional observations concerning the expected and actual effects of publicity-maximization, as an index of the objectives of PIL firms, on PIL firms' choices among cases and strategies. No strong conclusion will be reached, but it does appear that for PIL organizations, and perhaps f o r o t h e r non-profit sector organizations, publicity-maximization is a promising basis for modeling behavior. While publicity will often contribute to profit, in which cases publicitymaximization and profit-maximization will give identical predictions, this will not always be the case. Publicity may lead to achievement of goals other than pecuniary profit. In the area-study chapters in Part Two we shall cite evidence of the influence on PIL organization behavior of various supply and demand variables that contribute to often-subtle pressures for publicity.

The Public Interest Law Industry

Instruments of Public Interest Law Activity Since the decision-makers of the PIL firm are lawyers, we would expect them, like their private sector counterparts, to utilize tools that reflect their legal training. This section investigates how one should expect the case-strategy choice of PIL firms - the manner in which they deal with particular cases - to be related to the nature of their organizations. First we discuss the tools or instruments available to the PIL firm — law-intensive (primarily litigation) or non-law intensive (lobbyingadvocacy, organization, information provision) — and their relative merits when used by attorneys. This discussion will be followed by consideration of the effect of the PIL participants' objectives on the selection of the tools or strategies used in handling cases. Traditional Legal Skills Almost by definition, the lawyer's comparative advantage is in the employment of "standard legal techniques," but there is some difficulty delimiting the category of such techniques. The popular image, only partially correct, pictures the central core of legal activity as courtroom advocacy. There the manner of argument, the presentation of fact, decorum and even dress are narrowly constrained by the rules and mores of the court and the bar. Participation by nonlawyers in courtroom activity is limited by institutional rules. In this sense, lawyers have a legally enforced monopoly on representation of others in the judicial arena. The rules of advocacy are constrained by formal rules and traditions. The technique is adversarial, with fact and argument presented in a manner assumed to be most favorable to one's client; objectivity exists only to the extent necessary to retain credibility. In short, courtroom advocacy is an arena in which lawyers, but seldom non-lawyers, feel comfortable as advocates. The lawyers' training accustoms them to think of the courts as the paramount arena for conflict resolution. Lobbying By formal rules, tradition, and training, the best representative for the underrepresented in the judicial forum is the lawyer. But the judicial framework is not the only forum and, under

90 circumstances discussed momentarily, it is not always the best one; thus, the PIL lawyer's relative ability in the legislative and administrative forums becomes important. This section concentrates on the relative merits of the PIL lawyer as a lobbyist. Since government administrative agencies with which many PIL efforts have been, and are likely to be, involved combine functions analogous to those found in both the judicial and legislative settings, the PIL lawyer's role in the administrative setting depends on a combination of both skills. There have been several studies of the behavior of lobbyists. Most have concentrated on the national level — the Washington lobbyist. One study involved a random sample of those Washington-based lobbyists who were registered in compliance with federal legislation. 7 A second involved a more complexly drawn sample of "corporate" lobbyists.' Another was an examination of one lobby, the U.S. Chamber of Commerce. 9 Still another constituted a series of anecdotes and newspaper comment. 1 0 The firstmentioned, while the broadest and most carefully conceived, is also the earliest, having been undertaken in the late 1950s. Because these studies are dated, we must qualify the results. However, they do provide some idea of the functions and attributes of the professional lobbyist. Such a portrayal is important in assessing the lobbying potential of PIL firms. Of initial interest is the substantial number of lobbyists who had law degrees — approximately 40 percent according t o one study. About onehalf of these were practicing lawyers as well as lobbyists at the time. 1 1 Thus, legal training and the personality characteristics associated with the choice of the law as a profession do not appear to be a block to effective lobbying. Indeed, they appear to be a contributor. The studies do emphasize the fact that most lobbyists with legal background also have had 7. Lester W. Milbrath, The Washington Lobbyists (Chicago: Rand McNally, 1963). 8. Robert W. Miller and Jimmy D. Johnson, Corporate Ambassadors to Washington (Washington: American University, Center for the Study of Private Enterprise, 1970). 9. Donald R. Hall, Cooperative Lobbying - The Power of Pressure (Tuscon: University of Arizona Press, 1969). 10. James Deakin, The Lobbyists (Washington, D.C.: Public Affairs Press, 1966). 11. Milbrath, The Washington Lobbyists, p. 73.

Introduction and Theoretic

Analysis

experience in other non-legal areas prior to lobbying. Over 50 percent of the lobbyists surveyed in the Milbrath study had held a government position just prior to entering lobbying; only 8 percent had been lawyers immediately prior to lobbying. 11 The studies differed on some of the attributes or functions considered important to lobbying. The studies by both Milbrath and Johnson downplay socializing while Deakin and Hall put heavier emphasis on the importance of "wining and dining." They also differ on the importance of personal contacts, although all find them at least marginally useful. All seem to agree that a knowledge of the intricacies of governmental decision-making is important: "Another and more important item [than personal contacts] in the Washington Representative's tool kit is his ability to find the person responsible for the a c t i o n . . . . The task requires time and experience and was mentioned most often by the interviewers when queried concerning the major problems faced by new people in Washington." 13 The preceding quotation raises an element stressed by all the studies — long duration and experience on the job: The lobbyist's usefulness to his group increases the longer he represents them; his contacts increase in number and value, sources of information amplify and expand, his reputation becomes a positive force in his favor. 14 Many of the tasks of lobbyists stretch on for months, years, sometimes decades. A lobbyist needs to be long-suffering and tolerant of frustration. It is especially important that frustration not be vented in anger, which could alienate important people. 15 12. Ibid., p. 66. "There is no training in the formal schooling sense. On the other hand, many respondents believe that working in Washington in a position involving some phase of policy-making is a valuable training experience.... The recruiters of lobbyists seem to give some evidence to this general point since 57 of the 101 respondents came to lobbying directly from jobs either in the executive or legislative branch of governments. . . . Forty-five respondents had legal training. Many think it is helpful but do not believe it is nearly as important as experience in Washington. Certain characteristics of the policy process in Washington must be learned before a person can operate effectively in that setting. Knowledge of the communications network and the unofficial centers of decision-making is particularly important." 13. Miller and Johnson, Corporate Ambassadors to Washington, p. 90. 14. Hall, Cooperative Lobbying, p. 11. 15. Milbrath, The Washington Lobbyists, p. 142.

91 The second of these quotations raises still another attribute thought important for successful lobbying — patience, tolerance for frustration, and control of one's emotions. As one study noted: "The lobbyist is basically dependent on the actions of others, and as such he dare not offend. One respondent said, 'Lobbyists must be careful to hold their tempers; they dare not explode. In our outfit, we have three cardinal rules: first of all don't threaten; secondly, don't beg; and thirdly, don't assume you are 100 percent right.' " " In connection with the general theme of experience, approximately 75 percent of Milbrath's sample fell between the ages of forty and sixty." In summation, the successful lobbyist's major characteristics are general experience with the governmental process, long experience at lobbying (presumably at much the same stand), and the ability to handle frustration and delay without it affecting personal relations with the decision-makers involved. Social contacts, influence peddling, and graft (the allocation of favors), appear to be of less central importance. How well does the PIL lawyer fit this image of the successful lobbyist? As previously noted, his legal background appears as a positive attribute. However, most lawyers currently in PIL work are young, and lack experience in other than traditional law firm settings." Not all PIL lawyers, of course, are subject to this disability. Some have had experience "on the Hill" or in other legislative or executive governmental entities. More troublesome is the apparently rapid turnover of PIL personnel (particularly lawyers) and the relatively short duration of PIL lawyers' involvement with a given issue or geographical area. The need for personal contacts, for continuity, and for the knowledge of who makes decisions and how they are made all make the relative newness of the PIL sector and its employment patterns an impediment to effective lobbying. To the extent that as the PIL sector becomes better established, its employment patterns and subject matter expertise stabilize, this impediment may diminish over time. Also troublesome, although not as easily 16. Ibid., p. 141. 17. Ibid., p. 96. 18. Joel F. Handler, Ellen Jane Hollingsworth, and Howard Erlanger, Lawyers and the Pursuit of Justice, (New York: Academic Press, 1977, forthcoming), Ch. IV.

The Public Interest Law Industry defined, is the divergence between the "ideal" lobbyist's personality traits - patient, longsuffering, tolerant of frustration, amiable in the face of disappointment, and perhaps even willing to wine, dine, and profit those in positions of power — and the personality traits of PIL lawyers. The problem is raised in the following comment by one author on the lobbying abilities of OEO Legal Services lawyers: Legislation is coalition w o r k . Large majorities rather t h a n bare majorities are r e q u i r e d . . . . Success in legislative advocacy requires long m e m o r y and personal sensitivity as m u c h as intellectual acuity and rhetorical power. . . . It requires a c k n o w l e d g e m e n t of t h e present legitimacy of the s t a t u s q u o r a t h e r t h a n a t t a c k s on its integrity. It is simply n o t a j o b f o r latter-day Darrows; an act of f a n t a s y is required to see t h e idealized Legal Service Program lawyer - y o u n g , principled, intrepid and in a h u r r y — teasing a complicated s t a t u t o r y package t h r o u g h t h e legislative c o n v o l u t i o n s . "

There is reason to believe that emotional detachment and willingness to compromise are not fortes of PIL lawyers. According to one PIL lawyer, "We react very personally and sometimes overreact to situations. That's our hang-up, we do sympathize very much with our c l i e n t . . . and feel very much a part of i t . " 1 0 And in the words of another PIL lawyer, "We have to have a very easily triggered sense of outrage and the ability to translate outrage into legal t h e o r y . " " Such depth of personal involvement, however attractive on other grounds, may not be conducive to the more amoral world of compromise and detachment required for effective lobbying. On the whole, the type of lawyer currently attracted to the PIL sector does not seem to be oriented toward successfully lobbying or negotiating for social change. It is important to emphasize that these fragmented impressions and partial analyses do not add up to confident conclusion, nor do they characterize every PIL lawyer. Some PIL lawyers have apparently been successful at lobbying. " 19. Geoffrey C. Hazard, Jr., "Law Reforming in the Anti-Poverty Effort," University of Chicago Law Review XXXVII, No. 1 (1970), pp. 251-252. 20. F. Raymond Marks, with Kirk Leswing, and Barbara A. Fortinsky, The Lawyer, The Public and Professional Responsibility (Chicago: American Bar Foundation, 1972), p. 183. 21. Ibid. 22. The Washington, D.C., firm of Berlin, Roisman and Kessler has apparently been successful in the U.S.

92 Others presumably have been constrained by legal restrictions discussed below. In addition, there are some "lawyer-specific" skills involved in lobbying, such as legal research and legislative drafting. It is the negotiation, the compromise, and the personal interplay, however, which might better fall to a lobbyist w h o is not a PIL lawyer. 23 Turning from legislative lobbying to dealing with administrative agencies, we find such agencies to be forums having characteristics that range somewhere between those of the courts and the legislature. Like the courts, agencies usually have formal proceedings with procedures that may be as technical and restricting, and, hence, as demanding o f legal skills, as those of a court. On the other hand, the administrative process involves a great number of informal decisions. The allocation of resources to enforcement o f rules or decisions, and the day-to-day interpretation o f those rules or decisions, are determined by individuals w h o are not strongly constrained by formal processes. Personal interplay like that involved in lobbying is also involved in effective dealing with the administrative process. 24 Congress on behalf of the Consumer Federation of America. See Comment, Yale Law Journal, LXXIX, No. 6 (1970), p. 1099. The Portland, Oregon, firm of Marmaduke, Aschenbrenner, Merten and Saltviet (which is no longer in existence) apparently carried on a successful environmental lobbying campaign in the Oregon legislature. Pro Bono Report, VII (November 1972), p. 3. 23. This analysis indicates that PIL lawyers have lower marginal productivity than others in lobbying. This condition of factor demand, however, could be outweighed by factor supply. If PIL lawyers were more willing than other potential lobbyists to lobby for underrepresented groups, they could be less expensive, and this factor-supply condition could make the PIL lawyer the optimal choice even though he (she) is less productive at the task. 24. In this connection, consider the experience of the Washington Research Project under its former head, Marian Wright Edelman: "What you really need to make anything move in Washington is just sort of a pesty operation where you call up a guy and say *What have you done?' or 'What are you going to do?' or 'Here's what we want.' Several kinds of things are important. One is you just need persistence. Two, you need to know where the decisions are made and how you can affect them. You create a good internal network of information flowing out to you so you know when a decision is being made before it is made so that you can have an effect. What I wanted to do was try to get an early-alert system. An example of how that works best is Ruby Martin's role in monitoring school desegregation compliance. Ruby was head of the civil rights compliance agency in HEW under the Johnson administration,

Introduction and Theoretic Analysis Community Organization Since a basic reason for PIL activity is the under-organization o f client groups, another technique alternative to or adjunct to litigation or lobbying is community or group organization. Is the PIL lawyer likely to be a good group organizer? The first obstacle to answering that question is that "community organizing" is even less well-defined and studied than lobbying. The necessary characteristics of a community organizer are not easily discernible. In a sense, "organization" is an important tool in every lawyer's arsenal. He must organize ideas, evidence, arguments, and clients in the litigation setting. By training and temperament he is a confident generalist. But this sense of organization seems narrower than the range of attributes expected in a "community organizer." Saul Alinsky, in his list of the ideal elements o f an organizer, includes "an organized personality" as only one among ten such elements: curiosity, irreverence, imagination, a sense of humor, a bit of a blurred vision o f a better world, a wellintegrated political schizoid personality, a strong ego, a free and open mind, and political relativity.' 5 Unfortunately, it is not easy to translate these guidelines into criteria for consideration o f PIL lawyers relative to other potential organizers. and for us she attempts to oversee all pending administrative decisions on schools before they're finalized. Take the Mitchell-Finch joint statement on school desegregation guidelines. When it finally came out everybody construed it as a victory. We didn't. But in one sense it was - if you had seen the many early drafts that said, in effect, that the guidelines were illegal and should have no effect. If Ruby hadn't had good leaks within HEW and received the early drafts of the statement so that we knew a guideline change was in process, and hadn't had time to circulate it among allies and to the press, and to get various Senators to call up Finch to ask, and have him deny, that any change in the guidelines was coming, and hadn't built up pressure over a few weeks span, you would have had a much worse statement on school desegregation than you did." Interview with Marian Wright Edelman, Comment, Yale Law Journal, LXXIX, No. 6 (1970), pp. 1082-1083. Two elements of this description appear particularly relevant here. First, it appears that it is an intelligent staffing choice to place a former bureaucrat in charge of the monitoring of bureaucratic decisions. Second is the subtlety of the informal process which Ms. Edelman quite rightfully feels has advantages in interaction with agency employees over "Ralph Nader, with his more direct and aggressive approach" which "meets greater resistance." Ibid. p. 1083, n. 23. 25. Saul D. Alinsky, Rules for Radicals (New York: Random House, 1971), pp. 72-80.

93 However, at another point, Alinsky places heavy emphasis on experience and communication with members of the group that is being organized: "The area of experience and communication is fundamental to the organizer. An organizer can communicate only within the areas of experience of his audience; otherwise there is no communication. The organizer, in his constant hunt for patterns, universalities, and meaning, is always building up a body of experience. . . . He learns the local legends, anecdotes, values, idioms. He listens to small talk." " Such a recipe appears to mean that ability to organize a group depends partly on how closely the organizer's experience and background match those of the group — or how willing, able, and patient he is to assimilate a new culture and alter his own. These are not the standard attributes of the PIL lawyer. If similarity of background is important, PIL lawyers will generally not find it easy to organize some of the standard PIL client groups, for lawyers, including PIL lawyers, are primarily highly educated, white, young, and from middle or upper class backgrounds. These are attributes that tend to be shared by environmental and perhaps some consumers groups, but they are not those of civil rights, minority, or poverty groups. Again, some PIL lawyers do organize and even dominate client groups, and a few PIL groups have included non-lawyer community organizers as part of their staffs, but the socio-economic background as well as the professional training of the typical lawyer — PIL or other — are not generally those that encourage the lawyers to engage in group organization work. Since lawyers generally control staffing in the PIL sector, there is some doubt that they will allocate very much of their limited funds to employ non-lawyer group organizers. Policy Determination and Information Production The ability to seek out information about, and to understand the extent, complexity, and sources of social problems, and the ramifications of alternative solutions, is central to dealing effectively with those problems - that is, it is central to correcting failures of private markets and governments. This is particularly true where 26. ibid., pp. 69-70.

The Public Interest Law Industry an articulate and organized clientele is not available to set specific goals or to aid in choice of remedies. Lawyers, vis a vis other people, generally have both strengths and weaknesses when such matters are involved. On the one hand, lawyers are likely to have more analytical sophistication than many of their potential client groups, and to be more exposed to the actual manifestations of the social problems than are their social science counterparts. On the other hand, they have less exposure to the specific real-world problems than the client groups, and they are in general less sophisticated analytically than are social scientists. Many commentators have called for more "grassroots" participation in policy determination. Some PIL groups call for lawyers to engage in "legal services" work as an educational precursor to "law reform e f f o r t s . " " Others suggest that the lawyer should spend more time ascertaining the views of the client constituency and employing its potential political strength.1* Difficulties arise here, however, because inherent in most PIL activity are substantial problems even of identifying a client "group" — since they are frequently not organized — let alone of obtaining active client group participation. 27. Stephen L. Kass, "An Experiment in Legal Services," A.B.A. Journal, LVIII (1972), p. 586. 28. Note the following passage from the Comment, LXXIX, No. 6, Yale Law Journal, pp. 1086-1087: "Gary Bellow, co-founder of CRLA and now at the Western Center on Law and Poverty, shares the assumptions about the importance of organized groups of poor people, and self-consciously relates this to the importance of working on the local level. Having largely abandoned the hope that existing national governmental institutions are going to create quick social justice, and in any case committed to building independent, locallybased power units, Bellow is moderately critical of the 'nationally'-oriented lawyers: [He has said] 'The attorneys in Washington tend first to establish a firm, and then focus upon developing a constituency. But constituencies do not develop overnight, and institutional restructuring is a long, tedious process. It may be that centralization of agencies of change in Washington or anywhere, has, at this time, inhibitory rather than productive effects. Too much power in one place too fast allows little opportunity for organizations to compete, to grow, to develop their own strategies and to learn from their own successes and failures. All of us in this type of work tend to want to change structure too fast. We are doing nationally in the public interest law firms exactly what CRLA did in California. It moved so fast that a number of institutional problems were created which might have been avoided if there had been time to experiment, question and retreat from previously taken positions.'"

94 Since PIL lawyers often cannot obtain guidance from clients, the lawyers' ability to study, analyze, and understand social problems becomes important. Legal training emphasizes the means of achieving the ends as set by clients. It deemphasizes the need for, or the training to facilitate, careful analysis of the complex consequences of pursuing those e n d s . " Nevertheless, lawyers perceive themselves as generalists able to handle any problem with competence. But while this perception may increase their willingness to tackle problems, it does not provide competence for dealing with them. Symptomatic of the questionable competence of lawyers to provide the principal guidance is the following report of an interview with the most famous of PIL lawyers, Ralph Nader: Nader . . . is not particularly troubled by the implications of his independence because he believes that most of his activities thus far do not involve serious allocation and priority questions: "We're at such a primitive level now, fighting dirty food, seeking procedural reform like the Freedom of Information Act, that decisions are easy to make." To the suggestions that attacking General Motors on safety and pollution issues might raise the cost of cars to poor people, Nader responded that he does consider the external effects of his activities, but that, for example, poor people rarely buy new cars anyway. Beyond such rationalizations, however, the justification for his independence lies in Nader's belief that the lawyer is properly a social engineer. Yet while Nader is perfectly free to take any position on any issue, the consuming public does have a degree of control over the power he wields. As he suggests, his visibility invites public attack by critics who dispute his view of the public interest; the wide support he is presumed to have will slip away if he blunders. 30 Nader's statement reflects a lack of appreciation for the complexity of the problems with which he deals. His analysis of the impact of his efforts against GM upon the poor is flawed; even an elementary economic analysis would show that costs of producing new cars affect the market for used cars, where poor people are indeed involved. Moreover, the mechanism he refers to 29. While there has been some movement over the last ten years to import "policy analysis" into the standard law curriculum, this aspect of legal training has been viewed as tangential in most law schools. 30. Comment, Yale Law Journal, LXXIX, No. 6, (1970), p. 1130.

Introduction

and Theoretic Analysis

for control of his power, relying on "public attack" of his view of the public interest, is defective precisely for the reasons which rationalize PIL activity in the first instance: if consumers are too dispersed and unorganized and their individual interests too small to provide for adequate representation via private market or even governmental mechanisms, they are also too weak to provide adequate control for a self-proclaimed advocate when he advocates the "wrong" positions or policy. PIL problems are complex. While no one can reasonably demand perfection, there is room for some substitution of non-lawyer social analysts for lawyers in the determination of PIL sector policy. 31 There have been suggestions in the past that PIL lawyers should adopt a more "interdisciplinary approach:" "Because of a lawyer's lack of exposure to disciplines outside the bounds of traditional legal education, his search for material factors that raise legal issues often forecloses the identification of non-legal issues giving rise to highly effective courses of action. Consequently . . . the complexity of the issues raised by public interest advocacy demands the utilization of non-legal experts." " Few PIL firms employ non-lawyer experts except to provide occasional support for policies and solutions previously determined. 33 Indeed, as noted in Chapter Four, 24 percent of all PIL firms have no non-lawyer salaried professionals, and another 42 percent have only one, two, or three. 3 4 In order for more non-law expertise to be integrated into basic PIL decision-making, it will be necessary to disabuse the lawyer-entrepreneurs of their image of personal general expertise.35 But the mechanism is not obvious. PIL 31. Some lawyers, by virtue of education and experience, are both social analysts and lawyers. 32. James R. Whitaker, "Interdisciplinary Collaboration in Public Interest Law," Arizona Law Review, XIII, No. 4(1971), p. 909. 33. An important exception may be the Environmental Defense Fund, which is described as a "coalition of lawyers and scientists." The scientist members apparently are instrumental in the initial decisions on firm policy and strategy. Gordon Harrison and Sanford M. Jaffe, The Public Interest Law Firm: New Voices for New Constituencies (New York: The Ford Foundation, 1974), p. 12. 34. See Table 4.4, Chapter Four. 35. There are two other factors contributing to the limited use of non-lawyers (besides the lawyer's exaggerated sense of his general expertise). First, as shall be

95

The Public Interest Law Industry

lawyers do learn lessons from mistaken choices, but even this is of limited value because of the informational and interpretational sophistication necessary to identify a "mistake," ascertain its source, and correct it. Closely related to the problem of policy choice are the problems of the production of information and the suggestions of alternative solutions to private market and governmental failures. Information can be an important antidote to some of these failures. More information available to consumers about product safety or political malfunction, for example, can lead to correction of some failures. But the information must be accurate and relevant. Similarly, in the process of lobbying or agency monitoring, a skillful and careful research study and brief for an alternative solution might itself be an effective means for correcting market failures, and such means do not require major inputs by lawyers.

If there exist "publicity differentials" among different types of strategies, and among different instruments - litigation, lobbying, community organization, information — we would expect the PIL lawyer to opt for those with the greatest value of expected publicity. As a publicity maximizes the firm would also consider the costs of gaining publicity by use of the various strategies discussed above, and the timing of the publicity, preferring publicity to come sooner rather than later. A firm wishing to maximize the present discounted value of publicity might prefer to select strategies that yield quickcr though less "sensational" results than might be obtained from another strategy — that is, another type of solution. Funding constraints are also likely to affect the discount rate that enters the PIL firm's implicit calculation of trade-offs between the desirability of publicity (accomplishments) now versus more publicity later.

Provision of information should be distinguished from rhetorical "research" produced by some public interest groups. "Muckraking" can be highly useful to focus public attention on problems and to stimulate public debate, and it is an adjunct to litigation and advocacy-lobbying, but it does not tend to be careful or objective analysis. The purpose of information-provision in the arsenal of public interest activities is the correction of that subset of market failures for which the basis is lack of information. The effort of the Consumers Union in the production and dissemination of information on product price, quality, and safety is an example of this form of information. For the reasons set out previously, provision of information does not appear to be to the comparative advantage of PIL lawyers — or of lawyers in general. Given the preceding discussion of what PIL lawyers might be expected to do relatively well or poorly, we return briefly to the consideration of what PIL lawyers will want to do, given our view of the importance, direct and indirect, of publicity for the PIL lawyers and their activities.

Favorable judicial pronouncements - that is, "winning" cases in court — are often associated with large amounts of publicity due to the involvement of opponents who are often public figures or prominent institutions. By comparison, lobbying - which often involves behind-thescenes negotiation — usually does not receive as much public notice as even the intermediate steps in litigation, such as filing complaints. Litigation may also be attractive in that it does not necessitate extensive community organization or public relations, but it does bring about certain immediate results such as official recognition by the opponent. The latter result produces a certain level of publicity in and of itself. By contrast with litigation, effective legislative lobbying-advocacy efforts necessitate effective communication with the legislature: legislators must be provided with an incentive to heed the request. Such incentives may require a complex combination of the organizing of voters, patient bargaining, side-payments, provision of information to the public and to legislators, and publicity campaigns — in general, a comprehensive plan for the elimination of the "evil." Without substantial efforts, no legislative response at all can be expected. In addition, little or no benefit can be gained from legislative efforts which do not culminate in passage of the legislation or at least open an extensive debate over the legislation. Legislation which does not leave committee, for

seen, funding sources require visible successes. This pressure puts a premium on time. Additional time would be necessary to communicate the problem to non-lawyers, and to allow them to give it careful consideration. Second, the lower voluntary sector compensation to non-lawyers noted earlier may make it hard to attract them.

96 example, has little value. Thus, lobbying efforts, by comparison with a litigation-oriented approach, are likely to be not only more protracted, but more risky, in the sense of having greater variance in outcome; that is, lobbying has a greater probability of yielding neither publicity nor any other identifiable output at all. Even if the mathematically expected outcome in terms of publicity and any other indicator of outputs were equal for a litigational and for a lobbyingadvocacy strategy, the greater variance would discourage risk-averse lawyers from the latter strategy. In addition to these publicity related elements, the gravitation toward litigation rather than other techniques may also be related to lawyers' perceptions of their own comparative advantage (what they do best). In turn, this is combined with a tendency to staff PIL firms almost exclusively with lawyers to produce a heavy emphasis on litigation as the observed output of PIL firms. In sum, while a number of techniques are available to PIL lawyers seeking to correct private market and governmental failures, litigation has a number of advantages from the perspective of PIL lawyers, and so we can expect it to be the dominant instrument that is used. These advantages include greater publicity returns and a setting in which lawyers, especially young, idealistic lawyers, feel more comfortable. Along the same lines of analysis, inferences can be drawn about the type of litigation which might be favored. Insofar as the publicity value of "test case" litigation (which involves significant precedents and rules of law) exceeds that of litigation involving enforcement of existing law, we can expect PIL activities to concentrate on the test cases. In the discussion below we examine further the factors likely to affect the set of cases that PIL lawyers choose to pursue.

External Constraints Thus far, we have dealt with the role of the PIL lawyers in framing the form of PIL activity. We have examined their preferences and their abilities. However, in examining these "supplyside" influences on PIL activity, we have made only fleeting references to external, or "demandside" forces - such as charitable foundations, client organizations, and other financial

Introduction

and Theoretic

Analysis

sources — which also help mold these decisions. In this section, we will examine more closely the behavior of these institutions and their effect upon PIL behavior. In addition, two other institutions external to PIL — the tax laws and the private sector bar - will be considered.

Charitable Foundations As noted in the previous chapter, charitable foundations presently support a sizeable portion of PIL activities. They are currently the major source of funds for firms that specialize in PIL activity. 36 The financial importance of the foundations makes them a potentially important influence on the behavior of the PIL sector and its choices of activities and techniques. Analysis of this influence is complex, because many other factors also affect the behavior of PIL groups, but a few tentative hypotheses can be offered: 1. Foundations are a product of endowments provided by wealthy individuals, and the trustees' responsibility is to act according to the intent of those individuals. One would suspect, therefore, that PIL activities substantially detrimental to the interests of the endowing parties would be less likely to receive funding. 2. Perhaps more important are the effects on funding agencies of information on the "successfulness" of PIL activities. Funding officers within foundations have a limited amount of resources to employ in investigating and considering the merits of any funding proposal, including proposals for support of PIL activities. Since any foundation receives more requests than it has funds, the funding officers must determine the relative merits of projects. The process is analogous to that faced by a private sector firm in its investment decisions. However, the indicators of "merit" for private sector investment projects generally provide information at lower cost than those for voluntary sector projects. In their search for indicators of "social benefit" it would be natural for funding officers to use institutionalized indicators of success, such as favorable judicial determinations and enacted legislation. In addition, as previously mentioned, they would likely be affected by positive reaction from third parties such as the press or the media. 36. See Table 4.4, Chapter Four. Foundations accounted for approximately 4 2 percent of PIL firm funds in 1975.

97 The use of such criteria — a natural byproduct of the difficulty of assessment and the limited budget available for assessment - would seem to create biases. Not all institutional determinations are equally costly. As discussed in the last section, it would probably cost far less and thus be much easier to obtain a favorable judicial pronouncement for any given applicant for funds than it would be to obtain a favorable legislative enactment having the same consequences. Given a positive reaction to institutional "wins" by the foundation funding officers, there would be a tendency for foundation-funded PIL firms or other voluntary sector public interest groups to move to litigation even if the applicant, client, or beneficiary group would have chosen the legislative route without the funding constraint. 3. Similarly, not all proposed projects receive equal publicity despite their underlying merits. Test cases, as previously noted, especially those involving notable defendants, are more likely to receive attention than are efforts to enforce previous test case determinations. In general, the need to present indices of "success" to funding authorities can be expected to affect strategic and tactical decisions by PIL lawyers. This analysis does not mean that the choice of litigation or "sexy cases" is the product solely of the incentives provided by funding decisions. Nor does it mean that the funding process described is not optimal. Additional information or other attempts to improve decision-making are not costless and may not be cost-justified. The analysis simply suggests that the funding process tends to provide signals which affect case and strategy selection within the PIL sector. As Table 5.6 shows, private and PIL lawyers differ substantially in the weights they attach to various characteristics of a prospective case when they are choosing whether or not to undertake it. As we expected, PIL lawyers are indeed far more interested in "novel questions of law and legal precedent" (which, we would add, are likely to generate publicity) and appear to care more about the "chance of success" (we hypothesized earlier that "winning" and the associated publicity would be important to PIL firms). Private lawyers apparently attach less significance than do PIL lawyers to winning. Private lawyers are paid, generally, regardless of the outcome (although in the long-run their reputations may be affected). And since private lawyers can often

The Public Interest Law Industry achieve their client's goals through negotiation, they do not face the same incentives to litigate as do PIL lawyers, who are more dependent on courtroom victories to show prospective funders that they are "succeeding." (This illustrates the problems associated with measuring success, as discussed in Chapter Three.)

Client Organizations According to the definition presented in Chapter Two, the "clients" of PIL firms are individuals who are suboptimally organized and therefore inadequately represented. However, many such client classes have pockets of organization and subgroups or individuals who claim to represent or speak for the interest of the entire class. While some PIL actions involve only passive clients who lend their names to a PIL lawyer's attempt to represent the needs of a class of which they are members, the majority of PIL cases are the product of more active client participation. 37 A vocal and organized subgroup possesses the potential for influencing PIL efforts on behalf of the entire class. The lawyer by his training and conventional role is conditioned to look for some client direction, at least in the process of determining general goals or objectives and possibly general strategy. The PIL lawyer may consider himself the legal representative of a class but he may feel understandably reluctant to claim that he has exclusive insight into the needs of that class. Such a claim smacks of "paternalism" and "elitism" — phrases bound to raise substantial discomfort for the idealist young PIL lawyer. It would appear all the more hazardous to venture such a claim in the face of articulate opposition from a group which can at least claim membership in the class. In many instances, these groups, even if they are representative of the interests of only a portion of the class, are instrumental in generating PIL and public recognition of the grievances of the entire class. In the public's perception, the groups may be widely associated with the interests of the class in total. The groups can provide support for the lawyer, in the form of moral support and volunteer-workers. They can generate opportunities for favorable publicity, if only within the realm of their own community or 37. See Chapter Four.

98 membership. They can also contribute to the enforcement of judicial victories or to generating pressure useful for lobbying activities. For all these reasons it is likely to be uncomfortable and otherwise costly for the PIL lawyer to ignore the claims and directions of these client subgroups. However, there are grounds to believe that the directions provided by these subgroups may sometimes deviate from the best interests of the class as a whole, and when this is the case, PIL firms will be somewhat misled. There are a priori reasons to believe that a vocal subgroup is unlikely to be a random sample of the class. Those who organize are likely to be better educated, younger, more aggressive, and have a "stronger taste" for the type of change they advocate than do most of the people they allege to represent. Any of these factors may produce a distorted picture of the nature and the extent of the class interest. In addition, because they are a subgroup, their grievances might be settled or quieted in a manner that works to the detriment of the class as a whole. Consider, for example, a strongly articulated request for PIL aid by a tenant's organization in an effort to impose maintenance requirements on a landlord. The organization quite honestly claims to speak for the interests of all lowincome tenants in the jurisdiction. But efforts on behalf of the tenants' organization might in fact be detrimental to the class as a whole, although beneficial to current members of the tenants' organization. This would be the case if, for example, increased maintenance would lead to increased rents in the long run, and if a sizable proportion of tenants would prefer the combination of poorer maintenance and lower rents. This tension between the articulate organized portion of the class and the unorganized portion is a microcosm of the general conditions producing the market failures described in earlier chapters of this book. PIL lawyers are attracted, although not without reservation, to positions that are strongly advocated by these better organized contingents." 38. Interview with Jim Lorenz. The Neighborhood Legal Services Project in Washington acceded to the demands of its "lay boards" and took domestic relations cases despite the lawyer's feeling that such a policy would divert a great deal of the project's resources to a less generally beneficial use. Comment, Yale Law Journal, LXXIX, No. 1 (1970), pp. 1127-1128.

Introduction and Theoretic Analysis It is not possible to make a single prediction of the direction of this bias across all classes or substantive areas. Each substantive area will show subgroups of different strength and sources of bias relative to the entire class. It is sufficient to note here that the existence of these groups and their effect on the direction of PIL activity will not always produce a salutary (efficient or equitable) effect on the entire class relative to an unconstrained, fully informed determination by the PIL lawyer or PIL firm. Tax Effects Another important influence not only on the amount of PIL funding but on the form of PIL activities stems from the Internal Revenue Code provisions on tax exempt organizations. Two forms of tax benefit are involved: the ability of contributors to declare such contributions as charitable deductions, and the exemption of the institution's income from federal income taxation. In 1970, the Internal Revenue Service indicated that it would no longer issue certificates of tax exempt status for "public interest" law firms. The IRS felt uncomfortable with this new institutional form which claimed to work in support of the interests of the general public, as distinguished from legal representation for a disadvantaged minority, or the victims of racial discrimination, or those denied human and civil rights either in criminal or civil matters. (The latter categories had long been considered "charitable activity" for tax purposes.) The IRS ultimately drew back from this position but still declared several qualifications: ( l ) t h e PIL organization could not accept fees for its service "except in accordance with procedures approved by the IRS" (no such procedures have yet been promulgated); (2) the policies and programs of the organization must be overseen by "a board or committee representative of the public interest" not controlled by the PIL firm members nor by a non-tax-exempt organization; (3) the organization — like all tax exempt organizations — could not be "substantially" involved in "attempting to influence legislation." Several important effects are involved in these regulations. First, the institutional form of PIL activity which appears most eligible for the exemption is the "pure" PIL firm which receives no compensation from its clients. It is as yet

99 unclear whether a tax exempt PIL firm could receive fees for its services. In general, those entities which receive tax exempt status are not absolutely restrained from receiving partial payment from the recipients of its efforts. But what may be possible for the standard charitable organization is apparently more suspect for PIL firms. While the IRS might allow a public interest law firm otherwise totally supported by an established private foundation to receive courtawarded fees in individual instances, it is not likely to allow a "self-sustaining" PIL firm to reccivc partial payment (reduced fees) from clients and still be tax exempt. The obvious problem of distinguishing such a firm from a private sector firm — a problem which prompted the IRS "freeze" of 1970 - would foreclose a favorable IRS ruling. Thus, an implicit tax subsidy is available to one structural form of PIL activity while unavailable to others. This subsidy is not without its price. The tax exempt entity cannot be "substantially" involved in "attempting to influence legislation" - that is, lobbying. From one point of view the subsidy available at this price is not large. The PIL firms are unlikely to generate profit because they devote all of their revenue to their activities. Some advantage might accrue, however, in situations where the lag of expenses behind revenue produces "profit" in a given tax year. The real advantages of tax-exempt status are received by qualifying for grants from private foundations which themselves are concerned about their tax status. Here the price appears higher. To qualify as a tax exempt entity, the PIL firm is constrained from "substantial lobbying." However, if the PIL firm is an extension of a private foundation, the firm cannot take part in any lobbying or political influence activities. If the firm were to violate these conditions, it would be the foundations which would face the tax penalty. In turn, the violating firm would not be viewed f a v o r a b l y by its foundation benefactor. Thus, PIL activity that is oriented toward litigation receives a tax subsidy relative to more "political" public interest activities such as direct lobbying. Hence, the structure of tax subsidies tends to support the inclination of the PIL firm, made on publicity maximization grounds, to favor litigation over lobbying activities.

The Public Interest Law Industry

Lawyer Self-Funding: Private Sector Substitutes for PIL Finn Output It is arguable that a major portion of PIL activity is funded by PIL lawyers themselves in the form of reduced pecuniary compensation. The first section of this chapter, on objectives, discussed the non-pecuniary features of PIL activity that attract lawyers. Present PIL activity is not all the product of PIL firms, of lawyers associated with firms whose objective is full-time or virtually full-time specialization in PIL activity. A part of the activity comes from firms primarily associated with the private, for-profit sector. The various forms of this sort of PIL activity were described in Chapter Four. To at least some extent, both the advent and form of this private for-profit sector PIL activity reflect decisions made by the firms' controlling partners — few of whom are active PIL participants. These firms have chosen to provide some incentives to their lawyers to participate in PIL activities. Such in-kind contributions by private, forprofit law firms may have many explanations, but the point here is that the source of finance of PIL activities — in this case, finance by private law firms — can affect the form of PIL activity. The key factor is "conflict of interests." This involves a constraint in the Code of Ethics of the profession restricting the role of a particular lawyer or firm when two potential clients have interests in a given matter (or set of matters) which appear in conflict. Private firms have been criticized for too pervasive a use of this rationale in refusing PIL matters: "A 'general philosophic' conflict sounds more like a description of cases that may offend clients rather than cases in conflict with their interests. Therefore, the decision on how or whether to handle these cases is usually a question of good business rather than professional responsibility." 3 ' Whatever the normative or ethical implications of the private firm's decisions, the preceding quotation shows a reason for those firms to avoid particular PIL activities for reasons quite apart from their probably unremunerative character. Many PIL cases will prob39. Marna S. Tucker, "Private Lawyers and Public Responsibility - The Profession's Armageddon," Nebraska Law Review, LI, No. 4 (1972), p. 381.

100 ably involve conflicts between the pursuance of the interests of the underrepresented client groups and the interests, or at least the sensitivities, of a private client. As a result, pursuance of such PIL cases by a private law firm can be expected to "cost" the firm more than simply the revenue that the lawyer resources could have generated in work for a paying client.

Summing Up: Case Selection and Handling of PIL Cases Development of a satisfactory model for predicting the behavior of non-profit organizations in general, and of public interest law firms in particular, is in its infancy. In this chapter we have sketched some plausible and (we feel) useful elements for such a model, with particular reference to the choices by PIL firms of which types of cases to select and how to handle them. The problems of determining what the public interest is, of determining whether a particular client group in fact represents that interest, of deciding on strategies that are effective and consistent with the lawyers' own interests, are complex. It is likely that they will increasingly result in conflict between groups that are both (or all) commonly associated by PIL participants with the "public interest." The conflict between "egalitarian" and "environmental" interests in some aspects of the land-use area, discussed in Chapter Nine, is one example of such a conflict. An analogous conflict has already received notice by PIL sector participants. Several strong comments have appeared in connection with the competition of several "attractive" issues for the limited PIL resources: We [Community Law Offices' trustees] believe that professional involvement in broadgauged public interest activities may have a significant impact on American society. We suggest, however, that these public interest commitments should not be undertaken at the expense of the poor. While the protection of the environmental, consumer and other interests is important, the profession's first order of business must be to provide - for the first time — adequate representation for the millions of individuals and groups who lack the resources to obtain either adequate counsel or decent schools, homes, jobs or justice in the absence of counsel. 40 40. Kass, "An Experiment in Legal Services." See also Jean Camper Cahn and Edgar S. Cahn, "Power to

Introduction and Theoretic Analysis In general, PIL participants and commentators have given little attention to the process by which the sector allocates its scarce resources among the many competing underrepresented interests or even the process by which an individual firm chooses. There is occasional reliance upon the "pluralistic" rationale and reference to the "notion that all ought to be heard" 4 1 or "that everyone affected by corporate and bureaucratic decisions should have had a voice in those decisions." 41 However, a more sophisticated analysis throws doubt on any easy avoidance of these conflicts. On a theoretical level, it is important to know more about concepts of "relative representation" which were explored briefly in Chapter Two. Given no budget constraint the easiest solution would be one consistent with the private law model; the PIL lawyer, like the private lawyer, would represent his clients' interest in the standard adversary manner with faith that there would be adequate representation for opposing interests, so that the process will yield a social optimum. In a world where budget constraints, incomplete information, and organizational costs do not allow full representation of all opposing interests, a given PIL firm may be less able to rely on the pluralistic process, and may be forced, if efficiency and equity are to be realized, to ask about the degree of representation provided the potential client relative to that available to its opponents. Suppose a PIL firm ascertained that a prospective client and its opponents were all underrepresented relative to the full-representation ideal; what should the PIL firm do? If the sides were "equally" underrepresented, perhaps the efficient and the equitable solution would be to refuse representation to both interests. Such a solution presupposes two conditions: (1) that the PIL firm could make such a determination within some acceptable level of certainty, and (2) that the People or the Profession? - The Public Interest in Public Interest Law," Yale Law Journal, LXXIX, No. 6 (1970), p. 1005; Center for Law and Social Policy Report, pp. 1107-1108; Comment, Yale Law Journal, LXXIX, No. 6 (1970), pp. 1113-1114. 41. Marks et al. The Lawyer and Professional Responsibility, p. 237. 42. Charles R. Halpern and John M. Cunningham, "Reflections on the New Public Interest Law: Theory and Practice at the Center for Law and Social Policy," Georgetown Law Journal, LIX, No. 5 (1971), p. 1095.

101 the pluralistic mechanisms would yield adequate results. At the least, the relative representation of the interests provides one potential criterion for the PIL sector in ranking potential activities (controversies) in which it wishes to invest its limited resources. However, a stronger conclusion is complicated by the existence of alternatives to the litigation-oriented adversary approach. PIL activity can extend — and in fact already has extended — to non-adversary measures such as the mediation of conflicting interests. To the extent that this process is a superior substitute for the adversary process, the existence of two underrepresented interests in the same controversy might give priority to the controversy as a PIL activity. The question remains, what is the likely reaction of PIL lawyers to the "surfacing" of a conflict among underrepresented interests? There are reasons to believe that as these conflicts become evident, the particular issue will become less attractive to the PIL sector. To the extent that PIL lawyers choose this work because of the satisfaction gained from assisting "worthy" causes, a case involving conflicts among such causes is less attractive. The villains and heroes are harder to discern, the satisfaction from promoting the "public interest" is diluted by uncertainty, and the probability of harming an attractive group is greater. This is troublesome partly because of the emphasis on litigation, which requires the PIL group to take an adversarial position. It is only natural that the psychic satisfaction would be lower than with a case where "right" seemed clearly to lie with the potential clients' interest. Furthermore, the greater the potential "conflict," the greater the possibility for mixed publicity reviews. This tendency may manifest itself in a movement by PIL organizations into new program areas. The conflicts may be just as real in a new area but they are not as likely to have surfaced. The actual movement of PIL resources away

The Public Interest Law Industry from civil rights and poverty cases to the more "middle class" areas of environmentalism and consumerism can be viewed, though only in part, as a manifestation of this push into an area that seems to involve less conflict. The tendency to avoid conflict over what action represents the public interest may also manifest itself in less commitment to PIL activity in general. As more areas appear to involve conflicts, and as more sophisticated PIL participants or potential participants begin to see the complexity identifying the public interest, the nonpecuniary returns from PIL activity can be expected to decline, signaling a decrease in lawyers' preferences for PIL participation. In this context, the effect of a large scale infusion of funding - public or private - is noteworthy. First, the hypothesized decrease in non-pecuniary returns would mean that the pecuniary returns necessary to attract lawyers into PIL work at a future date will be greater relative to the salaries of private lawyers than is presently the case. Second, the change in scale itself will cause an acceleration in the rate of "conflict discovery" and the undertaking of marginally more "conflicted" cases — cases which would have been rejected if the PIL sector had remained smaller. The future, in short, will not be a repeat of the past history of PIL activity. There is growing recognition that lawyers and legal instruments are but a portion of the resources and instruments available for correcting private market and governmental failures. PIL sector decision-makers are also beginning to recognize the complexity of determining which policy and which client group, if any, truly represents enhancement of the public interest. And the growing number of PIL firms and other mechanisms for public interest representation are increasingly likely to confront conflict situations in which seemingly underrepresented interests are themselves in conflict.

Chapter Six

What Might Public Interest Law Accomplish: Distributional Effects Burton A. Weisbrod

We have emphasized the potential role of voluntary-sector PIL activities in enhancing the public interest in allocative efficiency, by increasing representation of underrepresented demands for collective-type goods. We have also pointed to the possible role of PIL activities in altering the distribution of income in favor of the poor and politically weak and, in general, enhancing the equity of the socio-economic system. Whether public interest law activities are directed at correcting allocative inefficiencies in the private and government sectors, or whether they are directed at correcting what PIL lawyers regard as inequities, the likelihood is that the gains and losses will not accrue equally to all segments of the society.

Who Gains? Who Loses? In this chapter, we explore what can be said about how the benefits and costs of PIL activities are divided among the population and, more importantly for policy purposes, who would be expected to gain and who to lose if PIL activities were expanded or contracted. The presumption lying behind this inquiry is that one's assessment of the desirability of encouraging or discouraging The author thanks Joseph Cordes for his assistance and comments. Thanks are also due to the Sierra Club, the National Rifle Association, the League of Women Voters, Consumers Union, and Fly Fisherman Magazine for providing unpublished data on demographic characteristics of their members or subscribers.

PIL activities — through tax policy or foundation subsidies, for example — may depend, at least partly, on the distributional effects of PIL, just as it may depend partly on the efficiency effects. But favorable efficiency effects and favorable distributional effects do not necessarily — and perhaps, not even probably — coincide. Thus, to evaluate PIL activities we need to understand not only their overall effects — benefits and costs — but also their distributional effects, that is, how those benefits and costs affect particular segments of the population. However great the total net benefits from some PIL activity may be, there will inevitably be some persons who do not benefit at all, and others who are hurt by it. PIL activities relate to the provision of goods that are collective in the sense that everyone could benefit from them equally; but as we will show, everyone does not in fact benefit equally. The goal of this chapter is to develop the proposition that all PIL activities, even if their avowed objective is allocative efficiency, affect the distribution of real income, benefiting some people substantially, others less or not at all, and still others, negatively - that is, making them worse off. The fundamental reason for this expectation of redistribution is not the secondary or by-product effects of the PIL activity — although these are present and often important but the fact that differences in income and in preferences are such that effective demands, or even wants, for any collective activity of the sort associated with PIL are likely to be large for

103 some persons, small for others, and zero, or even negative, for still others. 1 Situations in which efficient resource reallocations have inequitable outcomes have always troubled economists. Welfare economics, as the branch of economics dealing with issues of normative policy, has developed a perspective f r o m which greater allocative efficiency is regarded as a criterion of "desirability," but only if its attainment makes no one worse o f f , a condition unlikely t o be m e t . The considerable literat u r e concerning the feasibility, desirability, and necessity of compensating those people w h o are made worse off b y a resource reallocation that is efficient has n o t led to a resolution of the compensation question. Nor will we resolve the issues here. The literature on the " n e w " welfare economics has made it quite clear that a strong, controversial value judgment is involved if one advocates a policy which would make some people worse off and others b e t t e r o f f , even though that policy is efficient in the sense that b y reallocating resources f r o m lower-valued t o higher-valued uses it would increase the total market value o f o u t p u t and thus would make it possible, potentially, for everyone to be better o f f . The distinction between the possibility of everyone gaining, and the actuality in which some people, inevitably, are made worse o f f , is critical. Having established the general importance of examining t h e distributional effects as well as the allocative efficiency of any use of resources, we can turn to the specific context of PIL activities. We set forth earlier, in Chapter T w o , our perspective on the meaning of the "public interest" — as the interest not of an abstract " p u b l i c " or " s o c i e t y " but as the interests of the individuals w h o comprise it. We then argued that the existence of transactions and organizational costs could lead t o situations in which sizable segments of the population might find their interests, and even their effective economic d e m a n d s (willingness t o p a y ) ignored b y b o t h the private and government sectors because of the combination of three factors: ( 1 ) the collective-good character of their d e m a n d s ; (2) the relatively small im1. For further discussion, see Burton A. Weisbrod, 'Toward a Theory of the Voluntary, Non-Profit Sector in a Three-sector Economy," in Edmund S. Phelps, ed., Altruism, Morality, and Economic Theory (New York: Russell Sage Foundation, 1975), pp. 171-195.

What Might Public Interest Law

Accomplish?

portance that each individual attached to the c o m m o d i t y or activity, even though the aggregate i m p o r t a n c e attached b y all those w h o would b e n e f i t f r o m its provision would be large; and (3) the relatively high cost of overcoming the " f r e e - r i d e r " problem. We argued that under these circumstances a potential market failure was likely in b o t h the private, for-profit sector and the government sector, and therefore that a potential efficiency case could be made for voluntarysector activity, and m o r e specifically for PIL activity. We turn n o w t o the question w h o would stand t o gain, and w h o w o u l d stand to lose, if PIL activities ( l ) w e r e expanded or contracted, and ( 2 ) were successful in increasing the a m o u n t of resources allocated t o satisfying the underrepresented wants and d e m a n d s for collective goods. Before describing our approach, t w o i m p o r t a n t distinctions need t o be drawn. One is b e t w e e n benefits as perceived b y individuals, and benefits as seen by some "objective," fully i n f o r m e d observer. An individual's demand for a comm o d i t y might be either larger or smaller if the individual were b e t t e r informed regarding the characteristics of the c o m m o d i t y and their contribution to his utility. While n o t denying that people d o have such " m i s t a k e n " demands as a result of incomplete i n f o r m a t i o n , in the markets for b o t h collective goods and private goods, we shall a t t e m p t , nonetheless, t o focus on actual d e m a n d s ; thus we assume implicitly either that serious mistakes are u n c o m m o n or that, in any event, the e c o n o m y " s h o u l d " be responsive t o demands as they exist rather than as they might exist if people were m o r e fully informed or otherwise were m o r e effective judges of their own self-interest. 1 We will therefore a t t e m p t t o gauge effective demands for PIL-type activities as they (and t h e associated benefits) are perceived by individuals. A second distinction is between (a) an individual's demand for a collective good, " d e m a n d " in the sense of b o t h willingness and ability to pay (what we variously term " d e m a n d , " "effective d e m a n d , " or " e c o n o m i c d e m a n d " ) , and ( b ) a n 2. It might be argued that consumers' actual demands — even if mistaken - should guide resource allocations because, for example, government is likely to make even worse mistakes, or because there is no way to determine whether any particular demand patterns are mistaken.

104 individual's wants, which, given his income, may not be reflected in effective demand. A person may want some commodity, and might be willing, if only his income were greater, to pay a substantial sum for it. Thus, it might be said that the individual has a great "desire" or want for the commodity, but we use the term demand to refer only to those desires or wants that are manifested in an effective demand. In the empirical work later in this chapter, we will present some data that are proxies for effective demand, and also some that are proxies for wants. These will constitute two ways of answering the question, who would benefit if PIL-type activities were expanded (or contracted). Our objective, then, is to explore methods for generalizing about the distribution of benefits and disbenefits (negative benefits) from PIL and similar collective-good activities. The question is, what can be said about who gains and who loses from PIL activities? What can be said about the nature of the gainers and losers if PIL activities were expanded or contracted, other things being equal — that is, under the assumption that a change in the level of PIL activities would not be counteracted by offsetting changes in other variables that have the same effects? The reason for this latter qualification is that it is by no means simple to discern the consequences of PIL activities. What we really want to know is the answer to a counter-factual question: What would be the difference between the distribution of economic welfare with and without a given increment of PIL activity of a given type, where other segments of the economy, private or public, are allowed to alter their activities in partial response to a change in voluntary sector PIL activities? Such a complex question cannot be answered. What may be answerable, however, is another related question: what are the distributional effects of a change in the level of PIL activity? To answer this question it is necessary to find out either the pattern of demands for the particular collective good under consideration, if it is willingness and ability to pay that is to be the criterion for measuring distributional effects, or the pattern of wants, if inequalities in income and wealth are to be disregarded in discerning distributional effects. In both cases, however, it is necessary to find ways to get people to reveal

Introduction and Theoretic Analysis their "true" demands and wants, at least as they perceive them. In each of the area-study chapters of Part Two, efforts are made to identify the actual or probable gainers and losers from PIL activities, but this is only one of their objectives. The present chapter focuses specifically on this matter. It highlights the wide range of effects of PIL efforts, favorable and unfavorable, that are perceived by individuals. One useful way of attacking the question of how various collective goods, including those affected by PIL activities, do, or might, affect different segments of the population, is to determine which individuals judge that they would benefit from those (increments of) activities, which judge that they would, on balance, neither benefit nor lose, and which, if any, judge that they would lose — that is, be made worse off. As we pointed out above, people may be wrong in their assessments of whether they gain or lose, but we might assume plausibly that people are generally well-informed enough to render their decisions meaningful. We know that even in the case of ordinary goods sold through private markets, consumers are often poorly informed; nonetheless, demand as expressed in the private marketplace is normally treated as being meaningful in the sense that an efficient economic system should be responsive to it. Such a conclusion is not an obvious truth, but it is widely held, and it serves as the basis for the operational approach to demand determination that we will utilize. The analogy between the degree of consumer knowledge about private and collective goods is not perfect, and is worthy of further consideration. The greater the degree of "collectiveness" of a good — the more persons who are affected by it, and the more they are affected — the more substantial are the likely market interaction (general-equilibrium) effects. These overall effects may be minor for, say, an increment of a local collective good such as fire protection, but could be substantial for a national activity such as environmental protection (say, anti-pollution) efforts, depending, of course, on the magnitude of the change. The point is that even if a consumer is perfectly informed about the direct effect on him of a unit of some private or collective good, there is reason to question whether he would be equally

105 well-informed about the indirect effects on him that operate through the general equilibrium adjustment process. The indirect effects require a more sophisticated understanding, and as a result w e might expect that consumers are less fully informed a b o u t the consequences, the benefits and disbeneflts, of collective goods than of private goods. Still, there is wide variance in this informational dimension even within the collective-good and private-good categories. Medical care and legal representation, for example, are private goods about which consumers are rather badly informed as to the benefits they receive. These services are complex and the typical consumer knows little about h o w to gauge quality; a person m a y have recovered f r o m an illness or won his legal fight, but he generally does not k n o w whether it was because of, or in spite of, the medical or legal services h e received. The "fulli n f o r m a t i o n " assumption is a poor one for such private-good markets. It seems reasonable t o assume that, in general, a consumer's understanding of t h e consequences, for him, of an increment of a collective good is not greatly dissimilar t o his understanding of the consequences of an increment o f many goods he purchases in private markets. The approach in this chapter is to estimate the extent of demand for, and against, some collective c o m m o d i t y or activity b y determining the degree to which persons in various subgroups of the population favor or oppose the activity. If the relative levels of support and opposition vary among income classes, for example, the interpretation would be that the distribution of net benefits — as perceived by individuals — varies b y income class, with some classes being net gainers and others being either non-gainers or net losers. Our behavioral model embodies two assumptions: ( l ) t h a t people support or oppose any activity depending on whether they believe they would personally gain or lose if the policy or action were undertaken; and (2) that people "calculate," in effect, the net benefits or disbeneflts they would (or d o ) receive f r o m the given activity, a calculation which involves considering tax burdens as well as gross benefits or disbeneflts. The second assumption relates to perceptions of net benefits, for as we pointed out above, the true effects of any activity for any given person

What Might Public Interest Law

Accomplish?

m a y be different f r o m those that f o r m the basis for the individual's expression of d e m a n d or want. A number of aspects o f this model are summarized in Figure 6.1. It shows hypothetical demand functions for four types of persons. These demands may be t h o u g h t of either as " a c t u a l " demands, reflecting differences among people in preferences as well as in income and wealth, or as " a d j u s t e d " demands (wants) reflecting differences only in preferences — t h a t is, showing what the demand patterns would be if all persons had the same income and wealth. 3 Figure 6.1 illustrates persons w h o value the collective good highly ( D j ) , persons w h o place a lower value on it ( D 2 ) , those w h o are indifferent t o it ( D 3 ) , and those w h o view the particular good as a " b a d " ( D 4 ) ; the D 4 group prefer n o t t o have it at all. In general, for any g o o d , however great its gross collective-good potential m a y be, there are likely to be consumers o f all four types. 4 Increments of "national d e f e n s e , " for example, would not be favored by all persons, even at a zero private tax price. In s h o r t , whether and to what extent some c o m m o d i t y is a collective good is a function not of any characteristic of the c o m m o d i t y itself, but of the preferences (utility functions) and incomes of consumers. Figure 6.1 also highlights the situation in which a collective c o m m o d i t y is wanted in some quantities but not in others; for persons having demand D 2 , increments beyond Q j are viewed as providing disbeneflts. Such a prospect means t h a t , ideally, we need to know entire d e m a n d f u n c t i o n s ; a simple description o f d e m a n d as being " h i g h , " " l o w , " or "negative" is likely t o be misleading, when the consumer's valuation of an increment of a collective good depends on the q u a n t i t y , as it generally does. Since we are interested in describing and predicting distributional effects of collective goods 3. In the "adjusted" demand case, however, the pattern of demands would, in general, differ depending on the level of income and wealth. 4. The existence of persons for whom some collective good is actually a "bad" has been recognized earlier. See, for example, Knut Wicksell, "A New Principle of Just Taxation," in Richard A. Musgrave and AlanT. Peacock, eds., Qassics in the Theory of Public Finance, (New York: St. Martin's, 1967), p. 89; and Vito Tanzi, "A Note on Exclusion, Pure Public Goods, and Pareto Optimality," Public Finance, XXVII, No. 1 (1972), pp. 75-78.

106

and especially of those goods to which PIL efforts have been, or are likely to be directed, we want to characterize the types of people who have the various demand patterns shown in Figure 6.1. We turn now to two operationalthough conceptually imperfect — approaches for developing such characterizations. That is, we turn to approaches for describing the types of people who are likely to be in the various demand categories — some receiving "large," others "small," and still others even "negative" benefits from PIL-type collective goods. An overall evaluation of PIL or other collective-good efforts should recognize the pattern of distributional consequences.

Introduction and Theoretic Analysis

The Perceived Distribution of Benefits: The Opinion Poll Approach and What Might be Learned With It Consider the following operational approach and what might be learned with it. Ask a random sample of the population whether they favor or oppose a specified change in provision of some collective activity — such as environmental preservation or greater consumer protection - of a type that has been, or is likely to be, supported by PIL groups. Allow each respondent to reply by indicating a number ranging (arbitrarily) from, say, 1 to 5, where 1 means strong support, 5 means strong opposition, and 3 means indifference, neither support nor opposition. Granted

107

certain plausible although not entirely uncontroversial assumptions to be discussed below, we can describe the types of people who benefit from the specified form (and quantity or increment) of PIL activity, the types who in their judgment are hurt by it, and the types who are essentially unaffected on balance. One of the data sources we will in fact use here is the public opinion poll, in which questions are asked concerning attitudes toward a wide variety of actual or proposed policies. Since PIL activities have been directed toward some of the policies, we believe we can learn something about the distribution of perceived benefits from such PIL efforts by examining and comparing the characteristics of persons who favor or who oppose the particular policy. As already pointed out, there is reason to doubt that such perceptions are perfectly accurate. We know, for example, that people respond to questions, or vote at elections, even when totally misinformed as to the issue. The problem may be even more serious in opinion polling than in political voting, for in the latter case people know that some policy action may depend on their votes, while presumably people know that their response to a pollster is not equivalent to a vote on a referendum issue. In addition to the imperfect-information problem, there is another aspect of public opinion polling that is often troubling, and that probably goes far to explain the low level of economists' use of such data; it is that opinion poll respondents are not explicitly confronted with a price tag on the commodity or activity in question. Economists take more seriously a person's statement of preference when he reveals it by actually paying for a commodity, by buying it, than we do a mere expression of preference — as to a pollster — when no payment is required. The preference for information on revealed preferences over stated preferences is partly a matter of how well the consumer understands the question, partly a matter of how much effort he will put into offering a serious response when he knows that it may have no consequences, and partly a matter of how honest he is in indicating how much he would be willing to pay for the good under consideration. Because of these concerns, economists have generally avoided reliance on opinion polls as indicators of consumers' true

What Might Public Interest Law Accomplish? demands. The reason for the concern with honesty is that to ask people how much they would be willing to pay for various quantities of some collective good is to elicit understatements because of "free-rider" behavior. A consumer who, on one hand, expects that the greater the demand he indicates, the more he will be required to pay, and, on the other hand, expects that if the good is paid for by other people he can benefit anyway, can be expected to understate his true demands.5 Insofar as people do behave in this manner, it would be true that the responses from direct questions would understate, perhaps enormously, the aggregate demand for collective goods. If, by contrast, people thought that there was no connection between the amount they would be required to pay, in taxes, and the extent of their stated valuations, then individuals could be expected to overstate their demands. In either case the resulting aggregated demands would be erroneous. Although the predictions presented above have been deduced from theoretic models, the degree of honesty exhibited by respondents to questions on the valuation of collective goods is a factual matter, and there has been little testing of it.6 In the present study, however, we are not interested in assessing the total valuation that consumers place on various quantities of some collective good. Neither are we trying to determine the optimal quantity of the good to produce - an objective which requires information on aggregate willingness to pay. The objective of this chapter, then, is not to determine optimal levels of production of collective goods, but to describe or to predict the distribution of benefits and disbenefits from whatever level occurs. It is reasonable to believe that direct questioning - for example, in opinion polls — can provide useful information on the relative intensities of demands for a collective 5. For a clear exposition of the expected free-rider behavior, see James M. Buchanan, The Demand and Supply of Public Goods (Chicago: Rand McNally, 1968). For a recent statement questioning the evidence that free-rider behavior is a significant problem, see Earl Brubaker, "Free Ride, Free Revelation, or Golden Rule?" The Journal of Law and Economics, XVIII (April 1975), pp. 147-161. 6. For a recent discussion of such tests, see Peter Bohm, "An Approach to the Problem of Estimating Demand for Public Goods," Swedish Journal of Economics, LXXIII (1971), pp. 55-66.

108

good among population groups, whether it is or is not a good source for information on absolute intensities. Unless respondent distortions vary systematically among population groups, relative comparisons among groups will not be biased even if every individual respondent were to give a biased answer. One final point: If one accepts the proposition that distributional effects are relevant to overall policy decisions on the desirability of changing the level of provision of collective goods, whether by governments, by PIL groups, or by other instrumentalities, then the question of how to obtain distributional information must be confronted. Observations from actual behavior are, as was stated above, preferred, but when collective goods are involved, obtaining information through observing actual purchases in private markets is likely to be difficult. Hence, although there is an acknowledged advantage to using preference information when it is actually revealed in the marketplace, if that alternative is not available — and it is systematically not available for collective goods — we must seek a "second best" approach. I suggest, and will defend below, the proposition that responses to opinion polls, when carefully interpreted, can be useful for answering the question that motivates this chapter: Who gains and who loses from collective-good activities of the types engaged in by PIL groups? To recapitulate, we can identify two key issues with regard to using opinion-poll statements of preferences. First, the respondent may be ill-informed. Admittedly this is true, but so also are people often ill-informed about ordinary, individual-consumption goods they buy in private markets, and yet we do not treat such demands as devoid of normative meaning. Second, even if people know or think they know their wants, opinion-poll questions do not generally state what the price or tax cost will be, and, hence, we learn nothing about intensity of wants, and certainly nothing about willingness-to-pay from such responses. This is a serious limitation insofar as we are interested in estimating demand functions (willingness to pay), and since estimating demands is a frequent interest of economists, it is a valid objection to using opinion poll data. It is less serious, however, insofar as we wish only to determine the relative numbers of people who judge that they would be made better, or worse

Introduction and Theoretic Analysis off by the particular activity, and their demographic characteristics. But there are other issues as well. A third is that the absence, in general, of any explicit reference to a price or tax in opinion poll questions poses a problem — one that can and should be dealt with in future polls - namely, what assumption is each respondent implicitly making about the price or tax that he will have to pay, when he responds that he favors or opposes some action? Two alternatives seem likely. First, a price of zero — that is, the respondent may assume implicitly that the commodity would cost him nothing, and he may therefore respond simply in terms of whether he likes or dislikes that commodity, whether he would receive positive or negative marginal utility from it, other things being equal. A second alternative is that the respondent might make some assumption about his "share" of the cost of providing the commodity. In this case he would respond that he favored the commodity only if the gross benefits he would expect to receive, as he perceives them, would exceed his estimated cost. It may be reasonable to assume, although it is certainly not self-evident, that in responding to an opinion poll question, people take into account the actual, or expected effects on them, not only of the specific activity but also of the financial burden accompanying it; they may, or may not, however, be even approximately correct in judging the tax price they would pay. A fourth issue is what quantity, or change in quantity, of the particular good does the respondent have in mind if, as is generally the case, the question is not explicit about quantity? As Figure 6.1 indicates, people might honestly respond quite differently depending on the quantity of the good being considered. Future opinion polls could be explicit about quantity (as well as price), but at present they rarely are. Despite these defects of opinion polls as presently constituted, and given the unavailability of revealed private market behavior as a source of information on effective demand for collective goods, a procedure such as opinion-polling can be useful. Theoretic Analysis of Opinion Poll Responses The analysis sketched above may be summarized more formally. If the following assumptions hold to a reasonable degree, opinion poll re-

109 sponses will be useful indicators of the distributional effects of a program to alter the level of provision of some collective good. The failure of any assumption to hold precisely does not imply that opinion responses are useless as distributional indicators, but only that they must be used more cautiously. Here are the assumptions: A l . The quantity of the collective good is known by each respondent, and is the same for all respondents. In fact, most opinion polls fail to state any information on quantity; this is a defect which could be corrected without great difficulty, but until it is there is some question about the validity of assuming that all respondents are implicitly presuming that the same quantity of the good is involved. Actually, in order to make meaningful comparisons across groups, it is sufficient if the mean quantity of the collective good assumed in each group is the same; it is not necessary that every respondent contemplate the same quantity.

What Migh t Public Interest Law Accomplish ? Assumptions 1 4 may be restated by referring to Figure 6.2. In that figure, (i) Q 0 is the quantity of the particular collective good being considered. (ii) P n is the tax price expected by consumer n. It may be the same for all n, and it may be believed to be zero, but in the figures it is assumed, more generally, to differ for persons in various population groups and to be non-zero. (iii) Persons in group I, facing price P j and having demands ABD, expect total net benefits equal to zero; therefore they are indifferent about the good under consideration. This would also be the case, for example, if the expected price were zero but the persons in the group had a zero demand for this collective good at all quantities - that is, if the good were a non-good for this group of consumers (the persons with demands D 3 in Figure 6.1). (iv) The persons in groups II or III expect positive net benefits, and so they are expected to indicate that they favor provision of the collective good being considered. The essential difference between the situations for groups II and III is that for group II the marginal net benefit beyond quantity Q 0 is negative. But with the response being assumed to depend only on total net benefits, group II respondents would clearly favor the proposed level of provision, by comparison with a zero level. (v) Persons in group IV expect negative net benefits, and so their responses to an opinion poll are assumed to be against the collective good involved. This is assumed to be true despite the fact that in this example persons in group IV actually do derive positive net benefits from a small quantity of the good.

A2. The price of the collective good is known by each respondent, but it may be equal or unequal among respondents. Seldom do opinion polls state anything explicitly regarding price, but this, too, could be corrected. A3. Responses by any person are based solely on net benefits — gross benefits minus disbenefits minus tax burden — expected by that person. The concept of "benefit" is broad enough to encompass all consequences regarded by that person as favorable or unfavorable, including any distributional effects, direct and indirect, from which he expects to derive positive (or negative) utility. Implicit in assumption A3 is the idea that responses are honest statements of the net benefits expected. If expected net benefits are positive the respondent is in favor of provision of the If the demand curves in Figure 6.1 were degood, and if they are negative he is opposed to it; rived from seriously incomplete or incorrect inif expected net benefits are approximately zero, formation the individuals could nonetheless rethe respondent is indifferent. (That is, we assume spond to the question; it could not be clear, that people do not oppose provision of the good however, whether incorrect information on the when they expect positive net benefits even expected distributional effects should influence though their net benefits could be greater if the public policy decisions. This issue of the normaquantity or price were changed.) tive importance of consumer preferences and deA4. Respondents are sufficiently well in- mands when consumers are ill-informed is comformed about the direct and indirect effects of plex — involving important conceptual and valuethe collective good in question, and about the judgment issues such as the precise meaning and price and quantity (assumptions 1 and 2), that importance of consumer sovereignty - and we public policy should attempt to satisfy con- will not delve further into such matters here. sumers' demands or wants. Let us assume, however, that A4 is accepted.

110

Introduction and Theoretic Analysis

Price Group I.

PjAB BCD. Net Benefits ~ 0. Response is one of indifference.

II.

P 2 A B > B C'D'. Net Benefits > 0. Response is supportive.

III.

P 2 A'D'C\ Net Benefits > 0. Response is supportive.

IV.

P 3 A"B" < B C D . Net Benefits Net Benefits < 0. Response is non-supportive.

Figure 6.2

Ill This, together with the other assumptions, implies that a consumer's responses to a poll be treated as a reasonable indicator of his net benefits. The question, then, is how, if at all, responses can be aggregated. Aggregation is necessary if we are to use the opinion poll data to rank groups of consumers by total or per capita gains and losses. Additional assumptions are required. Even without further assumptions it is possible to state descriptively that, for example,* percent of some population group expects to receive positive net benefits from the given collective good, while y percent of another group expects such benefits; yet without some weights we cannot say whether the total, or even the average, net benefits are greater for one group than for the other.

What Might Public Interest Law Accomplish? that the average net benefit is greater for persons in group 1 is as follows: (1) Bj = .6b! - ,3c"! (2) B 2 = ,4b 2 " -5*2 where b n = average net benefits expected by gainers in the nth group (n = 1, 2 in the tabulation); c~n = average net costs expected by losers in the nth group. Since by assumption 5, b j = t>2 = b, and c , = ¿2 = c, it follows that (3) B, - B 2 = (.6 - ,4)b - (.3 - ,5)c = ,2b + ,2c > 0 .

Therefore group 1 would benefit more, per person, than group 2. In general, whenever responses are as in the The following is one assumption which, while tabulation — with the percent neutral being the rather strong, would permit one to go beyond same for each group — groups can be ranked on simple descriptions of percentages of gainers and 7 the basis of per capita benefit, if assumptions 1-5 losers. The assumption is not argued here to be are accepted. That is, an ordinal ranking of valid, and, indeed, further research is needed on means for weighting responses using weaker as- groups is possible according to percentage of persons who favor the collective action. But consumptions. The assumption: sider a second distribution of attitudes such as A5. Average perceived net benefits (effective the one in the next tabulation, which shows that demands) are equal, whether positive or negative, the percentage of persons who favor the program for all persons who respond in any given way — is greater for group 1 but the percentage who for example, for all who "favor" provision of oppose it is also greater: some particular collective good. That is, all respondents are assumed, in effect, to use the (2) 0) same cardinal scale for determining responses. Favor 60% 40% Oppose 35 25 If this (admittedly strong) assumption is ac5 Neutral 35 cepted as even an approximation, it is possible to rank population groups by the magnitude of ex- The essential characteristic of tabulation 2 is that pected net benefits per person. For example, a larger percentage in one group favors the consider the tabulation that follows showing the action, and a larger percentage of the same group percentages of persons in groups 1 and 2 who opposes the action. It can no longer be said favor, oppose, or are neutral with respect to a whether the average person in group 1 or 2 benefits more, or loses less — unless another assumpgiven commodity, given its price and quantity. tion, on scaling, is made. One such scale would (0 (2) result from the following symmetry assumption: Favor 60% 40% A6. Persons who "favor" and persons who Oppose 30 50 "oppose" a program are affected to the same Neutral 10 10 degree but with opposite sign. In other words, Group 1 persons can be said to be greater gainers the average net benefit received by a gainer is (or smaller losers) per person than persons in equal in magnitude to the average net loss to a group 2. The reasoning by which we conclude loser. 7. This section benefited greatly from discussions with Joseph Cordes.

If assumption A6 is accepted, then the magnitude of net benefits for any group can be

112 measured by the difference between the percentages of persons in that group who favor and who oppose the given activity. Thus, for the data in the second tabulation, and assuming again that AS holds — that benefits and losses for each person who favors or opposes the program is the same regardless of which group the person belongs to — we have (4) Bj - B 2 = (.6 - ,35)b - (.4 - ,25)b = ,25b - .15b > 0, since b > 0 (that is, the percent in favor exceeds the percent who oppose) Therefore the average net benefit per person is greater for group 1. In general, A1-A5 imply the following rules for ranking groups by per capita net benefits: denoting by P* the percentage of persons in group * who perceive outcome y — G if they expect to gain, and L if they expect to lose (5) Group 1 members are, on the average, larger net gainers (or smaller net losers) than members of Group 2 if: (5a) P P g

and

P

L. United States, 338 F. Supp. 792 (E.D.N.Y. 1972) (three-judge court) remark made by Judge Friendly.

Area Studies: Public Interest Law in Action Thus the ultimate impact of NEPA would depend to a large extent on the attitude the agencies themselves took to the statute, and on external pressures from entities other than the CEQ. Agency response to NEPA varied. Some agencies moved with relative dispatch and adopted a liberal interpretation of the statute's impact on their processes. Others moved very slowly to implement the statute's mandate, and took every opportunity to construe it narrowly." While they were aware of substantial variation in agency response, environmentalists were, overall, disappointed with the reaction of the agencies.90 Faced with an overall pattern of response that suggested agency resistance to the sweeping reappraisal of programs, projects, and procedures that the environmental movement had hoped would follow from NEPA, and aware that the statute provided the best — and often the only — tool to halt specific projects that they opposed, the environmentalists had to seek some source of external pressure to secure what they felt was full compliance with NEPA. For a variety of reasons, they chose the courts as the principal arena in which to challenge agency decisions, and the results were initially encouraging. While the executive branch, including the CEQ and the Environmental Protection Agency," was unwilling to press for full compliance with the broad reading of NEPA that the environmental movement favored, and while the Congress was willing to play only a limited over89. See discussion in Liroff, NEPA and Its Aftermath, Ch. IV. 90. The Calvert Cliffs' case demonstrates the reluctance of affected agencies to willingly implement NEPA procedures. Calvert Cliffs' Coordinating Committee v. AEC, 449 F.2d 1109 (D.C. Cir. 1971), cert, denied, 404 U.S. 942 (1972) ; see also Green County Planning Board v. FPC, (cited in note 86); and SCRAP v. U.S., 371 F. Supp. 1291 (D.D.C. 1974). Even now, in the words of Walter Rosenbaum, "Washington's bureaucracy . . . presents an impressive facade of compliance with NEPA." Walter Rosenbaum, "The End of Illusion: NEPA and the Limits of Judicial Review," Stuart S. Nagel, ed., Environmental Politics (New York: Praeger, 1974), p. 204. Also Hearings before the Committee on Interior and Insular Affairs, U.S. Sen., 91st Cong., 2nd Sess., First Annual Environmental Quality Report, August 16, 1970, p. 16 etseq. 91. For a discussion of the role of EPA, see Frederick R. Anderson, "The National Environmental Policy Act," in Erica L. Dolgin and Thomas G. P. Gulbert, eds., Federal Environmental Law (St. Paul: West Pub. Co., 1974).

171 sight role," the federal judiciary responded favorably to the environmentalists' demands. In literally hundreds of cases, the federal courts issued broad interpretations of the statute, and ordered agencies to comply with its requirements for development of more data about environmental impact, and for integration of environmental assessment into specific decisions. A detailed description of all the NEPA cases brought by the environmental movement is beyond the scope of this study. 95 We shall, however, look at a few major decisions that illustrate the nature of the judicial response, and at some other cases that were of special significance to the controversy at Indian Point. For our purposes, the most significant case to examine is the decision of the Court of Appeals for the District of Columbia in Calvert Giffs Coordinating Committee v. Atomic Energy Commission." This case has fourfold interest for us. First, it was the first major pronouncement on NEPA by a Circuit court, and the first of a stream of decisions that manifested judicial willingness to read NEPA broadly and to scrutinize AEC interpretations of the statute. Second, Calvert Cliffs sets forth a detailed description of the kind of decision-making that NEPA requires agencies to follow; its view has come to be widely accepted by the courts and the case has been called "the definitive judicial gloss on NEPA." 95 Third, Calvert Cliffs is an example of the kind of litigation public interest lawyers were bringing in the early years of NEPA. And, finally, the case dealt specifically with the AEC, and had a direct impact on the Indian Point controversy. When NEPA became law, the AEC was forced to make two basic decisions. First, it had to file a statement, required by Section 103, indicating whether it felt that it was in any way precluded by statute from complying with NEPA.96 Since the AEC had previously taken the position that 92. See Liroff, NEPA and Its Aftermath, pp. 69-71, 174-175. 93. For a full discussion of NEPA litigation, see Anderson, NEPA in the Courts: Anderson, "The National Environmental Policy Act," p. 256; and Liroff, NEPA and Its Aftermath, Ch. V. 94. See Calvert Cliffs. 95. See Anderson, "The National Environmental Policy Act," p. 297. 96. Section 103 (42 U.S.C. §4333, 1970) provides: "All agencies of the Federal Government shall review their present statutory authority, administrative regula-

Environmental Defense I r s mandate did not allow it to consider environmental factors when making licensing decisions, and since NEPA's impact on this mandate was not clear on the face of the statute, the AEC might have contended that it could not comply with NEPA. But it chose not to raise these issues, indicating that it accepted an obligation to conduct the required environmental analyses and consider their results.97 While the AEC's response to the Section 103 inquiry showed a willingness to accept some duties under NEPA, its interpretation of those duties suggested that the Commission was far from a total convert to the environmental cause. Like all agencies covered by the act, the AEC was required to develop procedures for NEPA compliance. It did not rush to produce these procedures - indeed, it took almost a year to publish a formal NEPA amendment (designated as Appendix D) to its regulations. Moreover, when the amendment was finally issued, it contained several provisions that were strongly criticized by the environmental movement. This criticism crystalized in a lawsuit brought by The Environmental Defense Fund and a number of other environmental organizations. The environmentalists were represented by Anthony Roisman of Berlin, Roisman and Kessler. At least some of the legal costs of the case were paid by EDF. 9 ' The environmentalists contended that the AEC procedures violated the letter and the spirit of NEPA. They challenged the Commission's views on the nature of the evaluative process it must undertake, and the effect of NEPA on on-going projects. Specifically, they questioned its refusal to consider ordering any construction halts, redesign and backfitting for plants that had been granted construction permits but that had not been authorized to begin operations prior to NEPA's enactment. They objected to the rule that precluded analysis of environmental issues in tions, and current policies and procedures for the purpose of determining whether there are any deficiencies or inconsistencies therein which prohibit full compliance with the purposes and provisions of this chapter and shall propose to the President not later than July 1, 1971, such measures as may be necessary to bring their authority and policies into conformity with the intent, purposes, and procedures set forth in this chapter." 97. See Liroff, NEPA and Its Aftermath, p. 92. 98. Interview with Angus Macbeth.

172 hearings for licensing any plant if the hearing notice was published before March 1971. And they opposed the Commission's decision to refuse to allow hearing boards to consider environmental issues not raised by a party to the proceeding, or to take account of any issue such as thermal pollution on which another agency had indicated satisfaction with some aspects of the environmental impact of the plant. These regulations would have severely hampered the environmental effort to use NEPA to challenge nuclear plants. The rules narrowed the issues that could be raised and made it necessary for environmental groups to intervene in every proceeding to ensure full consideration of environmental issues. But perhaps most importantly, the regulations meant that the AEC did not have to conduct an environmental analysis for eighty on-going projects, including Indian Point Nos. 1 and 2, and thus that environmentalists would be unable to use NEPA as a device to challenge the construction or design of these facilities." By excluding the existing plants from NEPA, the regulations made the statute a dead letter in just those cases where the controversies were most acute, and in which the environmentalists had hoped to employ it to mount a major challenge to nuclear plants. It is, therefore, small wonder that they felt impelled to challenge the regulations. The Circuit Court agreed with all the objections raised by the environmentalists. Although the CEQ had previously accepted all the rules in controversy, 100 Judge J. Skelly Wright found that they violated NEPA. Writing for a unanimous panel, Wright took the occasion to produce a detailed and sweeping opinion on the nature of an agency's obligations under NEPA, to spell out the role of judicial review in overseeing NEPA compliance, and to chastize the AEC for what he called a "crabbed interpretation" of NEPA which "makes a mockery of the Act." 101 In this and other passages Wright made clear 99. Consider the interesting data on nuclear power plants, licensed or placed in operation in 1971, received in Hearing before the Committee on Interior and Insular Affairs, on Environmental Constraints and the Generation of Nuclear Electric Power: The Aftermath of the Court Decision on Calvert Cliffs, U.S. Sen., 92nd Cong., 1st Sess. (1971), esp. pp. 377 etseq. 100. See Liroff, NEPA and Its Aftermath, p. 92. 101. See Calvert Cliffs, p. 1117.

Area Studies: Public Interest Law in Action his view that NEPA mandated sweeping changes in agency procedures, his feeling that the federal bureaucracies could be expected to try to defeat Congress's intent by delay and narrow interpretation of the statute, and his conviction that it was the task of the federal courts to stop any such whittling away of NEPA. "Our d u t y , " he said, in a masterful rhetorical introduction to the opinion, "is to see that important legislative purposes, heralded in the halls of Congress, are not lost or misdirected in the vast hallways of the federal bureaucracy." 102 The most significant features of the opinion dealt with Wright's views on how that duty was to be performed. The potential barrier to judicial scrutiny of agency response to NEPA was the doctrine of agency discretion. Under the Administrative Procedure Act, courts cannot review questions which are "committed to agency discretion by law." 1 0 3 If Congress had left expressly to the agencies and to the CEQ the task of defining the nature of the EIS, the timing of its preparation and the circumstances under which environmental findings were to be made, then the courts would be unable to police the agency response. 104 Thus the first and major issue that Wright had to address was the problem of discretion. Since NEPA dictated no clear or specific result to any federal decision, it obviously left the agencies with some degree of discretion. The court could not assert that the act uniquely determined any or all issues, yet if the courts were to play the role Wright had identified for them, he would have to hold that NEPA did definitely settle certain matters so that a court could overturn the decision of an agency. Wright resolved this by creating a distinction which has haunted NEPA litigation ever since; he divided NEPA into 102. Ibid., p. 1111. 103. 5 U.S.C. §701(a) (2) (1970). 104. The case law is clear and uniform that administrative action is unreviewable under the Administrative Procedure Act whenever it is deemed "committed to agency discretion" within the meaning of 5 U.S.C. §701. However, Davis suggests an analysis whereby courts can set aside agency action found to be an abuse of discretion. He places emphasis on the word "committee" (5 U.S.C. §701(a) (2) (1970), and contends that only to the extent the law cuts off review for abuse of discretion is the action committed to the agency discretion by law. See Kenneth Culp Davis, Administrative Law Text, §28.05 (3d ed„ St. Paul: West Pub. Co., 1972).

173 substantive and procedural provisions. The "general substantive policy of the Act" he said, "is a flexible one. It leaves room for a responsible exercise of discretion and may not require particular substantive results." ,os But, the judge went on, "the Act also contains very important procedural provisions." These latter are not flexible, but rather "establish a strict standard of compliance." 104 Thus, whatever limits there may be to judicial review of substantive decisions — such as a decision whether to require cooling towers for nuclear plants - the courts have the final say on what constitutes compliance with NEPA's requirements that agencies adopt new procedures for environmental assessment. Having introduced this substance-procedure distinction and made clear that the courts will look very closely at the procedures agencies follow, Wright went on to describe the kind of procedure that is mandatory under NEPA. In so doing, he proceeded to blur the very line he had created, thus giving rise to the long controversy over the question of judicial review of "substantive" agency decisions under NEPA.107 NEPA's "procedural" provisions require, the court said, that agencies secure information about environmental acts and consider this information. And the obligation to consider the information, being procedural, is just as obligatory as the requirements to secure information about environmental impact and to include a statement about these impacts in all proposals for major federal actions that affect the environment. But, the opinion went on, the statutory obligation to consider environmental impact means more than just reading the environmental reports - and perhaps marveling at the damage to be done. It necessarily entails giving the factor of environmental damage weight in framing decisions. Wright reasoned that when Congress said that an agency must consider environmental amenities along with other factors, it had to mean a balancing process in which the environmental amenities are given some value and their loss 105. See Calvert Oiffs', p. 1112. 106. Ibid. 107. See, generally, Anderson, ' T h e National Environmental Policy Act," pp. 304-314, citing the principal cases. This issue is discussed in more detail in Chapter Eight.

Environmental Defense I assessed in terms of gains that the project would produce.10* Moreover, he indicated that a court could reverse an agency decision if "the actual balance of costs and benefits that was struck was arbitrary or clearly gave insufficient weight to environmental values." 109 In this suggestion that "consideration" of environmental loss means "give weight to," and the hint that courts could say in particular cases that too little weight was given, we can see the nose of a substantive rabbit peering over the rim of Wright's procedural hat. Wright's rejection of the AEC's rules of procedure followed directly from his concept of the decisional process demanded by NEPA. The "balancing" had to be both finely tuned and particular to each project. Therefore, the AEC could not rely exclusively on other agencies to determine such things as acceptable levels of thermal pollution, since their decisions would have been considered outside of the context of the overall project. And since the environmental analysis had to be an integral part of the decision, the AEC could not exempt its licensing boards from making any environmental findings, even on issues not raised by the parties. Finally, since NEPA imposed an obligation to add environmental protection to the AEC's mandate as of the statute's effective date, the Commission had to look at NEPA issues in all cases in which its action might avoid environmental damage, and thus in all cases where final operating licenses had not yet been issued. The decision that the AEC had to apply NEPA to all such projects had immediate effect on Indian Point. The AEC did not appeal the Calvert Cliffs decision. Rather, it chose to comply with the opinion, and shortly issued new procedures which set up a revised decisional process consistent with the opinion. This process required a NEPA assessment for all plants "in the pipeline," including a cost benefit analysis of environmental damage, and it allowed environmental intervenors to raise issues of environmental damage in all licensing procedures. 1,0 108. See Calvert Cliffs', p. 1113. 109. Ibid., p. 1115. 110. On September 3, 1971, the Atomic Energy Commission announced the adoption of a revised statement of policy to comply with the July 23 Calvert Cliffs' decision concerning the AEC's implementation of NEPA in the licensing of nuclear power plants and other facilities. See 36 Fed. Reg. 18071 (Sept. 9, 1971); 36

174 Thus it became possible for the intervenors to raise the fish-kill and cooling tower issues in the hearings for an operating license in Indian Point, which were pending when the Calvert Cliffs decision came down. Other PIL Environmental Litigation Affecting Indian Point No. 2 Before returning to the discussion of Indian Point, let us look briefly at other PIL litigation in the environmental area that shaped the Indian Point controversy when it resumed after Calvert Cliffs. In the period between the passage of NEPA and the licensing hearing at which the Indian Point cooling towers question came to a head in AEC decisional processes, PIL lawyers brought hundreds of NEPA cases. Out of this litigation a large body of law defining the NEPA obligations of government agencies emerged. Although this litigation only indirectly affected Indian Point, the growing case law set the tone for the later debates over the design of the Indian Point plant. In this section, we look at a few of the principal issues that were settled in this period. In this string of litigation, issues were decided that did not have to be redecided in the Indian Point case. This prior litigation may have affected the Indian Point case in two ways: by directly influencing the AEC staffs views on its obligations; or at least by eliminating legal issues which might have been disputed in Indian Point. In this respect, prior litigation reduced the cost to PIL lawyers of penetrating to the essence of the dispute without having to first settle tangential matters. The relevant issues already litigated by the time of the licensing hearing on Indian Point No. 2 are the following. Substantive Review. Several cases developed the Calvert Cliffs dictum on so-called "substantive review," thus nudging Wright's rabbit a little Fed. Reg. 19158 (Sept. 30, 1971); and 36 Fed. Reg. 21579 (Nov. 11, 1971). See also Proposed AEC Guide to the Preparation of Benefit-Cost Analysis to be Included in Applicants' Environmental Reports, 37 Fed. Reg. 548 (1972); Guide to the Preparation of Environmental Reports for Nuclear Power Plants (Feb. 1971); Scope of Applicant's Environmental Report with Respect to Transportation, Transmission Lines and Accidents (Sept. 1, 1971), 2 ELR at 10005; and Preparation of Environmental Reports for Nuclear Power Plants, Regulatory Guide 4.2, available from the Director of Regulatory Standards.

Area Studies: Public Interest Law in Action further out of the hat. These cases, when applied to Indian Point, said, in effect: despite agency compliance with NEPA's procedural requirements in preparation and circulation of EIS's, if you give too little consideration to the fish killed in the intake process, the decision might be reversed."1 Overview Statements. Must the agency EIS discuss an integrated set of projects of which the present project is a part, albeit the only part near the construction stage? While not dealing with precisely that question, the court in Natural Resources Defense Council v. Morton seemingly provided the answer. 1 " The court in that case held that the agency must discuss alternatives that the agency by itself is unable to bring into existence. If the agency must discuss projects it cannot affect - on the ground that that is the only way the Congress, the public, and others can properly assess the cost of the planned project - then the same full disclosure idea must apply to elements of an overall program within the control of the agency. As applied to Indian Point, this meant that the agency's initial decision to limit the analysis to the impact of the plant itself had to be reversed, and the impact assessed in terms of the entire program of power development on the Hudson. Who is to prepare the EIS? In Greene County Planning Board v. FPC, a case which the Sierra Club and others represented by PIL counsel entered as intervenors, the Second Circuit Court decided - in what appears to be the definitive statement on the issue — that an agency may not delegate the preparation of the EIS to its "client;" in this case the FPC was barred from relying on data produced by an applicant for a power license.113 Accordingly, the AEC in Indian Point had to carry out its own independent investigation; it could not rely completely on Con Edi111. See, for example, EDF v. Corps of Engineers, 470 F. 2d 289, 298 (8th Cir. 1972), cert, denied, 412 U.S. 931 (1973); EDF v. Corps of Engineers. 492 F. 2d 1123, 1129 (5 th Cir. 1974); Silva v. Lynn, 482 F. 2d 1282, 1283 (1st Cir. 1973); Conservation Council of North Carolina v. Froehlke, 472 F. 2d 664, 665 (4th Cir. 1973). 112. 337 F. Supp. 165 (D.D.C.), 337 F. Supp. 167 (D.D.C. 1971), motion for summary reversal denied, 458 F. 2d 827 (D.C. Cir.), dismissed as moot, 337 F. Supp. 170 (D.D.C. 1972). 113. Greene County Planning Board v. FPC (cited in note 86).

175 son's environmental reports. This created a major staff obligation for the AEC, and contributed to a decision that had important implications in the dispute, namely, the decision to contract the preparation of the Indian Point No. 2 EIS to the relatively autonomous scientific group at Oak Ridge National Laboratory.

Full Disclosure. In Environmental Defense Fund v. TV A (Tellico Dam), the court said that the basis of the agency's decision must be clearly set forth. 114 Thus it follows, as another judge observed, that officials must give more than cursory consideration to the suggestions and comments of the public in the preparation of the final impact statement. The proper response to comments that are both relevant and reasonable is to either conduct the research necessary to provide satisfactory answers, or to refer to those places in the impact statement that provide them. If the final impact statement fails substantially to answer those questions, it will not meet the minimal statutory requirements.'" Thus the AEC was required to take heed of the detailed comments offered by the intervenors and of their remarks in meetings with agency officials. Similarly, if the public is to comment, the "EIS must be written in language that is understandable to non-technical minds and yet contains enough scientific reasoning to alert specialists to particular problems within the field of their expertise." 1,4 In the same vein, the agency may not attempt to use the EIS simply as a vehicle for communicating its conclusions on the merits of its project. The conclusions must be based on articulated premises. Under a rule set down in NRDCv. Morton, supporting data must be included in the EIS; it cannot be supplied afterward, for example, at a hearing on agency compliance with NEPA. Unknown Environmental Effects. According to cases decided prior to September 1972, the agency is not prevented from taking action, either in favor of or against the environmentalists, by the fact that the environmental effects of its project are uncertain. The Gillham Dam case 114. 339 F. Supp. 806 (E.D. Tenn. 1972). 115. See Lathan v. Volpe, 350 F. Supp. 262, 266 (W.D. Wash. 1972). 116. EDF ». Corps of Engineers, 348 F. Supp. 916, 933 (N.D. Miss. 1972).

Environmental Defense I presented facts in this regard analogous to those in Indian Point." 7 The construction of Gillham Dam would destroy a free-flowing river and several of the fishes living there. But, since an inventory had never been taken of river biota, the magnitude of the impact of the dam was not certain. Such an inventory and a follow-up study would take several years. But that fact alone would not require that construction be postponed. The agency would have to weigh the costs of postponement plus those of obtaining exact data against the risk of proceeding upon incomplete information. 1 " Applying similar reasoning to Indian Point, even if Con Edison was correct in saying that too little was known about the ultimate impact of once-through cooling upon the ecology of the estuary, the staff was still free to recommend - as it did — the installation of cooling towers based on its present (inexact) perception of the likely effects of the two cooling systems. Discussion of Alternatives. By the time the Indian Point No. 2 EIS was issued, the Second Circuit Court had issued a comprehensive statement on the AEC's obligation to discuss alternatives to the proposed project in NRDCv. Morton.119 The holding was twofold: the agency may not limit its discussion to those alternatives wholly within its power to effectuate; and it may not disregard alternatives simply because they accomplish less than does the original proposal. The second prong of the case is relevant here. The AEC, under this holding, could not dismiss cooling towers on the ground that they reduce the output of the power plant and that therefore a plant with cooling towers does not accomplish what a plant without such towers does. Commenting Procedure. It was already clear by mid-1972 that the requirement that comments be solicited and received on draft EIS's was a formal requirement, the flaunting of which would likely result in a judicial rejection of the EIS as a whole. This follows from Judge Skelly Wright's statement in Calvert Cliffs: "The Section 102 duties [NEPA's main procedural provision] are not inherently flexible. They must be complied with to the fullest extent, unless there 117. EDF v. Corps of Engineers, 325 F. Supp. 749 (E.D. Ark. 1971). 118. Ibid., p. 760. 119. 458 F. 2d 827 (D.C. Cir. 1972).

176 is a clear conflict of statutory authority. Considerations of administrative difficulty, delay or economic cost will not suffice to strip the section of its fundamental importance." 110 Judge Wright's language was applied to the Interior Department's failure to solicit comments on amendments to a previously issued EIS. The District Court in NRDCv. Morton accordingly rejected the addendum. 1,1 Similarly, the burden is on the agency to prove that the proper commenting procedure has been carried out. 111 These cases reflect an appreciation of NEPA's major premise: that more information and more diverse information will lead to a change in the substantive results of agency decision-making. The intervenors in Indian Point took repeated advantage of that NEPA theory to present the AEC with technical information even before the issuance of the Indian Point No. 2 draft EIS, and especially before the distribution of the final EIS in the fall of 1972. The Challenge to the Second Nuclear Plant at Indian Point In the period following the unsuccessful efforts to halt Indian Point No. 1, three major changes had occurred in the conditions for environmental defense in nuclear plant controversies: PIL environmental defense firms had been established; NEPA had been passed; and the courts, largely at the behest of PIL lawyers, had accepted the responsibility for oversight of NEPA compliance and had developed a series of rules and doctrines defining agency responsibilities. After Calvert Cliffs, environmentalists knew that they could intervene in licensing proceedings and raise substantive issues and objections to AEC analysis and conclusions. They knew that the AEC would have to investigate major areas of environmental damage, and in some as yet undefined fashion, account for these in its final decisions. They knew that the requirements for inter-agency comments on the EIS and for a hearing on NEPA issues offered opportunities to mobilize other agencies and public groups to oppose plants like Indian Point. The NEPA litigation facilitated a full and 120. See Calvert Cliffs, p. 1115. 121. 337 F. Supp. 170, 172 (D.D.C. 1971). 122. United States i>. 247.37 Acres of Land, 1 ELR 20513 (S.D. Ohio 1971), 2 ELR 20154, 20165 (S.D. Ohio 1972).

Area Studies: Public Interest Law in Action open debate on issues like cooling towers, and obligated the AEC to invest in information regarding the issues raised. But it still was not clear if anyone was listening; there were no guarantees that these opportunities to be heard would result in changes in AEC decisions. The only thing that was clear was that procedural opportunities had been established and certain information would be produced; it was not at all clear whether, how, and at what cost those opportunities could be transformed into actual environmental gains. We now return to the story of the Indian Point controversy, and describe how the environmental movement succeeded in exploiting the opportunities in this case. In the late 1960s Con Edison built a second and larger nuclear plant at Indian Point. The AEC construction permit was issued on October 17, 1966. Owing to construction delays, the company was not ready to apply to the Commission for an operating license until the end of the decade. Hearings on the license began in 1970. 1 " In December 1970 the Hudson River Fisherman's Association (HRFA) represented by NRDC, petitioned to intervene in the licensing proceedings. 1 " HRFA alleged that NEPA applied to Indian Point No. 2, and that given the plant's impact on the fishing, it would be a violation of the statute for the AEC to license the facility for operation unless it required the installation of closed-cycle cooling. 1 " The emergence of HRFA added a new actor to the Indian Point dispute. The group had been organized in 1966 by sport and commercial fishermen and conservationists, principally as a vehicle to attack the proposed Storm King plant. 1 , 6 It had already successfully attacked several industries that were dumping industrial wastes into the Hudson, and had secured large recoveries under the Refuse Act. 1 " These funds helped the group finance continued activities in defense of the Hudson fishery, including participation in the Storm King case 1 " and intervention in the Indian Point No. 1 licensing proceedings. Thus when the Indian Point No. 2 licensing proceed123. IP 2, EIS. 124. Interview with Angus Macbeth. 125. Ibid. 126. "Rescuing a River," Harper's Magazine, (March 1974), p. 6. 127. Interview with David Seymour. 128. Interview with Angus Macbeth.

177 ings began, HRFA had both financial resources and some expertise in the factual issues of the Hudson River battle. After deciding to intervene, it sought legal assistance from NRDC. Angus MacBeth, the NRDC lawyer who was to handle the Indian Point No. 2 case, agreed to represent HRFA, but insisted that the group pay for the experts who would be needed to develop the case that the plant would cause serious biological harm. 1 " Although at this point the AEC was still taking the position that NEPA did not apply to its licensing procedures and thus that it was not required to take account of environmental values, it did grant the HRFA's petition to intervene in January 1971. 130 Little happened, however, until mid-1971 when Calvert Cliffs was decided, and it became clear that the AEC must consider environmental costs in its licensing proceedings. At this point the Commission began the EIS process on the Indian Point No. 2 application. Since the Commission lacked the biological expertise to do the statement at its Washington, D.C. area office, it assigned the task to its research arm, the Oak Ridge National Laboratories in Tennessee. At about the same time, HRFA hired John Clark, a biologist and former Department of Interior official, to serve as its technical expert. HRFA began by conducting a thorough analysis and criticism of the FI, the study of power plant impact on fish that had been prepared in connection with Storm King, and on which the FPC's decision to license that plant had been based. Clark's criticism of that study formed the basis for a report of preliminary findings of fact and conclusions of law, filed with the Commission in December of that year. In the middle of December, representatives of HRFA, Con Edison, and the AEC met to discuss the issues raised by the environmentalists. At this point the environmentalists were contending that up to 35 percent of the estuary's young-of-the-year would be killed by once-through cooling. On April 13, 1972, the AEC issued its draft 129. In the Matter of Consolidated Edison Co. of New York, Inc. (Indian Point Station, Unit No. 1), 4 A.E.C. 370 (1970). 130. Ibid. The granting of the petition was fairly routine, and not published. However, later proceedings in IP 2 do include the Hudson River Fisherman's Association as intervenor. See 6 A.E.C. 751.

Environmental Defense I EIS on Indian Point No. 2. The draft EIS did recognize the validity of HRFA's contention that long-term irreparable damage to the fisheries could arise from the continued use of oncethrough cooling. 131 The AEC staff did not agree, however, that closed-cycle cooling was necessaiy. It merely recommended as a license condition Con Edison's continued monitoring of the environmental effect of its cooling process, study of various cooling tower alternatives, and due care on the utility's part in adapting its present intake apparatus for minimum fishkills. 131 The draft EIS proposed to postpone consideration of closed-cycle alternatives for two years. As counsel for HRFA, NRDC immediately took issue with the AEC's analysis and conclusions. Relying on Clark's analysis, Macbeth developed a detailed criticism of the draft EIS. NRDC's essential argument was that the AEC had underestimated the extent of potential harm to aquatic life, and had overestimated the cost of the closed-cycle alternative design. NRDC pointed out that the draft EIS admitted that Indian Point No. 2 could kill a million fish a year through mechanical damage, and that IS to 20 percent of the annual striped bass population the species about which most was known and whose economic value was highest — would be killed, leading to "substantial reductions" in the striped bass population in the Hudson and the Atlantic fishery.133 This, it reasoned, should be sufficient evidence of a substantial risk of irreversible harm to justify the investment in cooling towers. Such an investment, they argued, was even more necessary when one took into account factors other than the fish-kills. Thus, the NRDC argued, the AEC estimates were based on theories of the extent of damage from Indian Point No. 2 that might well understate the harm. And they did not take into consideration the damage to the fish that would be done by other plants that were about to begin operating. If these were considered, it was suggested, the case for towers was overwhelming. NRDC took a number of steps to bring these arguments to the attention of the AEC staff, in order to persuade them to reconsider the cooling 131. IP 2, Draft Environmental Statement, p. xi-7. 132. Ibid., p. i-vi of Summary and Conclusions. 133. Interview with Angus Macbeth.

178 tower decision. NRDC supplied information on the issue to several Congressmen and Congressional candidates, as well as to the Department of Interior and other public agencies, and urged them to submit comments on the draft EIS criticizing the decision not to require cooling towers. 134 This campaign was successful: three Congressmen and two candidates from the Hudson area submitted comments to the AEC, all questioning the cooling tower decision. Moreover, the Department of the Interior specifically requested that the AEC require cooling towers as did the Environmental Protection Agency. 1 " Further, in May 1972 NRDC attorneys attended a meeting between the environmental interveners — including an engineer employed by the Attorney General of the State of New York - and AEC officials at which the case for the cooling towers was argued informally. The environmental intervenors met with various officials of the AEC management and research staff, including Dr. Phillip Goodyear, the Oak Ridge biologist who was primarily responsible for the preparation of the E I S . ' " At that meeting, the intervenors' biologist reiterated his arguments that substantial harm would be done to the Hudson River fishery by long-term operation of the Indian Point plant without closed-cycle cooling, and noted that there was reason to believe that the plant would cause harm to the fishery. The final EIS was released in early October 1972. It reflected the impact of NRDC's campaign. The analysis of potential plant impact on aquatic life had been revised to indicate the s t a f f s view that the potential harm was greater than they had thought at the time of the draft EIS. And, most important, in place of a recommendation for open-cycle cooling and monitoring, they proposed that the license be condi134. Letters from Angus Macbeth to Rep. Richard Ottinger (May 22, 1972); Rep. John Dow (May 23, 1972); David Slater, U.S. Fish and Wildlife Service (May 25); Yales Barber, Dept. of Interior, Office of Environmental Quality (May 25) (Slater and Barber included Clark's testimony); Rep. John Dow (May 26); Richard Zener, EPA (Apr. 26); Alexander Grannis, New York Dept. of Environmental Conservation (Apr. 26); James Giggane, New York Dept. of Environmental Conservation (May 22). 135. IP 2, Final Environmental Statement, Vol II, Appendix XII-45,142-152. 136. Interview with Angus Macbeth.

Area Studies: Public Interest Law in Action tioned on the installation and operation of cooling towers by January 1, 1978.' 37 Needless to say, the utility was not satisfied with the s t a f f s recommendation and disputed its findings before the Commission's Atomic Safety and Licensing Board. Con Edison questioned the factual basis of the staffs findings and contended that the cooling towers were unnecessaiy. The environmental intervenors, on the other hand, took the position that the impact of the plant on aquatic biota was even greater than the staffs estimate, and demanded that the towers should be installed by December 1, 1976 (HRFA and EDF), or January 1, 1977 (State of New York), about one year earlier than the staff had recommended. 1 " Hearings before the Licensing Board were exhaustive and protracted. They took more than twenty-five days of hearing time over a span of more than nine months 1 3 ' and resulted in approximately 20,000 pages of testimony. While John Clark spent five full days on the stand, most of the testimony on the environmentalist side came from the AEC staff, principally from Dr. Goodyear. The principal environmental (as opposed to nuclear safety) issues at the hearings were the effect of the plant on thermal pollution of the river and the mechanical impact of the plant on the fish population. The parties disagreed on the extent of possible thermal pollution, and on the total effect of the plant on fish in the estuary and in the Atlantic. The main focus was the impact on fish, and most attention was given to the impact on the striped bass, the species which had the greatest commercial and sports fishing value. At the hearings Con Edison, HRFA, and the AEC staff each produced its own study of the impact on bass. The AEC's study, conducted at Oak Ridge, highlighted the defects of the FI, upon which Con Edison's Storm King license was based. The AEC study utilized a computer model analyzing the course of the young fish under various flow conditions; it thus gave full weight 137. IP 2. Final Environmental Statement, Summary and Conclusions. 138. In the Matter of Consolidated Edison Company of New York, Inc. (Indian Point Station Unit No. 2), 6 A.E.C. 751, 761 (Sept. 25, 1973). 139. Affidavit for Costs by Angus Macbeth.

179 to the fact that the Hudson at Indian Point is a tidal estuary, ebbing and flowing, where the FI was inconsistent on that point. Unlike the FI, the AEC report undertook to analyze the relationship between the Hudson River fish population and that of the coastal fishery. The AEC study concluded that the Indian Point No. 1 and No. 2 plants together would destroy between 30 and 50 percent of annual striped bass production, 1 4 0 and that the diminution would not be replenished naturally as each generation matured. 141 The AEC thus concluded that the value to the environment of building cooling towers to protect the fish balanced the cost of doing so. The HRFA presented its own field research study reaching the same conclusions as the AEC staff. The utility, on the other hand, reintroduced the FI data into the case, along with its interpretation of the data, based on a different analytical model. Con Edison contended that: (1) diminution in fish population at the juvenile stage and younger - by entrainment or otherwise — does not entail a proportionate diminution as that generation matures, meaning that a reduction in fish density operates to increase the survival rate among fish in the less dense environment; 1 4 1 (2) the Hudson River fishery is not a major contributor to the coastal fish stock; , 4 ' and (3) research on the impact of the water intake process of fish population was inconclusive at that time. 144 Con Edison originally opposed the cooling towers altogether; after hearings it changed its position, proposing to undertake a research program to be completed in 1977. 14S If that research did not show that use of measures less costly than closed-cycle cooling would result in acceptable levels of fish diminution, then cooling towers would have to be in operation by September 1, 1981. 1 4 6 The arguments were thus highly technical, scientific ones, but in quasi-judicial proceedings 140. IP 2, Draft Environmental Statement, p. XI-7. 141. Ibid. 142. In the Matter of Consolidated Edison Company of New York, Inc. (Indian Point Station Unit No. 2), 6 A.E.C. 751, 761-8 (Sept. 25, 1973). 143. ¡bid., pp. 768-769. 144. Ibid., p. 761. 145. Ibid., pp. 761-778. 146. Ibid., p. 761; see IP 2, Final Environmental Statement, Summary and Conclusions.

Environmental Defense I technical arguments need effective and orderly presentation in a lawyer-like manner. If the environmentalists relied on the AEC for development of the technical, factual case, they relied on the public interest lawyers for presentation of those facts. The interveners presented only three witnesses of their own. The bulk of the examination of agency witnesses and the cross-examination of industry witnesses was performed by the NRDC attorney. 1 4 7 In the end, the Licensing Board did not seem to adopt per se any of the cost-benefit figures offered by the parties. Instead, it concluded simply that "the benefits, to the extent they can be quantified, to be derived from installation of a closed-cycle cooling system on Unit No. 2 are unlikely to approach the cost." ,4 * Yet unquantifiable benefits must be given due weight. In fact, reasoned the Board, NEPA "requires that a natural resource like the Hudson River be protected from serious damage if economic means having less adverse environmental impact are available to provide such protection." 149 Based on that analysis of NEPA requirements, the Safety and Licensing Board granted Con Edison its license but conditioned its issuance on a requirement that the company have a closed-cycle cooling system in operation by May 1,1978. 1 5 0 All parties, with the exception of the Environmental Defense Fund, appealed the decision. On appeal the Atomic Safety and Licensing Baord focused almost exclusively on the fishery issue. The proper interpretation of NEPA was the first issue debated. Con Edison contended that the Licensing Board had erroneously interpreted NEPA as a requirement that the agency give environmental considerations paramount weight in its decisions. Citing Calvert Qiffs, the Appeals Board stressed that NEPA merely requires that environmental factors be weighed in the decision process, and balanced against other values. In turning to the facts of the case, the Appeals Board severely chastised both the staff and the Licensing Board. The staff and the intervenors, it

147. Affidavit of Mr. Angus Macbeth. 148. In the Matter of Consolidated Edison Company of New York, Inc., p. 782. 149. Ibid. 150. Ibid., p. 778.

180

found, had not met their burden of proof on several crucial issues: (1) The hearing record did not support the staff position on the magnitude of the Hudson River's contribution to the coastal fishery.151 (2) The record did not support the proportion of eggs and young fish the staff and the HRFA found would be entrained in the opencycle mechanism. 1 " (3) The record did not support the staffs analysis of the compensatory effect of the destruction of young fish, that is, the thinning out effect. 1 " (4) In all, the Board found such deficiencies in the staffs technical justifications for its position as to require a "fresh look" at those justifications and "reconsideration of the portions of the Final Environmental Statement to which they relate." 154 The Board did apparently concede, however, that its "balancing" view of NEPA notwithstanding, values protected by NEPA may not be amenable to weighing in a strictly quantified costbenefit analysis. Despite the lower Board's finding that, insofar as the costs and benefits connected with the project are quantifiable, the cost of building the towers outweighs the benefits of doing so, and despite its own findings that crucial elements of the environmentalists' case were missing, the Appeal Board ordered the company to have cooling towers in operation by May 1, 1979,155 subject to extension on two conditions: (1) if the construction could not be completed on time, an extension would be allowed "for good cause," 156 and (2) if the utility is able to adduce additional empirical data collected during the interim justifying an extension, it may apply to the Commission for such extension. Thus, although the Appeals Board made a point of the staffs and the intervenors' failure to introduce convincing proof on certain issues, the outcome indicates that as AEC rules provided, the burden of proof was on the utility from the 151. In the Matter of Consolidated Edison Company of New York, Inc. (Indian Point Station, Unit No. 2), 7 A.E.C. 323,406 (April 4,1974). 152. Ibid. 153. Ibid. 154. Ibid., p. 407. 155. Ibid., pp. 325,407. 156. Ibid., p. 408. 157. Ibid.

Area Studies: Public Interest Law in Action beginning, and the environmentalists benefited from this allocation of the burden. Indian Point No. 3. The AEC's position was further clarified in subsequent proceedings on the third plant at Indian Point. On April 25, 1967, Con Edison applied for a license to construct its third and largest nuclear facility at the site. Three intervenors, the Citizens Committee for the Protection of the Environment, the state through its Atomic Energy Council, and an individual, challenged the application on safety grounds. Nonetheless, the license was issued in the summer of 1969.'5" By the time Con Edison was to apply for an operating license for the plant, NEPA had gone into effect. Accordingly, the AEC staff compiled an extremely detailed and thoroughly documented study of, among other things, the impact of the proposed opencycle cooling system on estuarial and coastal fish stock. Like preceding studies, however, the Indian Point No. 3 final EIS did not attempt to measure the effect of the intake system on species other than the striped bass. As we pointed out, the striped bass had the highest commercial and sports fishing value, but it should be noted that white perch constitute approximately 70 percent of the fish impinged on Indian Point power plant cooling systems. 1 " While the staffs cost-benefit analysis will be discussed at length later in this chapter, it is worthwhile to note at this stage that the staff found that on the basis of the data available, and using standard cost-benefit methods, the quantifiable costs connected with building cooling towers for Indian Point No. 3 exceeded the benefits of doing so.160 However, in an approach reminiscent of that of the Licensing Board in Indian Point No. 2, the staff felt that when the limits of the data and the methods were taken into account, and benefits they could not quantify were considered, the cooling towers were cost-justified. While the staffs analysis contained ambiguities that could have been attacked by Con Edison, it did constitute a basis for negotiation between the utility and the intervenors — including 158. In the Matter of Consolidated Edison Company of New York, Inc. (Indian Point Station, Unit No. 3), 4 A.E.C. 246 (Aug. 13, 1969). 159. IP 3, Final Environmental Statement, Summary and Conclusions, p. v. 160. Ibid., pp. 102-103.

181 HRFA, Save Our Stripers (SOS, a group with interests similar to those of HRFA), the New York Attorney General, and the State Atomic Energy Council. As a result of these negotiations, the parties entered into a stipulation providing that Con Edison would receive an operating license for Indian Point No. 3, but requiring that cooling towers be installed by 1980. Summary. This was the status o f the Indian Point controversy when research for this study terminated in mid-1976. 1 6 1 The debate over the 161. As of July 1976 the status of the several projects was: (1) Storm King. Indian Point No. 2 revealed the flaws and deficiencies of the FI upon which the FPC's decision in Scenic Hudson was grounded. Thus, based on the new studies, citizens' groups, including HRFA, were successful in reopening the matter. Hudson River Fisherman's Association k. FPC, 498 F.2d 327 (2d Cir. 1974). Hearings before the FPC on the fish-kill issue will resume in October, 1976. (2) Indian Point No. 1. Although citizen's groups have received permission to intervene in Indian Point No. 1 proceedings, it does not appear that such intervention will be of any practical importance. Indian Point No. 1 is presently inoperative because the plant cannot meet the emergency core cooling system standards of the AEC (now the Nuclear Regulatory Commission). And the cost of overhauling the structure to comply with these standards far exceeds the value of the potential production output of the plant to Con Edison. Hence, the plant will likely remain inoperable and issues surrounding this site will become moot. (3) Indian Point No. 2. Taking advantage of the liberal language of the Appeal Board in permitting extensions of time for construction of the Indian Point No. 2 cooling towers, the power company applied in June 1975 for an extension allowing it until 1981 to build the towers. Con Edison's petition is based on the Appeal Board's willingness to allow the company to reopen the proceedings with new evidence. Since completion of its research program is not scheduled until 1977, it contends, it cannot have the towers completed until 1981. Conversely, to require towers before 1981 would make moot the possibility of producing new evidence. In addition, Con Edison has applied for a second amendment to its operating license. The utility wants the natural draught cooling tower designated as the preferred type of closed-cycle cooling system. HRFA has intervened in both amendment applications, and the parties are awaiting the hearings. (4) Indian Point No. 3. The parties have reached a negotiated settlement on the Indian Point No. 3 license which conditions the license on the installation of cooling towers by 1980, and the plant is expected to be operational this summer. In the course of License Board proceedings on the stipulation, however, the Board ordered the staff to do a new study on the costs and benefits of various closed-cycle alternatives. The order derived from the Appeal Board's statement that the question required reexamination. In the meantime, Con Edison has asked for an amendment of its operating license on the issue of the type of cooling tower required. As it is arguing in the Indian Point No. 2 proceeding, the utility also wants the natural draught cooling tower designated the pre-

Environmental

Defense I

impact of power development on the Hudson continued. Some of the issues discussed here were still unresolved; for example, no final decision had been made on the kind of cooling towers to be used. Other issues might be raised again if new data were made available. Some observers expected Con Edison to reopen the whole cooling tower question if its research program yielded data to contradict the AEC's findings. Finally, new issues will continue to come up that will affect the future of these plants and the Hudson fishery. There are, for example, two additional plants in the planning stages, and there will be debate on their design and impact. And other developments, such as new evidence of nuclear radiation dangers at Indian Point No. 2, and the discovery that chemical substances discharged into the river by the General Electric Company were killing large numbers of fish, will also undoubtedly influence the continuing struggle for preservation of the Hudson fishery. At this point, it is impossible to say precisely what effect the work o f NRDC has had or will have on the Hudson River environment. T o do that in a definitive way, we would have to know what would have happened in Indian Point if NRDC had not intervened, and we would have to predict the outcome of numerous future decisions in the Indian Point project and on other plants along the river. It is, however, possible to say that the Indian Point controversy led the AEC to articulate a new policy governing the environmental impact of the plants it licensed, and that this policy will continue to affect decisions in the area. For it seems clear that through the controversy over Indian Point, the AEC came to understand more about the environmental risks involved in power development, and, as a result, it developed and implemented a policy that places on the proponents of development the burden of proving that risks involved in a proposed undertaking are low. Moreover, it is clear that the decision to shift this burden to the utilities made a big difference in the decision on the Indian Point license, and will

ferred system here. In addition, it remains to be seen whether Con Edison will seek an extension of the 1980 deadline for Unit No. 3. Given the decision to extend the deadline in Unit No. 2 to 1981, such a move would seem a distinct possibility once results from the research program are available.

182 probably affect the final design of that and all future plants in the area. If we take this change in policy as the principal result of the Indian Point controversy to date, we then are led to ask to what extent the change can be attributed to the work of NRDC, and whether the change can be said to be in the public interest, as that term is used in this study. The historical study of the decision gives us reason to believe that PIL intervention was significant in bringing this policy change about. Without the prior work by PIL litigators who caused the courts to flesh out NEPA's vague mandate, it is doubtful that the AEC would have prepared the thorough environmental impact statement that it did. And without specific intervention and advocacy by HRFA and NRDC in the licensing proceeding, it seems equally unlikely that the conditional requirement for cooling towers would have been placed in the license. We surmise that NRDC action was a significant factor in the outcome, but was the outcome one that could be said to further "the public interest"? Clearly, the decision increased by a substantial degree the chances that funds would be spent to protect the fishery. But would such expenditures be more efficient or more equitable than open-cycle cooling? In the next section we shall attempt to answer these questions.

Evaluating the Performance of the PIL Lawyers in Indian Point In order to determine whether the decision to make cooling towers a condition of the license was an efficient change, as well as to understand why PIL intervention might be necessary to secure such a move, we must first understand why it is unlikely that private market decisions will lead to optimal design of facilities with potential environmental impact, as well as why government licensing agencies may not be expected automatically to correct any such private market failures.

Private Market Failure Can we expect that there is a private market failure in this case? We know that decentralized decisions in markets may not lead to the most

Area Studies: Public Interest Law in Action efficient allocation of resources, and that some form of collective action may increase welfare through an allocation that would not prevail in the private market. To determine if this is the case, in a given situation, we must first ask if there is a potential private market failure - if, for example, there are institutional barriers that keep consumer demands from being translated into producer decisions to satisfy these demands. The market in this case certainly contains such barriers. Because of information, communication, and transaction costs, it seems unlikely that bargaining will occur between the parties affected by the decision in a fashion that would permit us to say that the market solution constitutes an efficient allocation of resources. To demonstrate this, let us assume that there are only two groups affected by the cooling tower decision: fish lovers and the utility. Fish lovers include all those who derive some welfare from the fishery, and the utility stands for all those who benefit from more and cheaper power. Assume further that the utility is free to choose between open-cycle and closed-cycle cooling and that there are no barriers to bargaining. In this case the utility would choose the open-cycle system since it leads to lower costs and since the utility is under no obligation to consider the harm to fish or fish lovers. If, however, the fish lovers feel that the value they place on the fish that will be killed without cooling towers exceeds the cost of having the towers, they might organize and try to bribe the utility to build the towers. If they were not able to bribe the utility, then it would be clear that the value of fish killed would be less than the cost of eliminating the kills. On these assumptions it would follow that if, after an opportunity for bargaining, the utility decided to maintain open-cycle cooling, then this must be the most allocatively efficient design for the plant. But it should be obvious that there are enormous barriers to the kinds of bargaining envisioned in this ideal model. A close look at the nature of the groups affected and thè problems of assessing the losses to fish lovers caused by the open-cycle system makes clear the high potential for private market failure in this case. The potential impact of Indian Point No. 2 on the environment is very great. The plant will kill many species of fish through entrainment and

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Environmental Defense I

fish population levels and each commercial fisherman can assess the decline in income caused by the reduction in the fish population and thus in his catch. Moreover, "environmentalists" can assess the loss to them from the decline in fish population, the risk of species extinction, and other environmental damage. The first thing we realize is that even on these assumptions it is highly unlikely that the fishWe can divide the "fish lovers" — those con- lovers could actually aggregate the amounts they cerned with these effects — into two groups: would be willing to pay to have the cooling fishermen and environmentalists. Fishermen in- towers installed. First, the costs of identifying clude sport anglers and commercial fishermen. and informing these dispersed groups and indiEnvironmentalists include all persons who place a viduals are immense. The commercial fishermen value on fish and the entire Hudson River ecol- number in the thousands and are not organized; ogy over and above any value derived from cur- other users of the fish resources are numerous rent sport and commercial use. In this latter and geographically dispersed. There are, for example, currently about 450,000 sports anglers category fall at least four groups: Those who believe that the present economic fishing for striped bass in the area in which the value of a resource like the bass fishery under- plant's impact may be felt. Moreover, we must take into account all those who might want to states its value to future generations. Those who believe that we should preserve fish these waters in the future. In addition to the not only those animal species we use - like the costs of informing and securing agreement of all striped bass — but also those for which man has affected parties, there may be "free-rider" effects no significant use, like the white perch, since which would cause some potential beneficiaries from the towers to refuse to help finance their future generations may find a value for them. Those who think that fish kills may do un- construction. But the likelihood of private market failure known damage to the entire ecology of the river, and believe that these potential losses should be increases even more if we relax the wholly unrealistic assumption of perfect information. eliminated at all costs. Those who think that man has an obligation When the Indian Point controversy began, no one not to harm any natural species regardless of had any accurate data about the impact of these whether man is now or ever will be directly power plants on fish life. The only study that had been done - the Fisheries Investigation benefited by the existence of that species. To show the nature of the private market (FI) — was subsequently discredited, and Con failure in this case, let us start by making the Edison had not anticipated the large fish kills of assumption — to be relaxed later — that all af- the 1960s. During the controversy, substantial fected persons have perfect information. That is, sums had to be invested in studies that tried to assume that all the people who currently fish for determine the number of fish that would be sport or profit, or who might do so during the killed by the plant, and the effect of these deaths life of the nuclear plant, as well as all persons on the total fish population in the Hudson and who value fish perservation for other reasons, the Atlantic. Even after this investment many know the exact impact of the plant on all the questions remained unanswered; Con Edison is species of fish. Assume further that they know currently spending $15 million on a program the probability that the plant will cause the de- designed to close the gaps in knowledge about pletion of a species, and that they can predict the plant impact. Moreover, even if we had much effect of the fish population decline on their better information about these issues, it would activities or on other aspects of the environment be difficult to diffuse this information to all that concern them. In this case, each angler or groups and individuals affected. potential angler can decide what he would pay to There are also structural barriers to producing be able to continue to fish in waters with current the needed information. All the fish lovers have impingement. It will raise river temperature and will have some effect on all forms of river life. The plant will damage some species of fish that are commercially fished and sold, some that are caught by sportsmen, and some that are not consumed by man. It will affect the level of the fish population in the Hudson and in Long Island Sound, but may also affect the entire Middle Atlantic fishery.

184 an interest in better data about impact and presumably would be prepared to pay for that information, but no one user can afford the needed investment in information; yet the dispersion of the group makes it difficult to aggregate the fish-lovers to finance production of the data, especially since in this area too we can expect "free rider" problems. Thus it is safe to conclude that there is a potential private market failure here and that we cannot expect the private market to yield an efficient allocation. But that still leaves us with the question whether the failure can be corrected at a cost less than the welfare loss involved. Unless this is the case, there is no "private market failure," as that term is used in this study. But how do we determine the relationship between the welfare lost from the uncorrected failure and the cost of correction? The dilemma is that the very factors that create "market failure" also make it extremely difficult to determine the extent of the efficiency gains, if any, that might be achieved with collective action. Our analysis of market failure suggests that structural features of the market make it likely that affected groups will under-invest in information about plant impact. Moreover, it also suggests the difficulty of identifying all the persons who would be affected, or of estimating their welfare losses from the operation of the plants without cooling towers. Because this is the case, it is extremely difficult to say whether a net efficiency gain is possible through government action. The difficulty of determining the facts in the Indian Point cases leads me to abandon quantitative analysis in the identification of actual market failures, and to rely instead on a "structural analysis" which indicates how likely it is that actors in a case will have the incentives to secure and act on the relevant information. This structural analysis, described in detail in the next section, will show that NEPA altered the incentives faced by the AEC; the new incentives encouraged the agency to determine the potential damage that will be caused by activities such as open-cycle cooling, and to take environmental damage into account in its licensing procedures. NEPA, however, did not alter the agency's incentives sufficiently to ensure that misallocations would be either detected or corrected. The possibility of government failure remained.

Area Studies: Public Interest Law in Action AEC Decision-Making Prior to NEPA. Prior to NEPA, at least, the very factors that made for potential private market failure in a case like Indian Point also made it highly probable that there would be a government failure. To understand this, we must look more closely at how the AEC approached nuclear licensing matters before NEPA. At that time, AEC had the legal authority to regulate all aspects of nuclear plant design. There was nothing in its statutory authority that explicitly precluded it from requiring design changes that would reduce negative environmental effects. It was not, however, specifically obligated to consider environmental harm in making its decision, and the AEC took the position that it had no legal authority to require private firms to make design changes solely on environmental grounds. Even if the AEC prior to NEPA had had the power to require such changes, three features of AEC decision-making tended to make it relatively insensitive to environmental issues in general. These are (1) its "promotional" and industryoriented biases, (2) its tendency to a "satisfying" decisional process, and (3) the procedural arrangements for licensing. First, as an agency designed to promote nuclear power, the AEC saw its mission as furthering the industry. Thus it favored cheap nuclear power and was not sympathetic to arguments that would delay construction of nuclear plants or raise the cost of nuclear power. Moreover, as a regulatory agency substantially influenced by industry views, AEC tended to listen more to the utilities than to their critics. Thus its industry orientation tended to make it less than sympathetic to environmentalist concerns. Environmentalists claimed that the impact of nuclear plants on the environment was greater than either the AEC or the industry was prepared to admit. AEC had little incentive to secure information on such matters, since this information could prove harmful to the industry with which it identified. Secondly, like all agencies, the AEC engaged in what March and Simon call "satisficing" rather than "maximizing" decision-making." 5 That is, it looked for the first solution to a problem that seemed to meet its decisional criteria, but did not search for the best of several solutions that might 162. See 140-141.

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185 meet these criteria. Imagine a problem for which we know there are two solutions. Both benefit the industry but the second also benefits environmentalists. The theory of "satisficing" tells us that an agency will spend no resources on investigating the second solution if the first is adequate given its criteria. We would expect that this is what AEC was doing before NEPA. Finally, AEC procedures and the weakness of environmental groups combined to make it difficult for environmental issues to be effectively injected into the licensing decision. Prior to NEPA the AEC made no independent appraisal of environmental impact. Moreover, it was difficult for citizen groups wishing to raise environmental issues to secure access to AEC decisionmakers. AEC licensing procedures are complex, both legally and technically. Effective intervention requires substantial time and resources as well as technical and legal expertise. We have suggested that AEC decision-making processes may contain structural features that bias the Commission against giving full consideration to a case in which the environmental harm of a given design outweighs the gain to power users of that design. In a sense, that allegation is hard to prove, since it was rare, at least before NEPA, that such cases could even be made, given the obstacles confronting environmentalists. But this fact alone suggests the likelihood of a government failure. For if an agency's action might benefit a group, yet the group is unable to demonstrate the existence of such potential benefits, it seems likely that some opportunities for efficient action will be overlooked. To see how this may work in practice, let us return to the case we have been examining. The fish-lovers may be the group best able to assess the nature of the damage, and they certainly are best able to indicate the amount of harm that it would cause to them and thus to society. But for the very reasons that we found a private market failure here, the fish-lovers are unlikely to present this information to the public agency. First, consider information. To make an effective case, the fish-lovers must know what impact the decision will have on the fish, how many persons it will affect, and the value those people place on the damage. But this information is lacking, and since the fish-lovers are dispersed, it will be difficult for them to aggregate resources to produce it.

Environmental Defense I Even if the information - or at least some of it - were available, the fish-lovers lack resources to present it to the agency. Effective intervention requires the services of expensive professionals over substantial periods of time; in cases like Indian Point the market value of such services (exclusive of the cost of producing information) could well exceed $500,000. (Con Edison spent over $1,000,000 in legal fees on Indian Point No. 2.) Unless some small and organized subgroup among the fish-lovers stands to gain enough to warrant these expenditures, it is unlikely that the advocacy resources will be available. In contrast, the industry can afford to develop its case in detail. Expenses for these purposes are easily recaptured through tax deductions and rate increases. The utilities are also "repeat players" 165 in the sense that they engage in numerous controversies involving plant licenses and may secure benefits in one case that will be of value in other controversies. Fish-lovers, on the other hand, may be "one-shot players," who are only concerned with the outcome of a single controversy. To the extent that this is the case, the utilities will be more likely to invest in advocacy services than the fish-lovers. In summary, then, prior to NEPA there were no effective incentives for the AEC to develop or seriously consider data about environmental damage from plant design. The AEC did not believe that it had the legal power to correct the private market failure we have identified, and in any event it had no incentive to do so. For substantially the same reasons that there was a private market failure, the government failed to correct allocative biases of the private sector. The Effect of NEPA. As we have explained, NEPA was designed in part to correct such defects in government decision-making. The authors of NEPA had decided that agencies like the AEC were underinvesting in information about the environmental impact of their decisions, and were giving too little weight to the information they did have. Thus, they established a requirement for more careful environmental analysis before action was taken, and mandated fuller consideration of environmental impact in decision-making. 163. See Galanter, "Why the 'Haves' Come Out Ahead."

186 NEPA's passage created an opportunity to correct the government failures we have identified. NEPA, in combination with judicial interpretation of the statute, eliminated any doubt that the AEC had the legal power to require design changes that would reduce environmental damage. But mere passage of the statute did not guarantee that the Commission would change its decisional processes such that it would make effective use of that power. Since no mechanism was created for effective policing of NEPA's mandate, it is little surprise that the AEC, like many other agencies, responded very slowly to the new requirements. NEPA did little to change the agency's promotional orientation, its responsiveness to industry views, or its dislike of expensive processes of search for "optimal" as opposed to satisfactory policies. But NEPA did make one major change in the structure of decision-making about power plant design. Until NEPA, groups such as our fishlovers had no substantial leverage over the AEC or the utilities. They could protest decisions but they could neither delay them nor force the agency or the corporation to invest in more data. Once NEPA was passed and it became clear that citizen groups could intervene in agency processes to secure enforcement of the statute, and that the courts would, at the very least, require agencies to prepare thorough environmental impact statements, groups like our fish-lovers were armed with a potentially powerful tool. This weapon was useful, however, only to the extent that the environmentalists could get access to licensing procedures and effectively invoke the courts if NEPA requirements were not complied with. Moreover, environmentalist intervention would cure the government failure only if the environmental impact statement in fact produced full and complete data about impacts and if the data were heeded. For this to occur the environmentalists would have to be able to grasp the technical issues and gain access to the decisional arena so that they could effectively evaluate the environmental data and advocate its "proper" interpretation. Given the pre-NEPA Agency biases, the complexity of the issues and the reluctance of agencies to invest time and money in thorough environmental assessment, the environmentalists' task would be a hard one even in cases where environmental protection was clearly the effi-

Area Studies: Public Interest Law in Action cient choice. But this task became more difficult — and thus perhaps more crucial — in cases where even a relatively extensive environmental analysis failed to point unambiguously to one solution. To understand this, let us look more closely at the nature of the decision in Indian Point No. 2. Evaluating the Indian Point Decision We have seen from the case study that in Indian Point the environmental groups successfully exploited the opportunities NEPA created. Although it is impossible to say that PIL participation was the cause of the decision to require the cooling towers, clearly it was an important factor in that decision. But what can we say about the question whether this decision itself was an efficient one? To attempt to answer the efficiency question, we must first determine what was actually decided by the AEC in Indian Point No. 2 and the reasons for the decision. On close analysis we can see that the decision is more complex than a requirement that the cooling towers must be built; accordingly, evaluating the role of PIL lawyers requires a more complex analysis than an effort to determine if cooling towers are more efficient (or more equitable) than open-cycle cooling or some other alternative. Indeed, as we shall see, the most significant aspect of the Indian Point case is the fact that no one can say with certainty what is the most efficient choice. The real problem posed by the Indian Point controversy is the determination of the appropriate rule of decision under conditions of uncertainty. For despite the vast efforts of both sides to secure factual data on the impact of the plant on the environment, and to assess the implications of the several alternatives open, the data were insufficient to determine conclusively that one solution was clearly preferable. A simple model and example may help to clarify the problem faced by the AEC. Assume that a plant is proposed for which we know the following: 1. Without considering environmental effects, the net value of the electricity generated is

$1,000,000. 2. The plant will have an impact on aquatic life. We can value the loss to society from a given degree of environmental damage, but we do not have adequate data to know exactly what the

187 impact is. We have two estimates. The low estimate is that damage of $50,000 will be done, while the high estimate is that damage will be $500,000. We do not, however, have any way of knowing which estimate is most likely to be correct. 3. We know that cooling towers could be built that would eliminate all damage to aquatic life and whose cost (including any esthetic harm) is $300,000. Given these data, what choice should be made? First, let us see the possible outcomes. The efficiency gains (losses) in thousands of dollars would be as follows:

No plant Closed-cycle Open-cycle

Low Damage

High Damage

(-950) 700 950

(-500) 700 500

Environmental Defense I tential loss of other benefits. Accordingly, even in simple examples with a known range of possible costs and benefits, subjective factors of risk preference must be included in the calculus before a single solution can be selected. If cost-benefit analysis requires an essentially subjective judgment about risk preference under the simple conditions of uncertainty present in the foregoing example, it will entail even more subjective decisions in complex environmental disputes like that in Indian Point No. 2. For in situations like this there are so many points of uncertainty, and so many aspects of the situation that cannot even be reduced to a quantitative dimension, that even the most sophisticated cost-benefit study will require innumerable choices in areas with no objective guide. The Licensing Board caught the complexity of the situation well when it lamented that: No one knows in detail what activities of life go on in the unseen depths of the Hudson River nor what the future response to changing inputs is going to be. Under these conditions the experts are free to choose those assumptions which best fit their beliefs about what may go on, and the arguments that follow produce thousands of pages of testimony and documents without providing answers that can be agreed upon, or that can give clear guidance to a Board. 165

In this example it is clear that the decision to build the plant is efficient as long as the damage does not substantially exceed the high estimate. But the issue whether the cooling towers are the most efficient design depends on which of the estimates is correct. If the low estimate of environmental harm is correct, the decision to construct the towers would not be efficient, since they cost $250,000 more than the benefits they yield. But, on the other hand, if the high estimate is right, the towers should be built, since they will result in an efficiency gain to society of $200,000. The example indicates that under conditions of uncertainty, cost-benefit analysis may yield no determinate answers. Of course, there are ways to narrow the range of indeterminacy. Thus, for example, if we have data on the relative probabilities of the high and low estimates in the example, a determinate solution can be secured. And even without such data, game theory provides techniques that can yield a single answer to the problem in our example. But as E. J. Mishan has pointed out, all such techniques imply certain judgments about the degree of risk we are prepared to assume. 164 In this case, these judgments are about the relative value of the risk of environmental harm versus the value of the po-

In Indian Point No. 2 the data available and accepted by the AEC were sufficient to show that some damage would be caused by the plant and that much of this damage could be avoided by requiring cooling towers. The cost of the cooling towers was known. Moreover, the data made it possible to identify the worst possible form of damage that could occur. But there was no way to quantify the losses that would occur if this worst case occurred, or to estimate the probability of its occurrence. Thus, in deciding the cooling tower issue, the AEC had to have some criteria for determining the social preference for risk.

164. E. J. Mishan, Cost Benefit York: Praeger, 1974).

165. In the Matter of Consolidated Edison Company of New York, Inc., p. 762.

Analysis

(New

In its effort to grapple with the situation, the Licensing Board explicitly recognized that the principal issue in the case was how to allocate the burden of uncertainty. Con Edison argued that the data which the AEC had introduced were insufficient to justify the finding that cooling towers were required. The Board agreed that the

188 towers would only be justified if there was sufficient evidence to justify a finding that the costs of building the towers were less than the benefits they would yield. And it accepted the validity of the utility's claim that the evidence did not show to a certainty that this was the case. Nevertheless, it held that there was adequate evidence to support the finding that tower construction was warranted. Accordingly, it explicitly recognized that the issue at stake was which party should bear the burden of proof. The data were far from precise. Each of the parties had different estimates for key figures; the range of estimates is presented graphically in Figure 7.1. This figure shows the positions of the parties, and the Board, on two key variables: the percent of Hudson River striped bass that would be killed by all plants on the river after Indian Point No. 2 was operating, and the percent of the fish in the Middle Atlantic fishery that were produced by the Hudson River estuary. These variations led to very different estimates of the monetary value of the environmental damage that would be done by operating Indian Point No. 2 with once-through cooling; these ranged from Con Edison's estimate that the annual value of the loss would be as low as $740,000, to HRFA's estimate that damage would be in the vicinity of $13,000,000 per year. The Board made findings on the probable range and the value of damage from the plant. It concluded that the monetary value to the fishery would range from $1.4 million to $5.6 million annually. It also found that the cooling towers would cost $16,000,000 per year. Thus the range of the Board's estimates, and also the difference between the quantifiable benefits and their cost, is shown in the following tabulation (figures are millions of dollars per year):

Estimate of loss to fishery (QB) Cost of towers (C p ) Cp-QB

Low

High

1.4

5.6

16.0

16.0

14.6

10.4

The Board recognized that the cost of the towers would be greater than its own estimate of the largest possible quantifiable loss to the striped bass fishery. Nevertheless it concluded

Area Studies: Public Interest Law in Action that NEPA required that the cooling towers be constructed. Since it assumed that this would be required only if the benefits of environmental protection outweighed the costs of the towers, we must conclude that the Board felt that it had before it sufficient data to justify a finding that Indian Point No. 2 would do at least $10.4 million in damage over and above the estimate for quantifiable losses to the striped bass fishery (that is, unquantified benefits, UQB, were greater than C p -QB). Why did the Board think this conclusion was justified? The explicit discussion of this point is brief and unclear. The Licensing Board admitted that, using the losses that could be quantified and the known cost of environmental protection, the benefits of protection would be unlikely to approach the costs. That is, given the highest estimate of quantified damage, the costs of the towers will be larger than the monetary loss. But, the Board went on, NEPA "requires that a natural resource like the Hudson River fishery be protected from serious damage if economic means having less adverse environmental impact are available." The Board found that Indian Point No. 2 had the potential for causing serious longterm damage to the fishery, and noted that the AEC staff considered the fishery a "priceless resource." It further observed that the cooling towers would remove the potential for such damage. On this reasoning it concluded that the cooling towers must be built. The key issue is what the Board meant by "economic means." The Board rejected one possible interpretation: that an environmental protection measure is justified (is "economic") only if its dollar costs are less than the quantified environmental savings it would create under the "worst case" assumptions about the extent of damage. All the various AEC bodies that dealt with Indian Point No. 2 (the staff, the Licensing Board, and the Appeals Board) agreed that there were benefits from the towers that could not be quantified, so that the quantitative figures for any estimated degree of impact would understate the total social benefits from protection. In addition, all agreed that NEPA required that these benefits be taken into account. But the AEC was less clear on the criteria to be used to decide if protection was or was not warranted in this case. The tasks here are to determine the appropri-

189

Environmental Defense I

100-1 9080o

BS .2 .2 u 5 a o "O C 1» C f> C3 o. -r J.

70-

•

s

2

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60 — 50-

•S,

40At

30201 0 -

10

J_ 20

I 30

40

50

60

70

80

90

100

(x)

Percent of Fish in Mid-Atlantic Fishery Provided by Hudson

A

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A 2

-

H

-

H R F A x = 80, y = 56

Si S^

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Con Edison's Best x = 5, y = 5 Con Fdison's Most Conservative x = 10, y = 30

Staff's Highest x = 80, y = 64 Board's Highest x = 80 y = 60

Figure 7.1 Range of Estimates on Impact of Indian Point No. 2 Plant on Striped Bass Fishery ate risk preference and the probabilities of environmental damage, and to estimate the amounts attributable to unquantified damage. One approach to these tasks would be to act on the assumption that the "worst case" estimate is correct and to use the highest conceivable estimate of the sum of quantified and unquantified losses, and to require protection if this would begin to approach the cost of protection. This approach was rejected by the Appeals Board. Con Edison had argued that this was, in fact, the test used by the Licensing Board and

staff, and that it was erroneous under NEPA to use any test like this which employed the "worst-case" estimates. The Appeals Board agreed with the utility's argument that such a test, if employed, would not be consistent with the Calvert Cliffs notion of "finely tuned and systemic balancing." It said that a "rule of reason" must be used to arrive at "the most reasonable expectation as to the predicted environmental effects of a proposed course of action." However, the Appeals Board did not accept Con Edison's contention that the Licensing Board had

190 erred in its analysis. The Appeals Board, while recognizing that the Licensing Board decision was unclear, decided that the decision rested on application of an appropriate rule of reason. The Appeals Board agreed with the Licensing Board's decision although it did question some of the Board's findings and did modify the deadline for installation of closed-cycle cooling. The Appeals board, then, accepted the lower tribunal's basic conclusion that on the evidence then available, the proper decision was to require installation of the cooling towers. None of the three AEC decisions — those of the staff in the Final Environmental Impact Statement, the Licensing Board, and the Appeals Board — contains a clear statement of the process of decision that was followed. But if we take them as a whole, and also look at the final EIS for Indian Point No. 3, where the staff explained the analysis, it is possible to construct the reasoning process that lay behind the decision. Briefly, the procedure seems to have been as follows: 1. Determine all possible impacts of the plant on the environment. 2. Identify the range of impact that is possible. 3. Quantify the loss to the environment from this range of impacts, which will yield high and low quantifiable benefits from environmental protection (QB). 4. Compare these figures with the costs of eliminating the damage (C p ). 5. If the quantified environmental damage is greater than the cost of protection, regardless of the range of estimates, require the protective measure. 6. If the quantified damage is greater only on the high estimate, or if it is lower on both, then follow procedures set forth below. (a) Determine how large the unquantified damage would have to be to make total environmental damage greater than the costs of protection; that is, calculate Cp-QB. (b) Identify all unquantified benefits (UQB) to see what likelihood there is that they could exceed the difference between C p and QB, using the following criteria: (i) place a low value on protection measures that can be discontinued if data show they are unwarranted; (ii) place a

Area Studies: Public Interest Law in Action high value on any impact on the environment that will lead to an irreversible change in natural conditions; (iii) where there is any evidence to support the high damage estimate, use this figure (or magnitude) unless the preponderance of contrary evidence proves it wrong, (c) Compare, using orders of magnitude at least, the potential loss on the high estimate with the cost of securing the protection if the low estimate is correct. If the ratio is high, require the protective measure. If this is what the AEC was in fact doing, its decision makes a great deal of sense. For Indian Point No. 2, steps 1-4 were carried out and this led to the decision that the cooling towers would be justified if UQB were $14.6 million on the low damage estimate and $10.4 million on the high. It was clear that there were at least three reasons for UQB's: ( l ) a n underestimation of QB, since there was reason to believe that the figures used to estimate QB were low; (2) the value of harm caused to species other than bass; and (3) what the AEC called the "non-consumptive value" o f f i s h . Moreover, if the high estimate were correct, there was a possibility that the striped bass population would decline permanently, and that other permanent ecological damage would be done. Since Con Edison could not disprove the possibility that damage would occur at the high estimate level, it seemed reasonable to assume that UQB would exceed $10.4 million a year, and thus that the cooling towers were an "economic" alternative if the high estimate were correct. But this would not, under the rule of reason, have resolved the issue since it was not certain that the high estimate was correct. Thus it was also necessary to see what would be the social cost of requiring the towers if the low estimate were proven to be right. It was clear that there were some UQB, even on the low estimate, since estimates of QB were low for bass and since other species were not included in these estimates. However, the magnitude of UQB would be lower if the low damage estimate were right, since on that assumption the danger of irreversible damage - which has a high weight - was much less. Thus if the low estimate proved to be right, the cost of having chosen the cooling tow-

191 ers would be something less than $14.6 million per year. Let us assume that if the low estimate of damage is correct, the towers will cost $10,000,000 per year more than the environmental benefits they will yield. This calculation gives us the highest possible opportunity cost of building the towers. The issue becomes whether it is worth running the risk that this loss from possible overprotection will occur, in order to be certain that society will not have to pay the cost involved if no protection measures are taken and if the high estimate proves correct. It permits the decision-maker to determine whether the possible cost of overprotection exceeds the possible benefits of requiring protection against harms whose ultimate magnitude cannot be quantified.

Environmental Defense I this conclusion rested on acceptance of a number of choices and decisions about risk preference and the possible magnitude of unquantified benefits whose validity cannot be subjected to objective evaluation. Thus it is ultimately up to the reader to decide if he or she agrees, as this observer does, that closed-cycle cooling was more efficient than the open-cycle system. What Did thePIL Firm Do? Our analysis gives us reason to assert that the final decision was "efficient." Moreover, we do not believe that the decision entailed any large or systematic distributional effects that could be labeled "regressive." We have suggested that PIL intervention helps explain the agency's ultimate decision to select this solution, and thus can be seen as contributing to the correction of a government failure. But we have not yet identified the unique contribution of PIL to this outcome.

The AEC decided that in this case protection was worth this possible risk. The decision was We have noted that agency biases may lead to made easier because the AEC's decision itself was not irreversible. That is, until construction actu- governmental failures in the area of environmenally starts, Con Edison is free to bring in new tal analysis, and we have suggested that NEPA data to show that the high estimates are in- opened the door to some correction of these correct. What the decision does is place the bur- biases. But we have also suggested - and the den of proving that the cooling towers are ineffi- 'history of Indian Point confirms it — that alcient on the utility; the decision requires that the though NEPA was a necessary condition for eftowers be built unless that burden can be met in fective correction of biases, the statute by itself was far from sufficient to insure that any governthe near future. The decision was also made easier because the mental failure attributable to undervaluation of costs of the "insurance" factor can be spread environmental protection measures would be among the power consumers. To the extent that corrected. all costs go into the rate base of the utility, and We saw that PIL lawyers had to employ the eventually they all should be included in the rate courts to make NEPA work. This litigation cambase, they will be passed on to all of Con Edi- paign helped clarify ambiguities in the legislation son's customers. Given the size and heterogeneity and made credible to recalcitrant agencies the of that group, it may have seemed to the AEC threat that they would face litigation if they that the costs of this "insurance" would not fall failed to conduct the analysis that NEPA called on any one social group or class. Another cost of for, and also, perhaps, if they failed to give due having the towers — esthetic degradation — will weight to environmental values in their decisions. fall on those who live near the plant, but the The discussion of the Indian Point case has Commission obviously thought these costs to be shown how the overall PIL litigation effort to relatively small, and hoped they could be mini- make NEPA workable affected the AEC's decimized by imaginative design. sion to invest substantial resources in analyzing Was this, then, an efficient decision? If it was, the costs and benefits of environmental then the AEC's original position could be cited as protection. an instance of "government failure." The Licensing and Appeals Board explicitly held that the ultimate decision was "efficient," in the sense that it was based on sufficient evidence to warrant a finding that the benefits of the towers exceeded their costs. But as the analysis shows,

Thus we can see that the PIL litigation under NEPA established a set of rules for agencies that would, if complied with, require them to conduct thorough environmental analyses and to make use of the data they gathered in their decision-making. If agencies internalized these

192 rules, the early PIL litigation would lead to better information and would increase the likelihood of efficient public decisions. Even if agencies did not voluntarily accept their NEPA obligations as defined by the courts, the case law made it relatively easy for those PIL firms that monitored agency behavior to secure court orders requiring more thorough environmental analysis. But the Indian Point case shows that much more is at stake than making rules or securing compliance with rules about environmental analysis. For as that controversy makes clear, even when a thorough study is done, there is n o guarantee that the investment in information will lead to more efficient agency decisions. Thus in all decisions, but especially in trial-type proceedings like AEC licensing or rate cases, the information must not only be compiled and analyzed but must also be effectively presented to decisionmakers in complex proceedings. Usually private firms with economic incentives to minimize environmental protection participate fully in these proceedings, employing costly advocacy services. Moreover, agency staff frequently will be as resis-' tant to environmental protection as private industry. Where, as in Indian Point, the agency staff does eventually come to favor protection, the interested private party will still have opportunities to challenge staff findings and conclusions. But ever more significantly, as Indian Point also demonstrates, even the most thorough environmental assessment — and the Indian Point studies are considered models of their kind — may, and frequently will, fail to provide an unambiguous answer to the question whether environmental protection measures are efficient. It is in situations such as this that the PIL firms may make their most substantial contribution to furthering the public interest. Agencies have no legal discretion to avoid NEPA's mandate to prepare an EIS and to "consider" it, and if NEPA has some "substantive" thrust in addition to its procedural authority, agencies may have no discretion to refuse to take environmental protection measures, at least in clear cases where such measures are unambiguously efficient. Nevertheless, on any theory of NEPA, the agencies still have substantial legal discretion in complex and ambiguous areas like the Indian

Area Studies:

Public Interest Law in Action

Point No. 2 case. And since all monitoring efforts are limited, agencies have de facto discretion in a wider range of situations. In some instances, agencies may attempt t o narrow the range of choice by making presumptions and allocating burdens of proof, so that decisions can be made when evidence is conflicting. We have seen how the AEC apparently used a specific allocation of the burden of proof in its analysis of closed-cycle cooling systems at Indian Point. But devices such as presumptions or a burden-of-proof rule require close scrutiny of complex issues and the exercise of judgment, so that even when such decisional rules are used they are not self-executing. Further, the complexity of many of the decisions is such that presumptions will narrow the range of choice, but will not point unambiguously to one choice. Thus many environmental decisions are, in the last analysis, made in murky areas where no single "right" solution is evident, where data are in conflict, and where subtle tradeoffs and weightings that defy quantification must be made. It is in decisions like this that PIL lawyers may play their most important role. In areas like this, questions of fact, value, and law begin to merge, and even unbiased decisionmakers lack any certain guides to choice. In these gray areas where such neutral techniques as costbenefit analysis fail to give conclusive guidance, the likelihood that the agency will make an "efficient" choice may depend on its capacity t o secure the benefits of more informal and direct participation by affected groups in the decisional process itself. Cost-benefit analysis is a way to secure data that the private market has failed to provide. But it is a tool of limited value. Behind apparent "hard d a t a " lie many educated guesses about the preferences of groups whose voice is not heard in the decisional process. This process may distort the information being communicated. Moreover, even when information is present, decision-makers may lack incentives to act on it. In such cases, effective presentation of issues may depend to a substantial degree on the advocacy skills of those who argue for the various affected groups and interests, and on their capacity to change decision-makers' incentive structure. To the extent that these efforts are influential in shaping the decision, and to the

193 extent that an agency is limited in its capacity to consider for itself all the possible implications of a decision, decisions will be affected by the quality of advocacy and the degree of coercive sanctions advocates may resort to. In complex environmental disputes environmental advocates can perform the following roles: 1. Monitor agency decisions to be sure all relevant factual data have been considered. 2. Where factual issues are in controversy, provide data which would support the case for environmental protection and probe the evidence underlying the opposing case. 3. Where the issue is the value, rather than the degree of harm, make the case for full consideration of all unquantified harms. 4. Where decisions turn at least in part on the interpretation of presumptions and burdens of proof, scrutinize preferred evidence to insure that weak cases are not accepted by decision-makers. 5. Where the issues turn on the appropriate risk that society should take with regard to potential environmental harm, marshal the legal, political, and moral arguments for avoiding risks of environmental damage. 6. Where the agency fails to heed information that is presented, mobilize all available external forces that might change the decision-makers' incentive structure. In Indian Point, these roles were performed by the PIL lawyers. The bulk of this task fell to the lawyers in large measure because of the type of proceeding principally involved - a complex, trial-like agency procedure. In other cases where peculiarly legal skills were not so much at a premium, other specialists might have effectively advocated the environmental cause. The issue is whether effective environmental advocacy was a significant factor in securing the outcome that was achieved. We believe that it was.

Assessing the Costs and Benefits of PIL Participation. We know approximately what the direct costs of PIL activity in this area were. NRDC spent approximately $89,000 on lawyers' time, and we can roughly estimate that related costs were about $40,000. About $25,000 was spent for experts. Although other PIL lawyers and New York officials participated in the proceedings, they were of minor significance.

Environmental Defense I It has been argued that another cost of PIL activity is delay in starting the plant. Because of PIL intervention, environmental analysis was more detailed than it might otherwise have been, and so the licensing process took substantially longer than it otherwise would have. Also, the total investment in data collection by AEC and Con Edison was undoubtedly greater because of the presence of the PIL lawyers. The direct PIL costs were, then, very small, and it would seem that the gains far outweighed these expenditures. The indirect costs are harder to measure and more difficult to assess. There is evidence that the delay caused by agencies' consideration of the environmental impact of nuclear plants on the average does not add significantly to the time required to construct the p l a n t s . ' " And, to a degree, the foregoing analysis suggests that the information costs were justified. But even if we assume that several million dollars were spent on data, this seems like a rational investment given the possibility that the savings from the towers for the life of the plant and perhaps in perpetuity could well be millions of dollars per year.

Assessing Indian Point: The Conditions of Successful Advocacy in Complex Disputes. PIL advocacy in Indian Point forced an initially reluctant agency to take a hard look at the factual and legal premises of its decision. Armed with NEPA precedents that were the result of a substantial PIL litigation effort, the NRDC lawyers, assisted by technical experts, were able to persuade the AEC to impose protective measures even though those measures were opposed by a private firm that could marshal substantial resources in its efforts to resist the requirement for cooling towers. Without the PIL resources, it seems likely that despite NEPA, the AEC might not have conducted the studies that led Dr. Goodyear and others at Oak Ridge to conclude that there were real risks of substantial environmental damage if protection measures were not taken. PIL lawyers monitored the research, raised issues that the AEC could not duck, developed support outside the agency for more protection, and assisted the staff in defending its final position. Given the 166. See Testimony offered in Hearing before the Committee on Interior and Insular Affairs, cited in note 99.

194 complexity of the Indian Point dispute, effective environmental advocacy required the explicit and implicit subsidies that were involved. For the provision of these services PIL resources were available at prices that were well below market prices for similar legal and technical skills. The costs of the PIL activity in Indian Point were low relative to the potential gain to society from the resulting change in AEC. But the question remains whether the conditions of this dispute were such that a victory was relatively easy for PIL, and thus whether we can generalize from Indian Point to other forms of advocacy in complex environmental disputes. That Indian Point was complex no one could doubt. It has lasted for 10 years and is not over yet. It took several man-years of PIL effort, and involved scientific, engineering, and economic issues that are as yet not fully understood. Nevertheless, there are some features of Indian Point that make it a relatively simple dispute when compared with other controversies PIL lawyers have engaged in in the environmental area. First, the options considered in the cooling tower controversy were relatively narrow. NRDC never argued that the plant should not be built, so the AEC was not presented with a serious argument against the plant itself on purely environmental (as opposed to radiological) grounds. Thus the cooling tower issue never presented a clear conflict between environmental demands and agency mission. Second, the distributional

Area Studies: Public Interest Law in Action consequences of alternative choices were not as large as they have been in other controversies. The tradeoffs involved were a slight increase in all power bills and a tower that would be seen by a few residents in a small town, on the cost side, against the gains to a small but sophisticated group of environmentalists and the more diffuse — yet potentially large — group of commercial fishermen, sportsmen, and other environmentalists that HRFA and other groups represented, on the benefit side. These factors may also help to explain another feature of Indian Point that differentiates it from many other PIL environmental efforts: the adoption by the agency of the views of the PIL firm at a relatively early stage in the proceedings. This meant that NRDC avoided the combined opposition of the agency and private firms — a coalition that occurs all too frequently in other areas. And it meant that all PIL work could be done at the administrative level. Since the AEC found in favor of the cooling towers in its administrative proceedings, the benefits of this favorable administrative finding redounded to the environmentalists and placed the burden of seeking judicial review on the utility. Thus NRDC did not have to resort to the courts before it could get the agency to consider its case, and was spared the burden of overcoming judicial reluctance to second-guess agencies that have made considered judgments in complex and indeterminate areas.

Chapter Eight

Environmental Defense, II: Examining the Limits of Interest Group Advocacy in Complex Disputes David M. Trubek and William J. Gillen

In Chapter Seven, we saw that barriers to the organization of environmental interests may lead to underinvestment in information a b o u t the costs and benefits of government regulatory action, and that agency bias may discourage gove r n m e n t f r o m securing information that would lead to more efficient policies. Through the examination of one relatively narrow yet legally and factually complex dispute, we saw h o w the provision of P1L services on behalf of environmental interests contributed to the selection of a more efficient and probably no less equitable policy choice. In that case PIL lawyers were able to mobilize information the agency had ignored, and to force the agency to examine the environmental costs of its original position. Aided by the requirements of NEPA — which charges agencies with investing in additional information about environmental damage and considering that information in its decisions - the PIL lawyers in Indian Point secured a change in agency policy that led to more environmental protection. T h u s PIL services assisted in correcting w h a t otherwise might have been a governmental failure, at a cost that was relatively low in contrast to the benefits the services helped secure. But one cannot generalize f r o m this case t o all complex disputes in the environmental or any o t h e r area. In order to understand fully the potential and the limits of public interest law as a vehicle for providing more effective interest group advocacy in complex disputes, we must look at other areas of PIL experience. In this

chapter we examine a second case of PIL environmental defense: the campaign by several PIL firms t o halt n u m e r o u s water resources development projects — principally dam and reservoir construction - undertaken by federal agencies like the Army Corps of Engineers and the Tennessee Valley A u t h o r i t y . The water resources campaign was - like Indian Point — a challenge by PIL environmental defense groups to agency decisions that were believed to be environmentally h a r m f u l . But unlike Indian Point, this campaign was originally a litigation e f f o r t .

The Campaign Against Water Resources Development Programs In the first five years following the passage of NEPA, PIL environmental lawyers devoted substantial resources to challenging the water resource development programs of the federal government. Principal targets in this campaign were the Army Corps of Engineers, the Soil Conservation Service (SCS), the Bureau of Reclamation, and the TVA. 1 1. These are the federal agencies most deeply involved in the planning and development of water resources. They use cost-benefit analyses extensively and are often environmental defendants because their projects frequently have considerable environmental effects. See National Bureau of Standards, U.S. Department of Commerce. Federal Cost-Sharing Policies for Water Resources (NTIS Pub. April 1972); and Note, "Cost-Benefit Analysis in the Courts: Judicial Review under NEPA," Georgia Law Review, IX (1974-1975), p. 426.

196 The campaign against the water resource programs led PIL lawyers to initiate court challenges to specific projects like the Corps' proposed LaFarge Dam in Wisconsin, 2 the SCS's channelization of the Cache River watershed,' and TVA's Tellico Dam. 4 Litigation was also initiated under NEPA against major programs for water resource development, such as the Corps' $ 1 . 6 billion plan to develop the Trinity River basin in Texas. 5 Environmental groups felt that these projects would cause serious environmental harm. Dams destroy natural waterways, flood wildlife refuges, and encourage development of previously uninhabited areas. The environmental movement felt that the existing decision-making process failed to take these harms into account, and its advocates looked to PIL lawyers to stop these projects. The lawyers, in turn, sought to get the federal courts to use NEPA as a tool to overturn agency decisions that were damaging to the environment.

Area Studies:

Public Interest Law in

Action

one case a court issued a final order halting a project." But in the majority of the cases litigated the courts decided - often after several trials, appeals, and reviews of the environmental impact statement (EIS) - that NEPA had been satisfied and that the project could continue. 9 PIL lawyers won many initial victories in the early years of the water resource campaign. In many of those early cases injunctions were issued, especially where the agency had either failed to prepare any EIS for a project or had done an EIS so superficial that it was relatively easy to demonstrate that major environmental issues had been ignored. But as time went on, the victories

Club v. Callaway, 449 F. 2d 982 (5th Cir. 1974) (injunction continuing); Atchinson, Topeka and Santa Fe Railroad Company i>. Callaway (Lock and Dam 26), 382 F. Supp. 610, 5 ELR 20086 (D.D.C. 1974) (preliminary injunction granted); Friends of Santa Paula Creek i>. Callaway (Santa Paula Project), U.S.D.C. C.D. Cai., Civil No. 73-1945-NMB (district court orally halted construction on June 12, 1974); Warm Springs Dam Task Force i'. Gribble (Warm Springs Dam and Lake Sonoma ProFor a considerable period, water resource litiject), 378 F. Supp. 240 (N.D. Cai. 1974), application gation was one of the principal arenas for PIL for stay granted, 417 U.S. 1301 (1974) (stay of further construction pending appeal of denial of preliminary environmental defense. PIL lawyers initiated or injunction); NRDC, Inc. v. Stamm (Auburn Dam), 6 participated in numerous lawsuits, including at ERC 1525 (E.D. Cai. 1974), stay granted, 417 U.S. 4 least fifty against the Corps of Engineers alone. 1301 (1974) (preliminary injunction granted, but execution thereof stayed to allow Bureau of Reclamation to Many involved full trials and lengthy appellate prepare EIS); and, Duck River Preservation Ass'n review procedures. Some projects are still posti>. TVA (Duck River Project), 410 F. Supp. 758, 7 poned pending full environmental analysis. In 6 ERC 1789 (E.D. Tenn. 1974) (preliminary injunction granted). 8. See EDF v. Corps of Engineers (Cross-Florida 2. Sierra Club v. Froehlke, 345 F. Supp. 440 (W.D. Wis. 1972), a f f d on other grounds, 486 F. 2d 946 (7th Barge Canal), 489 F. 2d 567 (5th Cir. 1974). 9. For example, Sierra Club v. Laird (Gila River), 1 Cir. 1973). 3. EDF v. Froehlke, 473 F. 2d 346 (8th Cir. 1972). ELR 20885 (D. Ariz. 1970) (preliminary injunction 4. EDF v. TVA, 339 F. Supp 806 (E.D. Tenn. granted), case dismissed, no citation available (see Department of the Army Circular, cited in note 6); EDF 1972), a f f d 468 F. 2d 1164 (6th Cir. 1972). 5. Sierra Club v. Froehlke, 359 F. Supp. 1289 (S.D. v. Corps of Engineers (Gilham Dam), 325 F. Supp. 749 Tex. 1973), rev'd on other grounds sub nom. Sierra (E.D. Ark. 1971), injunction vacated, 342 F. Supp. 1211 (E.D. Ark. 1972), a f f d 470 F. 2d 289 (8th Cir. Club v. Callaway, 499 F. 2d 982 (5th Cir. 1974). 1972), cert, denied 412 U.S. 931 (1973);EDFv. Corps 6. Department of the Army, Office of the Chief of Engineers (May 9, 1975) Status of Environmental Liti- of Engineers (Tennessee-Tombigbee Waterway), 331 F. Supp. 925 (D.D.C. 1971), injunction vacated, 348 F. gation, Circular No. 27-2-16. Supp. 916 (N.D. Miss. 1972), a f f d 492 F. 2d 1123 (5th 7. For example, Texas Committee for Natural Cir. 1974); Natural Resources Defense Council v. Grant Resources i>. Resor (Cooper Dam on Sulphur River), 1 (Chicod Greek Watershed Project), 341 F. Supp. 356 ELR 20466 (E.D. Tex. 1971) (preliminary injunction (E.D. N.C. 1972) (preliminary injunction granted, 355 granted); EDF v. Corps of Engineers (Cross-Florida F. Supp. 280 (E.D. N.C. 1973), (preliminary injunction Barge Canal) 489 F. 2d. 567 (5th Cir. 1974) (preliminary injunction made permanent; a preliminary injunc- granted); Conservation Council of North Carolina v. Froehlke (New Hope Dam), 340 F. Supp. 222 (M.D. tion and Presidential order had halted construction in N.C. 1972), 473 F. 2d 664 (4th Cir. 1973) (remanded January 1971); EDF v. Froehlke (Cache River), 473 with order to district court to issue preliminary injuncF.2d 346 (8th Cir. 1972) (EIS held inadequate, project enjoined); Akers i>. United States (Obion and Deer Fork tion, which the lower court did; later the parties settled Rivers Project) 339 F. Supp. 1375 (W.D. Tenn. 1972) and construction is continuing); Allison v. Froehlke (Laneport Dam), 470 F. 2d 1123, 2 ELR 20357 (5th (preliminary injunction granted); Montgomery i>. Ellis Cir. 1972) (preliminary injunction denied), a f f d 470 F. (Blue-Eye Creek), 364 F. Supp. 517 (M.D. Ala. 1973) 2d 1123 (5th Cir. 1972); EDF v. Armstrong (New (SCS's channelization enjoined); Sierra Club v. Froehlke Melones Dam), 352 F. Supp. 50 (N.D. Cai. 1972) (pre(Trinity-Wallisville Project), 359 F. Supp. 1289 (S.D. liminary injunction denied), a f f d 487 F. 2d 814 (9th Tex. 1973), rev'd on other grounds sub nom. Sierra

197 became fewer in number and more Pyrrhic in nature. The Corps and other agencies began to prepare fuller assessments of environmental issues. As the EIS's involved became more complete and more specific, courts became increasingly reluctant to delay projects. 10 Thus, it became harder to convince courts to look closely at the agency's decisions. Moreover, even where review was possible, the likelihood that it would lead to either a temporary or permanent injuncCir. 1973), cert, denied, 416 U.S. 974 (1973); EDF v. Froehlke (Truman Dam), 348 F. Supp. 338 (W.D. Mo. 1972) (preliminary injunction denied), a f f d 477 F. 2d 1033 (8th Cir. 1973), 368 F. Supp. 231 (W.D. Mo. 1973); (injunction denied), a f f d 497 F. 2d 1340 (8th Cir. 1974); Sierra Club 1». Froehlke (Kickapoo RiverLaFarge Dam), 345 F. Supp. 440 (W.D. Wis. 1972) (preliminary injunction denied), a f f d on other grounds, 486 F. 2d 946 (7th Cir. 1973); EDF v TVA (Tellico Dam I), 339 F. Supp. 806 (E.D. Tenn. 1972) (preliminary injunction granted), a f f d 468 F. 2d 1164 (6th Cir. 1972),EDFv. TVA (Tellico Dam II), 371 F.Supp. 1004 (E.D. Tenn. 1973) (preliminary injunction of project dissolved), aff'd 492 F. 2d 466 (6th Cir. 1974); Cape Henry Bird Club v. Laird (Gathright Dam), 359 F. Supp. 404 (W.D. Va. 1973) (injunction denied), a f f d 484 F. 2d 453 (4th Cir. 1973); Ohio v. Secretary of Army (East Fork Lake and Caesar Creek), E.D. Ohio 1973 (district court enjoined portions of the project), a f f d 497 F. 2d 1235 (6th Cir. 1974), injunction against project now dissolved (see Department of the Army Circular cited in note 6); Save Our Invaluable Land, Inc. v. Needham (Hillsdale Lake), U.S.D.C. Kan., Civil no. 74-207-c5 (preliminary injunction denied). The Circular of the Dept. of the Army also lists the following water resources, against which suits were filed but which now have been dismissed: Chincateaque (Virginia), Bonneville, John Day, and Dalles Dam (Washington), Falls Lake (North Carolina) St. John's River (Florida), Saylorville Dam (Iowa), and Trumbull Dam (Connecticut). In more recent cases preliminary injunctions have been tersely denied; see, for example, Sierra Club i>. Stamm (Current Creek Dam), 507 F. 2d. 788, 6 ERC 1848 (D. Utah 1974), and Trout Unlimited v. Morton (Teton Dam and Reservoir), 509 F. 2d 1276, 7 ERC 1321 (9th Cir. 1974) (affirming adequacy of EIS). 10. The injunction-granting disposition of the courts in 1970 and 1971 was due, in large part, to the fact that the litigation was concerned with projects for which no environmental impact statements had been filed or for which only a short, token statement had been filed which the agency contended was adequate. Richard Liroff, NEPA and its Aftermath: the Formation of a National Policy for the Environment (Bloomington: Indiana University Press, 1977, forthcoming), p. 257, citations are to the manuscript; Walter A. Rosenbaum, The Politics of Environmental Concern (New York; Praeger, 1973), p. 187. Liroff further postulates that the attitude of the courts after 1971 reflected different assumptions than in earlier cases, not "assuming that construction would ultimately occur, even after environmental analyses were undertaken." See, for example, EDF v. Froehlke and Sierra Club v. Froehlke.

Environmental

Defense II

tion against the project was diminished. 11 As the cases began to go against the PIL lawyers, they were forced to reassess their commitment of resources to this area, and by 1975 at least one major actor in the campaign — the Environmental Defense Fund - had virtually abandoned the effort to use litigation to change water resource decision-making. 12 We believe PIL lawyers gradually abandoned their efforts to change water resources programs through litigation principally because this approach was not working well enough to warrant the costly investment which these lawsuits involved. As the glow of initial victories faded, it became clear that suits were neither going to halt large numbers of projects that environmentalists opposed nor — at least by themselves — make a major change in the way the agencies thought about environmental problems. To be sure, some permanent victories were secured; thus agencies were put on notice that they had to do adequate EIS's before they could start projects. 13 But these rulings - and the impact statements they produced - were not sufficient to stop projects that environmental groups opposed. Despite the litigation, ongoing projects were continued, 1 4 and new activities with many of the defects of the older projects continued to 11. The language of the court in the Gilham Dam case is not untypical of many courts. Therein the court stated, "The judiciary can delay the construction of the dam pending compliance by the defendants with the congressionally mandated provisions of the NEPA but, ultimately, plaintiffs' only chance to stop the dam, or to alter same, lies in their ability . . . to convince the decision-makers of the wisdom and correctness of their views on the merits." EDF v. Corps of Engineers, 342 F. Supp. 1211 at 1216-17. Sec also Frederick R. Anderson, NEPA in the Courts (Baltimore: Johns Hopkins University Press, 1973), p. 287, citing CEQ, Environmental Quality Third Annual Report, pp. 226-227; and Liroff, NEPA and its Aftermath, p. 260. 12. Interviews with EDF staff. 13. Decisions resulting from citizen and environmentalist litigation following the enactment of NEPA have assured that virtually all water resource projects will be subject to an impact analysis before construction is commenced. See Anderson, NEPA in the Courts, pp. 288-289; Edward L. Stohbehn, "NEPA and Federal Agency Decision-Making," The Business Lawyer, XXIX (1973-1974), pp. 1355-1363; Darcia D. Bracken, Water Resources Research Institute, Trends (Auburn, Alabama: Auburn University, 1973), pp. 14-15 (1973); Liroff, NEPA and its Aftermath, p. 121. 14. Sec cases citcd in note 9, above.

198 be p r o p o s e d . " These events brought h o m e to the PIL lawyers the limits of NEPA litigation as a device t o stop specific projects or t o change basic agency attitudes, and caused them to reallocate their resources. These decisions led to t w o shifts in environmental defense activity: to o t h e r techniques of influencing water resources decisions, such as lobbying, and into other areas of environmental d e f e n s e . "

Area Studies: Public Interest Law in Action under NEPA or o t h e r general statutes of this type. In the following sections we shall analyze what PIL lawyers sought to achieve through the challenge t o water resource programs, the reasons they employed litigation to secure their goals, the reaction of the courts to the challenges, and the resulting reappraisal of the e f f o r t s by P I L attorneys.

Ascribing Goals and Measuring Performance Analyzing

the

Campaign

Such shifts in P I L resource allocation are not unique t o the environmental or water resource area. T h e water resource decisions, however, are of special n o t e because of the magnitude of the campaign that was waged. F o r PIL, the water resource campaign was a m a j o r battle. Large numbers of qualified lawyers, engineers, and scientists participated in the e f f o r t . 1 7 We have no reason to believe that any m a j o r tactical errors were made or that any defeats occurred because of lack of skill or technical knowledge o n the PIL side. Moreover, the resources deployed were substantial enough that it is unlikely that any defeat can be explained by the inadequacy of the efforts. Rather, we believe that to the e x t e n t that PIL failed t o achieve the goals sought by its water resource litigation, it did so precisely because the program was large enough and skillful enough to test the limits of litigation as a device to achieve m a j o r substantive changes in agency decisions. Thus, we believe that the water resource campaign illustrates what can and c a n n o t be achieved in complex disputes through litigation

15. While there may have been transitional disruptions in the schedule of some federal actions, it appears that NEPA cannot as yet be credited with eliminating any federal programs. Daniel A. Dreyfus, "NEPA: A view from the Hill, The Business Lawyer, XXIX (1973-1974) pp. 1383-1390. Speaking in the same colloquium, Strohbehn is in agreement with this assessment; "major programs with substantial environmental impacts," he writes, "are being pursued with unabated vigor and without analysis and assessment or reassessment in light of NEPA's objectives." 16. Interviews with EDF staff. 17. Over a five-year period between 1970 and 1975, some 54 cases were filed against the Corps of Engineers alone. Countless attorneys participated in this litigation and each case customarily involved the use of specialists and experts of various types. See Department of Army Circular No. 27-2-16.

If the goal of the water resource litigation was to ensure effective substantive review by the courts of agency decisions, then to a large measure the campaign failed. That is, if success is t o be measured by the number of cases in which courts rejected final and well-considered EIS's as " i n a d e q u a t e " under NEPA or, more i m p o r t a n t l y , by the n u m b e r of cases in which courts have terminated projects for which admittedly adequate statements had been prepared, on the ground that the project violated NEPA or some other federal statute, then we can find very few instances of "success." But why should we use such a high standard of evaluation? We have noted that other important goals were achieved through the litigation campaign. There is evidence that the campaign contributed to an improvement in agency decisional p r o c e s s , " and this in turn has deterred approval of marginal projects that might otherwise have been carried o u t . " Moreover, litigái s . On the impact of litigation under NEPA on the decision-making processes, see Liroff, NEPA and its Aftermath, Ch. IV; Daniel W. Bromley, "The Changing Role of Federal Water Development Agencies under Multi-objective Planning and Evaluation Procedure," in Peter M. Ashton, ed., National Water Commission: A Review of Some Issues (Virginia Water Resources Research Center, 1974); and Walter A. Rosenbaum and Paul E. Roberts, "The Year of the Spoiled Pork: Comments on the Court's Emergence as an Environmental Defender," Law and Society Review, VII (1972-1973), pp. 33-60. The latter material suggests, "while fighting specific projects, [the environmentalists'] ultimate objective [was] to disrupt the 'pork-barrel' system which, they believe, is the perpetrator of so many environmentally damaging projects" (p. 34). 19. Liroff, NEPA and its Aftermath, p. 314, provides us with some interesting data. He writes, "the Corps of Engineers maintains that NEPA has been responsible for modifications, delays or halts in 350 of its projects [citing March 14, 1975 press release|. One of every four projects under study or construction has been changed and operating procedures of one of every two completed ones have been modified to improve their social and ecological impact." Liroff concludes

199 tion has helped to highlight problems in various projects and to focus public attention o n dubious endeavors. One reason we might use the higher standard of evaluation is that substantive review was the goal which the PIL lawyers themselves sought. In numerous water resource controversies, PIL environmental lawyers asked courts to terminate proj e c t s because they could only be justified by EIS's that failed to consider factors required by NEPA, or that had been supported only by considering impacts which were disallowed by NEPA as benefits. 2 0 And in the cases where the EIS was accepted as " a d e q u a t e " - that is, where it revealed all potential environmental damage, PIL lawyers asked courts to halt projects on the grounds that the agency had improperly weighed the potential environmental harm the project would cause in deciding to go ahead. 2 1 T h u s we can defend the standard we employ as merely measuring a goal the PIL lawyers themselves established. But the fact that PIL lawyers asked courts to conduct substantive review under NEPA does not, of itself, prove that this was a goal they realistically h o p e d to achieve. Substantive review may have been a tactical move, an additional claim added to complaints and briefs in the hope that its presence would increase the likelihood that courts would listen to other, less ambitious arguments. If that were the case, then we could n o t say we were evaluating PIL lawyers' performance on their own terms. We think, however, that there is good reason to believe that PIL lawyers saw substantive review as an i m p o r t a n t goal, and one they had a chance of securing. Environmental lawyers put more e f f o r t i n t o establishing the theory of substantive review than would have been warranted that regardless whether NEPA can take full credit for these changes, "Corps* activities are being conducted with somewhat greater environmental sensitivity, even though the agency still builds environmentally impacting projects of dubious economic value." 20. See, for example, EDF v. Froehlke (Cache River); Sierra Club i>. Froehlke (Wallisville Project); Montgomery t>. Ellis (Blue-Eye Creek); and EDF p. TV A (Tellico Dam II). For full citations to these cases see notes 7 and 9, above. 21. See, for example, Sierra Club v. Froehlke; Montgomery v. Ellis (Blue-Eye Creek); Cape Henry Bird Club v. Laird (Gathright Dam); and EDF v. Froehlke (Truman Dam), 368 F. Supp. 235. For full citations see notes 7 and 9, above.

Environmental Defense II on purely tactical grounds. N o t only was the issue raised and briefed in many cases, b u t PIL litigators like Richard Arnold of Texarkana, Texas, and publicists like Fred Anderson of the Environmental Law Institute wrote articles and b o o k s in support of the theory that N E P A gives federal courts the power to review agency decisions and to order a project halted if it will cause t o o m u c h environmental h a r m . 2 1 (Indeed, several courts seemed to accept the theory, though n o n e acted on it.) But we would want t o look at the e f f o r t s to secure substantive review even if the P I L lawyers had n o t given this goal a high priority. Our task here is not to criticize PIL lawyers for alleged "failures"; rather, we wish to learn what we can f r o m their experiences about the nature of effective interest g r o u p advocacy in complex disputes. In that c o n t e x t , as we shall show, it is crucial to understand why environmentalists might w a n t to seek assistance f r o m the courts in their e f f o r t s to curtail environmental damage caused by water resources projects, and to k n o w what courts will and will not d o to assist the environmental cause. Environmental lawyers sought substantive judicial review of water resource projects because they felt — rightly, in our view — that w i t h o u t such judicial intervention their clients' chances of prevailing in environmental disputes would be diminished. Moreover, w i t h o u t substantive review the public interest lawyers themselves would not be able to make as m u c h of a contribution to the environmental m o v e m e n t as they h o p e d . T h u s an examination of PIL lawyers' e f f o r t s t o involve the judiciary in the policy question of project desirability - and the reasons for the courts' reluctance to accept the role they were being cast in — will tell us a great deal a b o u t the conditions under which advocacy of all kinds, and by public interest lawyers in particular, can be effective in furthering the interests of underorganized participants in complex environmental disputes. 22. See R. Arnold, "The Substantive Right to Environmental Quality under the National Environmental Policy Act," 3 ELR 50028 (1973); Anderson, NEPA in the Courts; also Anderson, "NEPA and Federal Decisionmaking," 3 ELR 50099 (1973). 23. Calvert Cliffs Coordinating Committee v. AEC, 449 F. 2d 1109 (D.C. Cir. 1971), cert, denied, 404 U.S. 942 (1972); Sierra Club v. Froehlke (Wallisville Project); Montgomery v. Ellis (Blue-Eye Creek); and EDF v. Corps of Engineers (Gilham Dam). For full citations, see notes 7 and 9, above.

200 Why PIL Sought Substantive Judicial Involvement PIL lawyers sought substantive judicial review because they felt it was necessary to secure their clients' goal and because they believed the N E P A mandated such review. T o understand this mentality, we have to look again at N E P A and its relation t o agency decision-making. NEPA was b o t h a diagnosis of and a potential cure for deficiencies in agency decision-making. By passing the statute Congress m a d e it clear that it believed agencies were failing to consider fully the impact of their actions on the environment. And the legislative history of NEPA makes it clear that its authors were thinking of the water resource development agencies, among others, when they concluded that action was necessary to reorder the priorities of large segments of the federal executive branch. 2 4 But h o w was this change to come a b o u t ? Given the structure of NEPA, there were only a few possibilities. First, agencies might voluntarily accept Congress's mandate to shift program emphasis. Second, the procedures created by NEPA might, by themselves, automatically lead agencies to change their priorities. Third, if these two aspects of NEPA did n o t w o r k , some additional external incentive might be developed to force agency change. Early experience under NEPA showed that voluntary compliance was n o t likely. The agen24. The National Environmental Policy Act of 1969 laid the groundwork for establishing a series of procedures whereby environmental considerations could be fed into agency decision-making routines. The legislative history reflects the impending concern for the environment of this country, "by land, sea and air, the enemies of man's survival press their attack." U.S. Code and Congressional and Administrative News, Vol. 2, 91st Cong., 1st Sess., p. 2751. And "NEPA . . . is intended to improve the planning process (with respect to these natural resources), expand public participation in governmental decisions and sensitize the decision-maker to environmental considerations." See National Environmental Policy Act of 1969, prepared by Environmental Policy Division Congressional Research Service, Library of Congress, at the request of Henry M. Jackson, Chairman on Interior and Insular Affairs, U.S. Sen., 1973. See also Liroff, NEPA and its A ftermath, p. 19; Richard N. L. Andrews, "Environmental Policy and Administrative Change: the National Environmental Policy Act of 1969 (1970-71)," pp. 76-109, Ph.D. dissertation, Department of City and Regional Planning, University of North Carolina, 1972; and Terrence T. Finn, "Conflict and Compromise: Congress Makes A Law, The Passage of NEPA," Ph.D. dissertation, Department of Government, Georgetown University, 1972.

Area Studies: Public Interest Law in Action cies balked even at minimal compliance with NEPA's requirements for a detailed environmental impact s t a t e m e n t , " suggesting that the incentives impelling water resource agencies t o favor development over environmental preservation were strong. F r o m this early experience, it was obvious that n o substantive change in policies could occur w i t h o u t external intervention. The water resource litigation campaign was designed to secure such intervention f r o m the courts. There were two possible ways t h a t judicial intervention might lead to substantive changes in agency decisions. First, the courts might m a k e the agencies comply fully with NEPA's procedural requirements for a full and detailed statement of environmental impact. If the process of assessing environmental impact and securing c o m m e n t o n an EIS w o u l d , by itself, lead t o changes in agency values and perceptions, this procedural review by courts would be enough to guarantee the statute's substantive goals. If it did n o t , however, it would be further necessary for the courts to compare the decision with the record established in the EIS to see if the data contained in the impact statement impelled decisions that were at odds with those reached by the agency, and, if so, to order the agency to canccl or redesign the project. Eventually, the P I L lawyers decided that the courts would have to p e r f o r m this larger role. 2 4 25. The Calvert Cliffs' case demonstrates the reluctance of affected agencies to willingly implement NEPA procedures. Judge Wright, exasperated over the agency's recalcitrant attitude toward the Act, stated "we believe that the Commission's crabbed interpretation of NEPA makes a mockery of the Act" (449 F. 2d 1117). The AEC was not the only reluctant culprit. See, for example, SCRAP v. U.S., 371 F. Supp. 1291 (D.D.C. 1974). Even today, in the words of Walter Rosenbaum, "Washington's bureaucracy . . . presents an impressive facade of compliance with NEPA." Walter Rosenbaum, "The End of Illusion; NEPA and the limits of Judicial Review," in Stuart S. Nagel, ed.. Environmental Politics (New York: Praeger, 1974), p. 264. See also a panel discussion "Complying with NEPA: Practice, Problems and Potential," The Business Lawyer, XXIX (19731974), pp. 1315-1390; and Hearing before the Committee on Interior and Insular Affairs, U.S. Sen., 91st Cong., 2nd Sess., First Annual Environmental Quality Report, August 16, 1970, pp. 16 etseq. 26. The fact that the Corps and other agencies continued to promote projects based on, in the environmentalist's mind, inadequate environmental impact assessment, prompted the conservationists to take to the courts, armed with NEPA. See Rosenbaum, The Politics of Environmental Concern, p. 260.

201 Litigation and the Politics of Water Resource Planning In order to understand why environmental lawyers t h o u g h t thai substantive judicial review of agency decisions would be necessary for effective environmental advocacy, we must look more closely at the process of water resource developm e n t , and at the politics of this process. Schematically, we might see the process of government development planning as a complex dispute involving four types of actors: the agency, the Congress, the beneficiaries of the project, and the people w h o will be harmed by the project. T h e process itself is complex and cumbersome. In the case of major projects like dams, the planning and approval process requires m a n y years of work by the agency and the Congress. Corps of Engineers projects, for example, all must be specifically approved by Congress before money is available for design and c o n s t r u c t i o n . 3 7 In theory, the planning process is a technical one, and is designed to ensure that projects are selected that will make a positive contribution to social welfare. As a result, it might be thought that environmental concerns would be taken into account, and projects selected that minimize environmental h a r m . In fact, however, the process is heavily politicized, and contains structural barriers impeding full consideration of environmental values. Agencies are subjected to formal constraints that might make them sensitive to environmental values. Thus, the Flood Control Act of 1936 specifies that no project may be constructed unless its benefits exceed its c o s t s . " Pursuant to this statute, the Water Resources Council, through a d o c u m e n t promulgated by Congress as Senate D o c u m e n t 97 of 1962, has specified the procedures which must be followed in determining if projects meet this t e s t . " These procedures mandate careful evaluation of the costs and benefits of projects and would seem to deter choice 27. For a summary of the history and operation of the Corps of Engineers, see Arthur Maass, Muddy Waters (Cambridge, Mass.: Harvard University Press, 1951) p. 22; also Rosenbaum, The Politics of Environmental Concern, p. 172. 28. The Hood Control Act of 1936 (June 22, 1936, c. 688, Sec. 1, 49 Stat. 1570), 33 U.S.C. 701a (1970). 29. The President's Water Resources Council, Policies, Standards and Procedures in the Formulation, Evaluation and Review of Plans for Use and Development of Water and Related Land Resources, S. Doc. No. 97, 87th Cong., 2d Sess. (1962).

Environmental Defense II of projects that threaten substantial environmental h a r m . But in fact these procedures d o not have this e f f e c t . In the first place, while the Flood Control Act requires that all projects have a positive ratio of benefits to costs, it does n o t specify that projects with higher ratios must be preferred to those with lower ones. This means that the A c t provides n o barrier to approval of a project that caused substantial environmental h a r m , as long as its benefits - as calculated b y the agency - exceed any h a r m identified. Moreover, there is n o requirement that the " y i e l d " on water resource projects be c o m p a r e d with the potential " y i e l d " on alternative investments of public funds. T h u s the Flood Control Act permits agencies to construct a less efficient and environmentally more damaging project in preference to o t h e r water resource projects — or other activities — that would b o t h yield higher net benefits and cause substantially less environmental h a r m . 3 0 And the Act allows the agency — which has an institutional interest in developing water resources — to calculate the costs and benefits involved. As a result, political factors weigh heavily in the selection and design of water resource projects, and the ability of environmentalists to influence water resource development is a f u n c t i o n of their relative ability t o play the political game. Prior to NEPA and the development of public interest law, environmentalists h a d been frustrated in their ability to play the game of water resource politics. Litigation aimed at mobilizing the federal judiciary as actors in this game offered a chance to escape f r o m the dilemmas of normal politics. 30. Cost-benefit analysis has been used primarily to weed out inefficient projects, rather than as a tool to rank the desirability of demonstrably "efficient" projects. See Comment, "Judicial Review of Cost-Benefit Analysis under NEPA," Nebraska Law Review, LIU (1974), p. 540-580, 551. Professor Haveman, in his study of the use of cost-benefit analysis in water resource planning, has concluded: "some [as opposed to no| general regard is paid to the level of a project's benefit-cost ratio, and, consequently, to a criterion called economic efficiency... . The big hurdle for any individual project is the ratio of 1 to 1 and, having attained this goal, each project stands on relatively equal ground in terms of conformity to regulations." Robert H. Haveman, Water Resource Investment and the Public Interest (Nashville: Vanderbilt University Press, 1965). See also Wildavsky, 'The Political Economy of Efficiency: Cost-Benefit Analysis, Systems Analysis and Program Budgeting." in Austin Ranney, ed., Political Science and Public Policy (Chicago: Markham, 1968),

202 In all political "games," organization is an important variable. It is probably true that, everything else being equal, the more organized a group is, the greater is its capacity to bring to bear all the bargaining counters that matter in political games — money, information, advocacy services, votes, strategic intelligence, experience, and the like. Thus, in analyzing the potential power of parties to a dispute of this nature, one must look first to the relative degree of organization - or organizational potential - of the contending interests. We saw in Chapter Seven why it is usually difficult to organize the persons who benefit from environmental protection. These general factors operate to impede environmental organization in the water resource area. And at the same time, it is relatively easy to organize the beneficiaries of water resource projects. As a result, the political process tends to produce much more information about the benefits from said projects than about their environmental costs. Water resource development projects tend to be large and complex. They frequently have numerous objectives, including flood control, navigation, recreation, power generation, land development, irrigation, and water quality improvement. Moreover, knowledge of primary and secondary effects of these projects is usually quite imperfect. The principal benefits from this type of project are relatively clear, and the beneficiaries easy to identify. Beneficiaries include citizens presently threatened by floods; landowners whose property values may rise; farmers whose productivity may increase; industry whose power costs would decline; and boaters and others who will get a new recreational facility. The benefits tend to be tangible, relatively certain, and often of clear economic value. Moreover, since a large percentage of the costs are paid by federal revenues, these benefits may be quite large relative to any direct costs to the beneficiaries." Further, p. 63; Rosenbaum and Roberts, "The Year of the Spoiled Pork," p. 183; and Note, "Cost-Benefit Analysis and the National Environmental Policy Act of 1969," Stanford Law Review, XXIV (1971-1972), pp. 1092-1116, 1105. The hard decisions of ranking respective water resource projects, therefore, seems to be dictated by political ("pork-barrel" in some observers' minds) considerations rather than economic efficiency. 31. See generally, National Bureau of Standards, U.S. Department of Commerce, Federal Cost-Sharing Policies for Water Resources (NTIS Pub. April, 1972).

Area Studies: Public Interest Law in Action the agencies whose mission is to construct such projects have an interest in organizing the potential clientele for their activities, so that some "voluntary associations" that press for resource development are really the creature of the agency itself. While the benefits of projects are relatively certain and tangible, and the potential beneficiaries tend to be easily mobilized for support, the harms the projects do may be harder to predict, and in some cases less tangible. Partly for these reasons, and partly because of the nature of the interests harmed, it may well be much more difficult to organize the opponents of the venture. Of course, some negative environmental effects of projects are easy to envision and certain to occur. A wild river may be flooded and its esthetic value lost forever. The habitat of some species of wildlife may be destroyed. It may be difficult, however, to measure the impact of such effects. Moreover, other damage may be less certain and less easy to envision in the context of a specific project. Thus Bromley, Schmid, and Lord observe: An end result of [reservoir] d e v e l o p m e n t . . . m a y be a p r o f o u n d change in o u r river s y s t e m s which t h r e a t e n s the existence of s o m e plant and animal species (indeed, entire ecological c o m munities within which t h e y exist), forecloses opp o r t u n i t i e s f o r scientific and recreational use of wild rivers and wilderness areas, [ a n d ] substantially halts t h e creation of fertile f a r m land t h r o u g h silt deposition. 3 2

The nature of environmental harm, therefore, is likely either to be uncertain or hard to evaluate. The individuals harmed tend to be geographically dispersed, and - in contrast to potential beneficiaries like farmers and industrialists — are unlikely to belong to some organization formed for other purposes which can become a vehicle for promoting their interests. 33 Moreover, the barriers to forming specific environmental defense organizations will be high. The result is that the political bargaining process is heavily weight32. Daniel W. Bromley, A. Allan Schmid, and William D. Lord, Public Water Resource Project Planning and Evaluation: Impacts, Incidence and Institutions (Center for Resource Policy Studies and Programs, School of Natural Resources, University of Wisconsin, 1971). 33. Mancur Olson, The Lope of Collective Action (Cambridge, Mass.: Harvard University Press, 1971), p. 165.

203 ed toward the developmental interests. At the same time, we must recognize t h a t the agencies themselves favor development. N o t only would development help their "traditional clientele," b u t development is necessary t o j u s t i f y continuation of the agency itself. Looking at the process that results f r o m these conditions, Bromley, Schmid, and Lord conclude: The bargaining context within which federal water resource decisions are made is inadeq u a t e . . . the range of interests participating at the local level is t o o limited and the distribution of bargaining power is weighted inordinately in favor of development-oriented groups which comprise the traditional clientele of the water agencies. 3 4 It would seem to follow that if organization and agency bias are determinant factors in decision-making, resource development decisions will inevitably be biased against environmental values. This is, however, only a partial analysis. For as political scientists like T h e o d o r e Lowi have reminded us, the importance of organization and agency bias may vary with the arena in which a decision is made. 3 5 By " a r e n a " we mean the political c o n t e x t in which a dispute is decided. The concept of varying arenas refers b o t h to variations in decisionmakers and to variations in the n u m b e r of persons and groups w h o become involved in the controversy. The wider the range of persons involved, and the more sensitive the relevant decision-maker is to the concerns of a large number of groups, the more open the arena. Thus, to the e x t e n t that disputes become visible to all affected parties, and to the e x t e n t that officials sensitive to broad public opinion participate in making decisions, the dispute will be in an open rather than a closed arena. Disputes that are well publicized, that affect groups that can mobilize public opinion, and that involve decisions by elected officials tend to be resolved in open arenas. In all political games, organization is an imp o r t a n t variable. For this reason, while organizational capacity is always important at the margin, 34. Bromley, Schmid, and Lord, "Public Water Resource Project Planning and Evaluation," p. 4. 35. Theodore J. Lowi, "Distribution, Regulation, Redistribution: the Functions of Government," in Randall G. Ripley, ed., Public Policies and Their Politics (New York: W. W. Norton, 1966), p. 29.

Environmental Defense II it may be less i m p o r t a n t in open, high-visibility arenas than in closed, low-visibility situations. T h u s in a complex dispute involving two groups — one organized and the other diffuse — we would predict that the organized group would have systematic advantages, but these advantages may be negated if the dispute occurs in or can be transferred to a relatively open arena. For when the dispute is highly visible, political actors, especially elected officials, must take into account the possibility that reactions t o the project of even diffuse and unorganized publics will ultimately affect the way the members of these publics vote. In such circumstances, the n u m b e r of persons affected and the intensity of their concern will — despite lack of organization — have more weight than such factors d o in lowvisibility situations. Disputes may be transferred f r o m one of these arenas to another. Publicity is a technique for transferring a dispute f r o m a relatively closed to a more open situation. Thus, in the case at h a n d , the anti-environmental biases of low-visibility agencies and congressional committees might be offset if issues were transferred to the f o r e f r o n t of public awareness and thus to a more open arena. T o the e x t e n t that public attention could be focused on environmental disputes — and held there for more than a brief m o m e n t — the environmental advocates might hope to offset the advantages that superior organization seemed to give pro-development groups in the more routine decisions and the less visible settings. N o t surprisingly, environmental groups used this technique of "political mobilization" in n u m e r o u s cases. 5 6 While such "mobilization politics" may help offset some structural biases of g r o u p politics, and can be highly effective in a few dramatic cases, it is nevertheless a tool with high costs and limited utility. Permanent mobilization is, like permanent revolution, difficult to sustain. The factors that determine what is a public and visible issue - and thus in which arena a dispute will 36. See, for example, the discussion of the Florida Barge Canal case in Rosenbaum, The Politics of Environmental Concern, p. 70. Some environmentalists have also shown greater interest in more political action through electoral involvement on behalf of candidates sympathetic to environmentalism and against those with unsatisfactory conservation records. To do this, the Sierra Club, for example, has sacrificed its tax-exempt status of "nonpartisan" organization to enter the political arena. Rosenbaum, The Politics of Environmental Concern, p. 70.

204 be decided - are complex and not easily controlled. Media receptivity, proclivities of individual politicians, the electoral timetable, and a host of other factors, many of them transient and unpredictable, will determine whether a given dispute — over, say a dam or a nuclear plant — can both be moved into the more visible public arena and, more importantly, kept in the public eye long enough so that visibility will affect outcome. Decisions on the nature, size, and timing of a multitude of specific projects in many areas of the nation — the essence of water resource decision-making - tend to be relatively low visibility matters. Advocates who try to focus media and political spotlights on issues of this type must pay a price in time, effort, and money needed to secure effective attention. And there are substantial risks that such efforts, even if mounted, will not succeed. For these reasons, even in situations where political mobilization may, at least at times, be available, advocates for underrepresented interest groups will simultaneously seek resources and allies that will operate in low-visibility as well as high-visibility arenas. It is in this context that we can understand the political significance of the water resource litigation. The basic goal of the campaign was to offset the biases inherent in normal, low-visibility politics in the water resource area. At one level, litigation was a tactic in mobilization politics, and lawsuits functioned as part of the effort to focus public attention on the kinds of decisions that were being made by agencies and congressional committees. But at a more fundamental level, the campaign was designed to create a new actor in the game — the federal judiciary - which would use NEPA to scrutinize agency decisions and overturn decisions that had failed fully to take account of environmental values. If the federal judiciary had been persuaded to perform such a role, environmentalists would have secured a permanent and powerful ally in their struggle with agencies and pro-development interests; they would have improved their position in low-visibility as well as in high visibility disputes, and reduced the need to rely exclusively on the costly and problematic tactics of mobilization politics. The Necessary Scope of Review What were the PIL lawyers really asking for? If the courts were to function as effective coun-

Area Studies: Public Interest Law in Action terweights to the decisional biases we have identified, what role would the judiciary have had to play? A moment's reflection suggests the breadth of tha role the courts were asked to perform. If they were really expected to offset biases in the political and administrative structures, rather than merely cause delay or bring about full disclosure of the harms that agency action would do to the environment, it would be necessary for the courts to do four things: (1) Review the EIS and the overall record of the agency's decision and determine if all relevant factors, including all possible forms of environmental damage, had been identified and considered. (2) Scrutinize the relative weight placed on the various factors identified, and determine the appropriate tradeoff between environmental damage and the project's benefits. (3) Determine if environmental factors were given appropriate weight and, if not, order the agency at least to rethink the project. And (4) ultimately, if the agency persists, halt any projects where the court disagreed with the balance struck because environmental values were undervalued or because non-environmental benefits were overvalued. Results in early challenges to water resource projects encouraged PIL litigants to press for this type of review. From 1970 through 1973, federal courts issued injunctions against 11 water resource projects, ruling that they could not be continued until adequate EIS's were prepared. 37 In some of these cases, the courts indicated that they were prepared to scrutinize the adequacy of the EIS's under NEPA. These opinions obviously cheered the environmentalists. Taken together with cases like Calvert Cliffs, in which Judge Wright had suggested that the power of judicial review extended to determining whether agencies had properly weighed 37. Six water resources projects were stopped in 1970 and 1971: Cross-Florida Barge Canal; Gilham Dam; Tennessee. Tombigbee Waterway; Gila River; Cooper Dam; and the little Miami River Project. See U.S. v. 241.31 Acres of Land. 1 ELR 20513 (S.D. Ohio 1971) (preliminary injunction not issued, but courts vacated the writ of possession until such time as the Corps complied with NEPA), 2 ELR 20154 (S.D. Ohio 1972). In 1972 environmentalists halted a number of projects, including Obion and Deer Fork Rivers; Cache River, Tellico Dam; Chicod Creek Watershed Project; and Sierra Oub v. Mason (New Haven Port), 351 F. Supp. 419 (D. Conn. 1972). But while some courts were still enjoining projects, others were reluctant to halt projects because EIS's were more complete. See cases cited in note 9, above.

205 environmental values before making decisions, 3 * the initial successes encouraged the litigants, and PIL lawyers began to systematically attack the benefit-cost (BC) analyses made by the Corps and other water resource bodies, and to call on courts to reject projects whose analyses were deemed inadequate. 3 9 The BC analysis was an attractive target for environmental litigators. There had been substantial scholarly criticism of the procedures used by the Corps and other agencies. 40 Economists and others had pointed out that BC analysts tended to ignore variables that could not be quantified. Since environmental damage tended to be hard to quantify while benefits from the projects were more easily measured, this and other conventions of BC analysis, it was alleged, encouraged findings that the benefits of various water resource projects outweighed the costs. PIL lawyers saw the flaws in BC analysis as a cause - or at least as a reflection — of the decisional biases they detected in agency proceedings. Moreover, the attack on BC procedures seemed explicitly mandated by NEPA. Section 102 (b) instructs federal agencies to "develop m e t h o d s . . . which will ensure that presently unquantified environmental amenities and values may be given appropriate consideration in decision making along with economic and technical considerations." 4 1 This language suggested that Congress shared the environmentalists' concerns 38. Calvert Cliffs Coordinating Committee v. AEC, 449 F. 2d 1109, 1115 (D.C. Cir. 1971), cert, denied, 404 U.S. 9 4 2 ( 1 9 7 2 ) . 39. In virtually every case, litigants have attacked the benefit-cost justification of the water resource project. See cases cited in notes 7 and 9; and Liroff, NEPA and its Aftermath, p. 255. 40. See, for example, A. R. Prest and R. Turvey, "Cost-Benefit Analysis: A Survey," Economic Journal, LXXV (December, 1965), p. 693; Richard S. Hammond, "Convention and Limitation in Benefit-Cost Analysis," Natural Resources Journal, VI (1966), pp. 195-222, Jules Joskow, "Cost-Benefit Analysis for Environmental Impact Statements," Public Utilities Fortnightly, XCI, No. 2 (1973), pp. 21-25, relying, among other things, on Alan Carlin, "The Grand Canyon Controversy: Lessons for Federal Cost-Benefit Practices," Land Economics, XLIV (1968), pp. 219-227, and A. Dan Tarlock and Roger Tippy, "The Wild and Scenic Rivers Act of 1968," Cornell Law Review, LV (1969-70), pp. 707-739, 708; also Note, "Cost-Benefit Analysis in the Courts, Judicial Review Under NEPA," Georgia Law Review, IX (1975), pp. 417-453, 426; and Comment, "Judicial Review of Cost-Benefit Analysis under NEPA," Nebraska Law Review, L1II (1971), pp. 540-580, 547-550. 41. 42 U.S.C. 4 3 3 2 ( 1 9 7 0 ) .

Environmental

Defense II

with the BC practices. 42 Thus it seemed that BC analyses were likely to be vulnerable to NEPAbased attacks. Benefit-cost analysis may also have been seen as an area where long-term institutional reforms might benefit environmentalists. We have seen how the incidence of costs and benefits of these projects tends to make it more likely that political pressure will emerge in favor of rather than against the venture. Because of the relationship between the incidence of benefits and costs and the structure of organization, there is a substantial possibility that political signals reaching agencies will overstate the benefits of water resource projects and understate the costs. These distortions or imperfections in the "political market" will be magnified by the agency's self-interest in continuing the developmental activities that are its raison d'etre. While BC analysis may serve mainly to mirror - if not to amplify — these distortions, it might be possible to develop more truly comprehensive and neutral BC analyses which could help correct the distortions. PIL lawyers who believed this was possible might have seen judicial scrutiny of BC analyses as a way to develop less biased procedures for routine decision-making. The discussion of Indian Point in the previous chapter makes it clear how such a process of neutral, distortion-correcting BC analysis might work. We saw there that much of the environmental damage indicated in an EIS is probable, rather than certain. Often we only know that there is some chance that damage of a given magnitude will occur. Now it would seem that it will be much less likely that the possible losers from such a contingency will be prepared to organize and advocate to prevent it than that those who stand to secure predictable benefits from the project that creates the risk will organize to advocate for construction. In such a situation, a carefully done neutral BC analysis could help an agency make a better assessment of the efficiency and the distributional implications of a proposed project than it 42. In this section Congress has supplemented the mandate of every agency to require consideration of environmental values in addition to the agencies' traditional responsibility of increasing national economic output and efficiency in water resource development. Water Policies for the Future, Final Report to the President and Congress of the United States, by the National Water Commission, Washington, D.C., 1973, p. 379.

206 would make if it relied exclusively on data received by interest group advocacy. Such a decisional technique offers a way to correct some of the distortions of pluralist politics. But there is a catch. True, a BC analysis should correct some of the distortions created by imbalance in the political market if it is "neutral." But there is no guarantee that agencies will provide full and fair BC studies, and there is reason to believe that purely neutral BC analysis is an illusory goal; BC analysis requires numerous decisions in which judgment and discretion must be exercised. For example, not only must all costs and benefits be identified — itself not an easy job — but they must also be valued and compared. In the conduct of such costing and comparing, the analyst must make a series of more or less arbitrary choices that will influence the outcome of the analysis. If analysts are biased, it will not be hard for them to justify an inefficient project. Even if they are not biased, analysts must make choices that will make major differences in outcome. One area in which choices must be made is the pricing of costs or benefits for which there is no market price. This frequently is a problem in water resource projects; a simple example is the need to place a price on the net recreational value of eliminating a natural stream and creating a lake.43 There is no existing price for these different uses, so some estimate must be made. Similar estimates must be made of the possible range of environmental damage and the likelihood that given levels of damage will occur. Our Indian Point discussion illustrated the problems in doing this. Additionally, choices must be made about the process of calculating the present value of the costs and benefits that have been identified. Benefit-cost analysis requires that all benefits and costs over the life of the project be compared at their present value. The techniques and formulas used to do this vary, and selection of one over another can have a material impact on the conclusion. The key factors are the life to be attributed to the project and the discount rate used to 43. For a discussion of the difficulty of placing a market value on environmental costs and benefits, see Bracken, Trends; Otto Eckstein, Water Resource Development (Cambridge, Mass.: Harvard University Press, 1958), pp. 39-43; Joskow, "Cost-Benefit Analysis," p. 32; and, Prest and Turvey, "Cost-Benefit Analysis: A Survey," p. 729.

Area Studies: Public Interest Law in Action calculate present values.44 The longer the life attributed to the project, the higher the total benefits. Project costs tend to be concentrated in early years, so that the later years have a high ratio of benefits to costs. The longer the project is presumed to last, the larger its total benefits will appear to be.45 The interest rate used to discount the future benefits and costs of projects has a substantial effect on BC ratios. The higher the discount rate, the lower the value of benefits and costs in later years. This has substantial implications for the evaluation of water resource projects, which generally have positive net benefits in their later years, and negative net benefits — that is, positive net costs - in their earlier years. Thus, the higher the discount rate chosen, the fewer the projects with positive BC ratios. The discount rate will also affect the relative efficiency of different projects. With high discount rates, projects with rapid payoff will appear more efficient than endeavors in which the payoffs, while larger, are concentrated in later years.44 If BC analysis is to 44. Typically, individuals - and by extension, society - place a lower value on benefits of a given amount that will accrue in future years than on the same amount of benefits that will accrue in the present. Indeed, the present values, as value in the present, of a given dollar amount of future benefits decreases the farther in the future the accrual date is. The same is true of cost. Thus future benefits and costs must be discounted to the present, or reduced to present value, in order to make consistent comparisons among investment projects with different future streams of benefits and costs. The annual rate at which future benefits and costs are reduced to calculate their present value is an interest rate called the discount rate. The discount rate itself depends on intertemporal preferences - that is, on the value one places on consuming a good in the present rather than postponing its consumption to some future date. Just what the "correct" discount rate is for public projects is a matter of debate. On the role of a discount rate, and for a general discussion of benefits and cost analysis, see A. R. Prest and R. Turvey, "Cost-Benefit Analysis: A Survey," Economic Journal, LXIV (December 1965), pp. 683-735. The reader might also see William J. Baumol, "On the Social Rate of Discount," American Economic Review, September 1968, pp. 788-802; and Steven A. Marglin, ' T h e Social Rate of Discount and the Optimal Rate of Investments," Quarterly Journal of Economics, February 1963, pp. 95-111. 45. See generally, Paul W. Barkley and David W. Seckler, Economic Growth and Environmental Decay (New York: Harcourt, Brace, Jovanovich, 1972), p. 89; Charles Cicchetti, "Benefit-Cost Analysis," The Business Lawyer, XXXIX (1974), pp. 1340-1341; Eckstein, Water Resource Development, p. 102; and Rosenbaum and Roberts, "The Year of the Spoiled Pork," p. 185. 46. The importance of the time-stream of benefits and costs is well illustrated in Barkley and Seckler, Economic Growth and Environmental Decay, p. 89.

207 function as an effective counterweight to distortions in the political market, there must be some guarantee that all costs and benefits are included in the analysis and "properly" valued, and that the "proper" project life and discount rate are selected. These features of BC analysis had important implications for the type of judicial review needed if environmentalists were to achieve the goals of the litigation campaign. If courts were expected to halt projects that were decided through improper BC analysis, the judges would have to scrutinize all aspects of the decisions and reject those projects where project approval rested on "distortions" in data, "improper" valuation of unquantified factors, "incorrect" project lifetimes, and "excessively low" discount rates. Moreover, if courts were to tell agencies that projects were incorrectly analyzed, as well as to set standards for more truly "neutral" analytic techniques, the courts would have to determine the correct answer to the many controversial issues of theory and fact in BC analysis. The Reaction of the Courts: An Overview Some federal courts were willing to review the agencies' decisions on what items need to be included in the calculus, and a few were willing to ask agencies to take a hard look at the valuations placed on costs and benefits. 47 But with only one exception, the courts refused to secondguess the agencies on the key discount rate variable; the effort to get the courts to referee the controversy over discount rates failed completely.4* And with that failure, the whole effort to secure effective judicial monitoring of BC decision-making collapsed. Why did the courts refuse to give more than a superficial scrutiny to overall BC analysis, and refuse to examine the central issue of the appropriate discount rate to be used in such calculations? There seem to be two basic reasons: first, the recognition that the courts lacked any standards that could resolve the manifold controversies over the proper manner of computing costs and benefits in general, and second, specific Congressional intervention on the discount rate issue. 47. See for example, Sierra Club v. Froehlke (Wallisville Project) 359 F. Supp. 1289 (S.D.Tex 1973),rev'd on other grounds sub nom.; Montgomery v. Ellis (BlueEye Creek) 364 F. Supp. 517 (N.D. Ala. 1973); and EDF v. Froehlke (Cache River). 48. The lone exception is Montgomery 1». Ellis.

Environmental Defense II Two federal courts did accept the environmentalist challenge to review all the details of BC analysis on various projects, and found the EIS's inadequate because of deficient BC calculations. 49 But the magnitude of the task that these judges found themselves engaged in may have frightened their colleagues: in one of these cases — Wallisville Dam — the opinion analyzing and rejecting the Corp's EIS takes up 101 pages in the Federal Reports. 50 But it is doubtful that the real barrier to judicial intervention was solely the complexity of the decision. Federal courts have not shrunk from tasks of complexity in areas like antitrust and school integration. Rather, it seems that judicial reluctance to assume substantive review powers in this area stemmed from a number of other factors as well. These include the lack of clear legislative standards to apply, the long tradition of judicial deference to administrative expertise, and, perhaps most importantly, the special role of the Congress in water-resource decisionmaking. Clearly, the water resource decision problem is a complex one. The choice of a discount rate illustrates the complexity of the issue involved. There is no neutral scientific answer to the question: What is the appropriate discount rate for federal water resource projects? While most economists would have agreed that the discount rates used in some Corps projects were too low, since these rates were set years ago when the projects were first approved, there was no consensus on the proper rate that should be applied. 51 Some 49. Sierra Club v. Froehlke; Sierra Club v. Callaway, 499 F. 2d. 982 (5th Cir. 1974); and Montgomery v. Ellis. 50. Sierra Club v. Froehlke. 51. Even though the statutory discount rate has risen over the years, projects approved many years ago have not been reevaluated at the higher rates because the regulations have included "grandfather clauses." See, for example, 18 CFR 704. Also, Eckstein, Water Resource Development, p. 94; National Water Commission, Water Policies for the Future, pp. 382-387 (1973); Blackwelder, "Water Resource Development" in James Rathlesberger, ed., Nixon and the Environment (New York: Taurus Communications, 1972), p. 78; Liroff, NEPA and its Aftermath, see text accompanying note 115, Ch. V. The dramatic importance of discount rate is shown in I. K. Fox and J. C. Herfindahl, "Efficiency in the Use of Natural Resources: Attainment of Efficiency in Satisfying Demands for Water Resources," American Economic Review: Papers and Proceedings, LIII (May 1964), p. 201. For the Corps of Engineers projects authorized in 1962, if a discount rate of 8 percent had been used, 80 percent of these projects would have costs in excess of benefits.

208 theorists have argued that the appropriate rate would be the cost at which the federal government borrowed m o n e y , " while others proposed a rate based on what private borrowers would have to pay for funds, or on the rate of return on investment in the private sector. 53 Unless the courts were prepared to resolve this disagreement, however, they would be unable to specify one "correct" rate for any project. Moreover, it makes little sense to intervene only on the discount rate issue. Even if there had been consensus on the proper discount rate to apply to these projects, there is no guarantee that judicial determination of a " p r o p e r " discount rate alone would have led to better project decisions. Courts that looked only at the discount rate issue would confront serious "second-best" questions, and the utility of a partial intervention would be questionable. 5 4 This is especially true since the discount rate itself may be set to achieve distributional goals. As Weisbrod has pointed out, distributional factors loom large in water resource project decisions. 55 Projects with lower BC ratios may be preferred because decision-makers believe that their distributional equity effects are more desirable than are those of projects which seem more efficient. A low discount rate also may be set to increase the number of water resource projects that are acceptable. In this way, the total amount 52. President's Advisory Committee on Water Resource Policy, Water Resource Policy, December 22, 1955, p. 27; However, Eckstein, a prominent water resources economist, questions the validity of any of the positions (see Eckstein, Water Resource Development p. 95); and he concludes that the choice of the discount rate is largely a "subjective evaluation." See also Otto Eckstein, "A Survey of the Theory of Public Expenditures Criteria," in Public Finances: Needs, Sources and Utilization, National Bureau of Economic Research (1961). 53. See, for example, George H. Peters, Cost-Benefit Analysis and Public Expenditures (London: Institute of Economic Affairs, 1968), p. 19; John R. Meyer, Techniques of Transport Planning (Washington: Brookings Institution, Transport Research Program, 1971), pp. 204-215. 54. See generally, Richard S. Markovits, "A Basic Structure for Micro-economic Policy Analysis in our Worse-than-Second-Best World: A Proposal and Related Critique of the Chicago Approach to the Study of Law and Economics," Wisconsin Law Review (1975), pp. 950-1080. 55. Burton A. Weisbrod, "Income Distribution Effects and Benefit-Cost Analysis," in Samuel B. Chase, ed., Problems in Public Expenditure Analysis (Washington: Brookings Institution, 1968), pp. 177-209.

Area Studies:

Public Interest Law in

Action

of resources transferred to beneficiaries of water resource projects will be increased, and the range of discretionary decision-making on distributional grounds will be expanded, since with low discount rates more projects will fall into the eligible class from which final choice will be made. PIL lawyers felt that NEPA mandated judicial review of all these questions. Their theory was based in large part on the reasoning in Calvert Cliffs. In that case, the court had said that agencies making decisions have a substantive duty to weigh environmental values and that courts will scrutinize decisions to ensure that this duty is fulfilled. It follows that courts must ensure that no decisions are made until all relevant facts are before the decision-maker. Thus it should be possible to enjoin a project until an adequate EIS is prepared. Moreover, Calvert Cliffs suggested that review cannot stop when the statement is adequate: the court must go on to determine whether environmental factors are given appropriate weight. If, as might be expected, there were some project that was only approved because its environmental harm was ignored, it would seem that courts would order the project to be terminated. Thus the courts must review all features of project decision-making, including the BC analysis. If courts were to do this under NEPA, however, they would have to make a break with traditions of judicial review, which required judges to defer to agency expertise. Yet, as one judge pointed out, NEPA seemed to require just such a break. The tradition of judicial deference - and the "substantial evidence" rule that it had spawned - had emerged under statutes in which Congress had explicitly delegated to agencies the power to resolve complex questions. 5 6 Courts called on to review such decisions had not only to be concerned with their own lack of expertise in the complex matters at hand, but also with the Congressional decision to create an agency that would have such expertise. The situation under NEPA, however, seemed to be just the opposite; that is, it was the very premise of NEPA that agencies lacked expertise on environ56. See generally, Kenneth Culp Davis, Administrative Law Treatise (St. Paul: West Publishing Company, 1958), Sec. 30.90, at 2 4 0 ^ 6 ; Louis L. Jaffe, Judicial Control of Administrative Action (Boston: Little, Brown, 1965), pp. 576-85.

209

Environmental Defense II

m e n t a l m a t t e r s a n d , i n d e e d , t h a t t h e usual agen-

b e n e f i t s s t r u c k w a s a r b i t r a r y or gave t o o little

cy d e f i n i t i o n of

w e i g h t t o e n v i r o n m e n t a l values, t h e E i g h t h Cir-

p r o b l e m s e x c l u d e d or

down-

graded e n v i r o n m e n t a l issues. T h u s it s e e m s rea-

cuit also c o n c l u d e d t h a t t h e c o u r t s " c o u l d

sonable to c o n c l u d e that in passing N E P A C o n -

s u b s t i t u t e t h e i r o w n j u d g m e n t " f o r t h a t of t h e

gress n o t

agency."

only

a u t h o r i z e d judicial review, b u t

s a n c t i o n e d a very b r o a d scope of review. 5 1

not

T h e p a r a d o x is a p p a r e n t . H o w can a c o u r t rule

T h e s e ideas led c o u r t s to a r t i c u l a t e b r o a d tests

that an agency c a l c u l a t i o n of c o s t s and b e n e f i t s is

t o be f o l l o w e d . S o m e c o u r t s s p o k e of judicial

a r b i t r a r y or t h a t t h e agency gave t o o little w e i g h t

review as involving " s u b s t a n t i v e review on t h e

to e n v i r o n m e n t a l

m e r i t s . " This a p p r o a c h

s u b s t i t u t e its o w n j u d g m e n t f o r t h a t of t h e agen-

led to o n e widely ac-

f a c t o r s unless t h e c o u r t can

c e p t e d " s u b s t a n t i a l i n q u i r y " a p p r o a c h . 5 8 A lead-

cy? Yet

ing s t a t e m e n t o f this a p p r o a c h in t h e w a t e r re-

agency e x p e r t i s e , its " r e v i e w " w o u l d b e p o i n t -

s o u r c e s area is f o u n d in t h e Eighth C i r c u i t ' s o p i n -

less.

ion in Environmental ke."

Defense Fund v. Froel-

U n d e r this a p p r o a c h , c o u r t s w e r e t o m a k e

"substantial inquiry" to determine whether there

t h e o t h e r h a n d , if it d e f e r r e d

m a n y of t h e m did

the

Virginia.

litigation

to

stop

the Gathright

Resolving the D i l e m m a s o f

if the actual b a l a n c e o f costs and b e n e f i t s s t r u c k

Judicial Review: Gathright Dam

was " a r b i t r a r y or clearly gave i n s u f f i c i e n t w e i g h t to e n v i r o n m e n t a l f a c t o r s . " " by

Cliffs

in

If judicial review w a s to be an e f f e c t i v e device t o s t o p w a t e r resource p r o j e c t s , a case h a d to be

i n q u i r y " test

articu-

the E i g h t h Circuit s e e m e d t o f o l l o w

logically f r o m Calvert

Dam

of

e n v i r o n m e n t a l f a c t o r s , and they m u s t d e t e r m i n e

While t h e " s u b s t a n t i a l

to

resolve t h e issue, let us l o o k at an i m p o r t a n t case,

t h i s , c o u r t s m u s t ask if t h e agency r e a c h e d its

lated

to

District c o u r t s were o n the h o r n s of a dilemm a . T o illustrate w h a t

h a d b e e n a " c l e a r e r r o r of j u d g m e n t . " 6 0 T o d o decision a f t e r a " g o o d f a i t h c o n s i d e r a t i o n "

on

and t o set t h e stage

for judicial review of the e n v i r o n m e n t a l w i s d o m

f o u n d in w h i c h t h e c o u r t w o u l d o r d e r t h e p r o j e c t t e r m i n a t e d or s u b s t a n t i a l l y m o d i f i e d b e c a u s e o f the

undervaluation

of environmental

consider-

ations. A l t h o u g h P I L l a w y e r s h a d b e e n able t o

of decisions, t h e E i g h t h Circuit C o u r t w e n t on t o

delay p r o j e c t s p e n d i n g p r e p a r a t i o n of EIS's, and

place a q u a l i f i c a t i o n

had t h r o u g h this delay secured m o d i f i c a t i o n of

o n the judicial role

that

seemed t o u n d e r m i n e all t h a t h a d g o n e b e f o r e .

some

While a d m i t t i n g t h a t c o u r t s m u s t b e able t o de-

few,63

p r o j e c t s and

even

the t e r m i n a t i o n o f a

termine w h e t h e r t h e actual balance of costs and

l o w e d p r o j e c t s to p r o c e e d o n c e a d e q u a t e EIS's

57. See Harold Leventhal, "Environmental Decisionmaking and Role of the Courts," University of Pennsylvania Law Review, CXXII (1973-1974), pp. 509-555, 519-30. 58. Ibid. In the appeal concerning the sufficiency of the environmental impact statement for the Gilham project in Arkansas, the 8th Circuit held under NEPA that "courts have an obligation to review substantive agency decisions on the merits." EDF v. Corps of Engineers, 470 F. 2d 289, 298 (8th Cir. 1972), cert, denied, 412 U.S. 931 (1973). The "substantial inquiry" approach has been adopted in a number of other circuits. EDF v. Corps of Engineers, 492 F. 2d 1123, 1129 (5th Cir. 1974); Silva v. Lynn, 482 F. 2d 1282, 1283 (1st Cir. 1973); Conservation Council of North Carolina v. Froehlke, 472 F. 2d 664, 665 (4th Cir. 1973); Calvert Cliffs', 449 F. 2d 1109 (D.C. Cir. 1971). The Sixth Circuit implicitly adopted this standard in EDF v. TVA, 492 F. 2d 466 (6th Cir. 1974), a f f d per curiam 371 F. Supp. 1004, 1013 (E.D. Tenn. 1973). 59. 473 F. 2d 346 (8th Cir. 1972). 60. EDF v. Corps of Engineers, 470 F. 2d 289, 300. 61. 473 F. 2d 353, citing from Calvert Cliffs', p. 1115.

were produced.64

m o s t c o u r t s dissolved i n j u n c t i o n s a n d alIf t h e w a t e r resource c a m p a i g n

w e r e n o t t o grind t o a h a l t , a case h a d t o b e found

where

t h e record

would

unequivocally

demonstrate

that

t h e a g e n c y ' s decision

ahead

the

project

with

was

"arbitrary

to go and

capricious." By 1 9 7 2 , h o p e s w e r e w a n i n g t h a t s u c h a case could

be

found. The

Fund (EDF) -

Environmental

Defense

t h e principal litigator and finan-

cer o f t h e w a t e r r e s o u r c e c a m p a i g n - h a d a l r e a d y b e g u n t o c u t b a c k its c o m m i t m e n t t o t h e struggle. 6 5

B u t in t h a t y e a r a case c a m e to E D F ' s

a t t e n t i o n t h a t s e e m s t o have revived s o m e h o p e s for a definitive v i c t o r y . T h i s w a s t h e challenge t o the G a t h r i g h t D a m and reservoir. 62. 63. 64. 65.

473 F. 2d 353. For example, cases cited in note 7. For example, cases cited in note 9. Interview with EDF staff.

210 The Gathright project involved construction of an earth and rock-fill dam on the Jackson River in southwest Virginia." It was designed to eliminate floods in the Jackson River watershed, to improve water quality in the river through low-flow augmentation, and to provide the recreational opportunities that would be associated with the 2,530 acre lake that the dam would create. Everyone agreed that the project would have substantial impact on the environment. The lake would inundate the T. M. Gathright Wildlife Management Area, which produced substantial amounts of wildlife, including wild turkey and deer. It would also destroy a scenic gorge and eliminate 12 miles of the Jackson River as a free-flowing stream. At the same time the project would create substantial recreational and other development in what had been a relatively uninhabited area. Gathright was not a new project when it came to EDF's attention. The project planning process had begun in 1946, land acquisition occurred in 1967, and construction began in 1968. By the time the trial opened, the dam itself had been begun and the project was 30 percent complete. 67 The case was begun by the Cape Henry Bird Club, a local environmental group. The plaintiffs were represented by Gladys Kessler of the mixed public-private Washington firm of Berlin, Roisman and Kessler, and by private Norfolk counsel. EDF was asked and agreed to provide the expert witnesses — two water resource engineers and an economist — needed to demonstrate that the project could not be justified under NEPA. The plaintiffs found many faults with the Corps' decisions. First, the Corps had improperly counted water quality improvement as a benefit of the project. Forty percent of total benefits from the project, according to the Corps' BC ratio, came from water quality improvement derived from low-flow augmentation of the Jackson River. Plaintiffs contended that the Federal Water Pollution Control Amendments of 1972 explicitly forbade the use of such benefits in justifying water resource projects. Second, the Corps 66. Cape Henry Bird Club v. Laird, 359 F. Supp 404 (W.D. Va. 1973), afTd 484 F. 2d 453 (4th Cir. 1973). 67. Ibid. p. 407.

Area Studies: Public Interest Law in Action had made major errors in its BC calculation. These included the use of a discount rate that was too low, only 3Vs percent, and a time period - 100 years - that was too long. The plaintiffs also contended that the Corps had underestimated some of the costs of the project, including the cost of finding land to replace the wildlife management land that was to be inundated, and the cost of roads that would have to be rebuilt as a result of the project. The plaintiffs finally argued that the Corps had overstated some of the recreational benefits of the project, and understated some of the recreational losses, because the BC rates failed to recognize the unique and irreplaceable quality of the area. The essence of the plaintiffs' argument was that it was "arbitrary and capricious" for the Corps to proceed with the project on this record. The plaintiffs' witnesses showed that if the BC ratio were recalculated merely to exclude the water quality improvements improperly added to project benefits, the BC ratio fell from well over 1.0 to .68. They argued that if the other corrections were also made, the ratio would fall further. The plaintiffs' argument was simple. They contended that NEPA and the Federal Water Pollution Control Act mandate what factors must be considered in determining costs and benefits of a project. If, as in this case, proper "accounting" shows that environmental harms substantially outweigh any net project benefits, the agency fails in its duties under NEPA if it continues the project. To go ahead with a project where environmental damage is high and where total project costs substantially exceed benefits is to act "arbitrarily and capriciously," and the court must enjoin the project. Although the court agreed that it had a duty of "substantial inquiry," " it rejected both the allegations of major violations of NEPA duties and the position that a project whose "adjusted BC ratio" fell below unity could be enjoined. By giving the Corps the benefit of the doubt on most contested issues, and by rejecting the contention that NEPA established even the low substantive standard the plaintiffs had called for, the court made it clear that judicial "review" would never lead to rejection of a project where the 68. Ibid. p. 411.

211 Corps had prepared an EIS that at least addressed all major issues. While asserting that NEPA was more than a full disclosure statute, Judge Dalton in fact read it as that and nothing more. Dalton rested his reasoning on a distinction between NEPA and the Flood Control Act of 1936. The 1936 statute requires that projects have a BC ratio greater than unity. But no judicial review is permitted of decisions taken under the Flood Control A c t . " Congress and Congress alone determines what counts as costs and benefits, and Congress alone decides whether a project meets the tests. NEPA, on the other hand, permits judicial review of costs and benefits but imposes no specific substantive standards. Thus, he concluded, an argument that NEPA imposes BC standards, and that a specific project falls below them, would violate the well-established principle that questions relating to the BC ratio are not subject to judicial review. This decision in effect construed NEPA in light of the previous statute. Dalton held that where NEPA might conflict with the Supreme Court's ruling that the Flood Control Act precludes judicial review, the Flood Control Act must prevail. Thus he ruled the substantive issues of project viability out of bounds in NEPA suits. This resulted in a very curious situation. Courts could determine whether an EIS met NEPA standards. If the EIS did not meet NEPA standards, the Corps would be required to produce the necessary data and corrections. But none of those corrections need be taken account of in determining whether the project's benefits exceed its costs, since the calculus was the responsibility of the Congress. A project could be held up until fuller disclosures were made, but could never be stopped, regardless of what was concluded. Judge Dalton did not, however, rest his opinion solely on the conclusion that the 1936 act overrode any substantive content NEPA might have. He also looked at the Corps' decision under NEPA and found that the EIS met NEPA standards, with some exceptions which could be corrected by supplementary data submitted as the project went along. Moreover, the judge rejected the plaintiffs' claim that the Corps was forbidden by the Federal Water Pollution Control Act to 69. Ibid. p. 413.

Environmental Defense II count water quality benefits. And he concluded that the Corps had acted in "good faith" in reaching conclusions on most of the other contended issues. Why did Judge Dalton reach this decision, despite his apparent adherence to the "substantial inquiry" test and the "arbitrary and capricious" standard? A key can be found in several passages of the opinion. For the dilemma the court faced is that the project had already been authorized by Congress and Congress had set the procedures for BC analysis. Basically, the Judge was unwilling to assume that NEPA's broad language constituted a reversal either of Congress's decision to approve Gathright, or of the costbenefit procedures Congress had approved in passing Senate Document 97. "If," he said, "the plaintiffs believe that BC ratios should be computed using NEPA standards, then they should make their views known to Congress. While Congress may in the future choose to rely upon NEPA BC ratios, that is the prerogative of Congress and not of this court. 10 Thus, the Gathright Dam court resolved the dilemma of the Froelke case by refusing to substitute its judgment for that for the agency — because in the end the "agency" was the Congress itself. The court seemed to recognize the futility of adopting the "substantive theory" of NEPA in an area where the substantive decisions were being made by the legislative branch. Since water resource projects are usually individually approved by Congress, the decision was farreaching. Gathright Dam was not an isolated case. As time went on, most of the courts that had held up projects pending production of adequate EIS's dissolved their injunction when statements were produced. The environmentalists found they could use litigation to buy time and force agencies to develop more detailed information about projects. But time and information were only useful in the political arena, to which decisions like Gathright Dam were ultimately consigned. What prospects would the campaign have in the political arena? To get some idea of the way Congress handled some of the issues in the campaign, let us look at the history of one issue that was finally resolved at the political level - the 70. Ibid. p. 413.

212 question of the appropriate discount rate for BC analysis. Congress Resolves the Discount Rate Issue In the 1960s the discount rate for water resources projects became a major issue in the federal government. In the 1950s and 1960s the rate used in project planning was the "coupon rate" - the interest rate the government pays on the long-term marketable securities it issues. 11 Since the coupon rate was an average of all rates on all outstanding long-term issues, and since interest rates had risen since the earliest securities were issued, the rate used in calculating BC ratios for water resources projects in this period was between 3'A and 3 l /2 percent, a figure well below the current cost of federal borrowing. In 1968, President Johnson announced that a higher rate would be used. While adhering to the principle that the way to measure the rate was the cost of money borrowed by the government, the President proposed to use the most recent interest rates, rather than an average of the rates on all outstanding issues.12 The shift from the coupon rate to the "yield" rate led to an immediate increase in the rates to 4 % p e r c e n t . " At about the same time, the Water Resources Council (WRC) - a federal interagency body charged with coordinating national water resource activities - instituted a study of the discount rate issue. In 1971 the Council issued a set of proposed principles and standards for the water resource projects. In this document the WRC rejected the principles underlying the use of either coupon or yield rates. It said that rates should be established in accordance with the following principle: 71. T h e so-called " c o u p o n r a t e " was first laid o u t in " P r o p o s e d Practices for E c o n o m i c Analysis of River Basin P r o j e c t s , " U.S. G o v e r n m e n t Printing O f f i c e , Washington, D.C. p. 2 4 ; and later endorsed b y the U.S. Bureau of the Budget (December 31, 1972), " R e p o r t s and Budget Estimates Relating to Federal Programs and Projects for Conservation, Development, or the Use of Water and Related Land Resources," Circular A-47, Bureau of the Budget, Washington D.C., Section 15, p. 14; and the President's Advisory C o m m i t t e e o n Water Resources Policy ( D e c e m b e r 22, 1 9 5 5 ) , Water Resources Policy, U.S. G o v e r n m e n t Printing O f f i c e , Washington, D.C., p. 27. 72. Budget Message, J a n u a r y 29, 1968, pp. 31 and 190. 73. 3 3 Fed Reg. 1 9 1 7 0 ( 1 9 6 8 ) ; 18 C F R 7 0 4 . 3 9 (1973).

Area Studies:

Public Interest l.aw in Action

The opportunity cost of all federal investment activities, including water resource projects, is recognized to be the real rate of return on nonFederal investments. The best approximation to the conceptually correct rate is the average rate of return on private investment in physical assets, including all specific taxes on capital or earnings of capital and excluding the rate of federal inflation, weighted by the proportion of private investment in each major sector. 14 At the time the document was issued, this principle would have meant a substantia] upward shift in the discount rates used for BC analysis, since the "opportunity cost" rate was about 10 percent while the yield rate at the time was only 53/s percent. (It is worth noting that the environmentalists in Gathright Dam had argued for use of the opportunity cost rate.) However, the WRC also said that for the next five years it proposed to use a rate of 7 percent, admittedly lower than the actual opportunity cost measured by the real rate of return on non-federal projects. 15 These administration efforts to increase the rate used in calculating the BC ratio for water resource projects aroused Congressional ire. Even before formal publication of the WRC proposed principles and standards, Senator Jennings Randolph wrote to the Council objecting to use of the 7 percent rate; in 1971 Randolph and Senator Henry Jackson — one of the principal authors of NEPA - introduced legislation which would mandate a rate of 3 % percent. 7 ' Shortly thereafter, the WRC held hearings on its proposals at which 75 Congressmen appeared to testify on the discount rate issue. Seventy-two of the legislators who appeared opposed the 7 percent rate and called for use of a lower rate. 17 This strong Congressional sentiment was reflected in the 74. 36 Fed. Reg. 2 4 1 4 6 - 2 4 1 4 7 ( 1 9 7 1 ) . 75. Stated in press release a c c o m p a n y i n g issuance of the Proposed Principles and Standard on D e c e m b e r 21, 1971, see Water Resources Council, by National Water Commission (NTIS, U.S. D e p a r t m e n t of C o m m e r c e , 1972). 76. S. 2612, 9 2 n d Cong., 1st Sess., " N a t i o n a l Water and Related Land Resources Policy A c t " i n t r o d u c e d b y Senator Jennings R a n d o l p h joined by Senator Henry M. J a c k s o n , and referred t o the Senate C o m m i t t e e on Interior and Insular Affairs o n September 29, 1971. 77. See S u m m a r y and Analysis of Public Response to the Proposed Principles and S t a n d a r d s for Planning Water and Related Land Resources and Draft Environmental S t a t e m e n t , Water Resources Council, July 1972.

213 Flood Control Act of 1972, which prohibited the WRC from raising rates; both House and Senate committee reports criticized the WRC's efforts in this regard. 7 ' While the 1972 Act was vetoed, the Water Resource and Development Act of 1974 put the discount rate issue to rest. That statute reinstated the coupon rate as the basis for BC analysis, and forbade any administrative change in the rate. " Congress had made its position clear: despite the view of environmentalists, scholars, and the executive branch that discount rates were too low, Congress's solicitude for water resource projects prevailed. An individual agency might still be subject to a specific attack on an individual project, especially if the project was highly visible and opposition to it in a district was substantia], but as an institution, Congress made it clear that it weighed the benefits of these projects highly, and that it wished to preserve maximum discretion in selecting projects for funding for itself and the water resources development agencies. Reaction of the Public Interest Lawyers As more and more decisions like Gathright Dam came down, PIL firms began to rethink the major commitment they had made to the water resource area. If the federal courts were unwilling to do more than hold up projects pending completion of an EIS, and were unwilling to subject EIS's to truly searching review, the goals sought in litigation had to change. There still were important functions that litigation could serve. First, the courts might be used to force agencies to create or reveal data about project costs which could be used in more political forms of advocacy. Second, lawsuits could be used to delay projects while political activity went on. Third, lawsuits, even if ultimately unsuccessful, could still be used as tools in "political" campaigns: even an interim litigation victory might help increase public awareness of a dispute over a project, moving it out of the low-visibility arena and thus enhancing the power of environmental groups. Finally, the threat of 78. See H. R. Rep. No. 1151, 92nd Cong., 2nd Sess. (1972); and Sen. Rep. No. 1199, 92nd Cong., 2nd Sess. (1972). 79. Pub. L. No. 93-251 of 80(a) (March 7, 1974), 88 Stat. 12; see also 39 Fed. Reg. 29242, 29243 (1974).

Environmental Defense II litigation continued to be a valid bargaining counter in environmentalist negotiations with agencies and private actors. As long as courts were willing to conduct full trials in which the adequacy of impact statements could be challenged on the merits, litigation could significantly increase the costs of projects even if it would not stop them, and agencies had to consider the cost of these delays when they bargained with environmentalists or their lawyers. Nevertheless, the growing evidence that courts would not exercise effective substantive review meant that litigation against water resource projects would be relegated to a secondary role in the campaign against water resource development. While substantive judicial opinions banning projects were ends in themselves for litigation activity, all other uses of the courts made sense only if they were integrated with other forms of advocacy - and thus with other kinds of advocates, such as lobbyists. If PIL lawyers were going to court more to get data that could be used in other forums, to buy time, or to dramatize an environmental dispute, their efforts would be wasted unless they were closely coordinated with what would have to become the main thrust of advocacy — direct forms of political action. Since this limited the situations in which suits would make sense, it reduced interest in this type of litigation. At the same time, PIL lawyers realized that if they were to serve as effective advocates, they could not afford to concentrate their efforts exclusively on the courts. All these factors led firms like EDF to question whether further NEPA litigation was a good investment of scarce resources. Even before the Gathright Dam case, EDF had begun to cut back on water resource litigation; when Gathright Dam came down the decision helped crystallize the growing recognition of the limited value of continued litigation in the water resource area. This gave greater importance to other activities aimed at changing water resource decisions, and PIL lawyers did experiment with other techniques. For example, EDF sponsored the production of a motion picture on flood control, which questioned many of the basic premises underlying the Corps' activity. This film was shown widely in Washington, and served as the spearhead of a "lobbying" effort designed to convince legisla-

214 tors and others that much of the water resource program was wasteful and unnecessary. As it recognized the limits of litigation, EDF moved more and more from the courts to other arenas, from lawsuits challenging specific projects to broader efforts designed to change the way agencies and Congress thought about water resource development. Along with this shift in emphasis, however, came a gradual retreat from the area. At first, total activity did not taper off as rapidly as litigation. But between 1973 and 1975 some of the people at EDF who had led the water resource effort began to turn to other tasks and others left the firm. Today, EDF does little of this sort of work in this area and relies solely on very specific aspects of other statutes, such as the Water Pollution Control Act, in its remaining efforts in the water resource area.* 0

Assessing the Water Resources Campaign The litigation campaign failed to achieve its most ambitious goal, which was to make "substantive judicial review" of agency decisions a reality. This effort ran afoul of a rather hard truth: the federal courts will not - and indeed cannot — directly confront the Congress on a matter which ultimately involves the propriety and priority of federal budgetary allocations. Whatever review power courts may exercise over administrative interpretations of congressional policies, they will not second-guess Congress in areas like water resource development, where each project receives the specific approval of the legislature before it is carried out. Thus the environmental advocates ended the campaign where they had begun: confronting an uphill battle against stronger political forces in an area where the pro-development forces have systematic advantages. Yet the campaign had made several notable changes in the situation. First, the litigation efforts had put a number of issues on the agenda of decision-makers. Many questions that had been ignored before the campaign were given serious attention. These included such issues as the appropriate discount rate; the use of non-structural alternatives to reduce flood damage; and the dubious value of 80. Interview with EDF staff.

Area Studies:

Public Interest Law in Action

low-flow augmentation as a technique for water quality control. Second, the litigation campaign made it possible for environmental groups to delay projects and to secure data that previously may have been unavailable. These powers, which stemmed from the continued willingness of district courts to conduct trials on contested cases, clearly increased the bargaining power that environmental advocates will enjoy in future water resource disputes. There is evidence that the existence of these powers serves to deter at least some of the most environmentally harmful projects." Finally, the campaign contributed to the growing awareness of the inadequacies of the process by which water resource planning decisions are made. If the PIL activities did nothing else, they demonstrated that the planning process had been biased, and that the presence of vigorous environmental advocacy can bring new information to light. By helping to show the effects of the political and representational imbalances in decision-making, PIL firms made it easier for reformers to support new planning processes which would be more inclusive. Several such reforms have been proposed. 8 2 On the negative side, the campaign had its costs. Substantial PIL resources were devoted to the litigation and the results were limited. Moreover, the political effects of the litigation were not all salutary. When the campaign began, it may have seemed that litigation offered the only effective approach to slowing water resources development, but litigation had costs beyond the out-of-pocket expenses involved. For example, the energies invested in litigation were not devoted to direct efforts to increase the political resources available for the environmental cause, and there is some reason to believe that litigation in some cases discouraged direct political action since it initially looked like the courts would "take care of things." Moreover, litigation inevitably forced the debate to be concentrated on relatively narrow issues — such as compliance with NEPA, and with the Federal Water Pollution Control Act — rather than on the values and priorities that were the real issues at stake. 81. Notes 19 and 20 and accompanying text. 82. See "Water Policies for the Future," p. 387; and also National Water Commission: A Review of Some Issues.

215

Conclusion: Public Interest Law and Complex Disputes In the water resource campaign, environmentalists wanted to stop projects that, in their view, were inefficient and inequitable. These projects seemed to them to cause more harm than good, and to transfer resources to distinct - and not particularly worthy - groups that got benefits from development. The campaign did stop some projects, but it fell far short of the major reappraisal of values and attitudes which some environmentalists had hoped for. And the litigation campaign had only limited success in mobilizing the federal judiciary as a counterweight to the biases of agencies and the Congress in decision-making on water resource planning. This meant that the battle had to be fought at all levels of the administrative and political system. But the PIL lawyers - and their clients faced tremendous opposition in these arenas, and lacked the resources to compete fully with their opponents. The PIL lawyers sought changes in policies and programs that would have denied tangible and substantial benefits to organized groups, yet would have produced largely intangible benefits for their diffuse clientele. Naturally, this effort provoked substantial resistance. The dispute over each project became a protracted battle. Even the simplest form of challenge to a project required mastery of complex technical environmental and economic data. To keep ahead of the agencies they were challenging, the PIL lawyers had to employ their own experts and do their own studies, and they had to fight not merely in the courts but in a multitude of arenas. In many of these arenas they lacked resources to compete effectively. The water resource litigation campaign had been an e f f o r t to avoid these problems by transforming a complex dispute, in which all issues are open and battle must be done on all fronts, into a much simpler struggle where conflict can be carried on principally in the courts and under a gradually evolving set of normative standards. By pressing the theory that NEPA contained substantive principles which could be employed by federal courts in evaluating the environmental wisdom of agency actions, the PIL lawyers tried to change the nature of the political struggle over the allocation of resources to water resource de-

Environmental Defense // velopment. Had they achieved the doctrinal goals they sought, the way would have been open for the development of a " c o m m o n law" of environmental protection that could have served as a major weapon in all future environmental controversies. It is easy to see the appeal of this strategy. It seems to offer the advocate for under-organized interests an escape from what otherwise seem to be intractable dilemmas and biases of pluralist politics. The attractions of the judicial forum are obvious. The judiciary seems to be more neutral than legislative and administrative bodies where (at least in low-visibility disputes) the advantages of organization are substantial. Moreover, the techniques of advocacy in the courts are well understood and, for public interest law firms at least, relatively inexpensive in comparison with legislative or administrative lobbying activities and media campaigns. Thus if existing statutes, common law doctrine or constitutional law offer an available avenue for invoking the judiciary, the appeal of litigation is strong. The appeal of litigation is heightened by the substantial success that has been achieved in many areas through courtroom advocacy. As other chapters in this study have shown, the courts have been willing to respond to claims presented by PIL lawyers in many cases. In the environmental area, as we have seen, the courts were prepared to develop and enforce the procedural implications of NEPA when agencies failed to respond to the congressional mandate. In other areas of environmental law that we have not canvassed, such as the Clean Air Act, the courts similarly have been willing to reverse agency decisions challenged by environmentalists. These successes reinforced other factors in PIL groups' decision-making (discussed in Chapter Five) to encourage the kind of litigation-orientation the water resource campaign reflected. For PIL firms and for all concerned with correcting governmental failures, litigation has an enduring appeal, and environmental groups continue to use litigation as a major aspect of environmental defense. But as this chapter has shown, litigation may not always be a successful strategy for interest group advocacy in complex disputes. In some cases, litigation can reduce the complexity of the dispute by turning a political controversy into a struggle over legal norms and

216 principles. Where this potential exists, litigation will be the cheapest and perhaps the most effective form of interest group advocacy available. But in other areas, the hope that a complex dispute can be simplified by taking it into the courts may be a chimera, and advocates who follow this hope may find themselves, at the end of a long process, confronting the same biases and distortions that led them to the courts in the first place. The water resource campaign seems to have been such a situation. After the substantial investment in time and energy put into the campaign, the PIL lawyers found that the judiciary was, in the final analysis, reluctant to override agency and congressional decisions on matters of substance, and the PIL groups found themselves back in the original political arenas from whence they had tried to escape. There are many lessons one can extract from this experience. The first is the dangers inherent in the lure of litigation. Because litigation works under some circumstances, it may be thought to work in all areas. The task for PIL lawyers and observers of PIL activities is to define with more precision the situations in which litigation may serve the interests of under-organized groups. To the extent that PIL firms develop a better understanding of litigation and its limits, they will be more likely to allocate their resources more effectively; and to the extent that PIL firms do — as EDF did in the water resource area — shift from litigation to other forms of advocacy, we will begin to understand more fully the potential and limits of public interest law as an advocacy institution. In the environmental area, where there are no constitutional norms involved, PIL litigation efforts seemed to be most effective in preserving gains that had already been achieved in the legislature. The initial successes of the environmental movement in securing passage of laws like NEPA were not the result of normal group politics. Rather, these laws emerged from a period in which mass attention had been drawn to environmental concerns through the media and the activity of politicians and policy entrepreneurs who worked from relatively narrow organizational bases. The environmental cause was more of a movement than an organization, and in a period of high visibility politics, the movement made

Area Studies: Public Interest Law in Action significant legislative gains. The early PIL litigation campaign under NEPA, described in Chapter Seven, represented an effort to avoid the evisceration of those gains by more organized interests and mission-oriented agencies in the inevitable period of low-visibility politics that followed passage of the laws. Where Congress had spoken with some clarity, as it did in NEPA's procedural sections and in substantive provisions of the Clean Air Act, PIL litigation successfully preserved environmental values. Where Congress was silent or vague, and where strong Congressional interests were deeply involved in issues and hostile to environmentalists' claims, litigation became more problematic. This suggests some guidelines for future allocation of PIL environmental defense resources. If there are reasonably clear Congressional standards, either on matters of substance or procedure, litigation will remain an important tool. It seems that PIL firms have recognized this, and that energies are being channeled into statutory areas like the Clean Air Act, where such standards do exist. In areas where there are no standards, effective advocacy will require PIL firms to influence initial agency decision, or to secure favorable legislation, or both. This will mean greater involvement in administrative rule-making proceedings, in individual project decisions (as was done in Indian Point), and in lobbying activities. PIL firms active in environmental defense have moved into all these forms of advocacy. Of course, this type of activity may present problems not present in litigation. This form of representation can be very costly and must draw on a different set of skills than litigation. The skill problem does not seem crucial - these techniques have long been the stock in trade of private Washington law firms, so that PIL lawyers should have no trouble developing them. But this type of non-litigation advocacy may raise more serious problems for PIL firms trying to maintain secure funding sources, since there have in the past been links between litigation victories and the availability of funding for PIL activities. And, of course, this type of advocacy could run afoul of the limits on lobbying by PIL organizations. It is hard to predict how serious these barriers will be to a restructuring of the PIL advocacy effort. There are developments that might reduce

217 the barriers. Pending legislation would provide funding for interest group representation in administrative proceedings." This would provide funding for work such as that in Indian Point, thus weakening the link between litigation and 83. U.S. Senate BUI 2715 (Nov. 20, 1975).

Environmental Defense II financing needs. Further, Congress has recently passed legislation relaxing the lobbying restrictions, and this legislation could make it much easier for PIL firms to evolve from litigationoriented institutions to more general purpose advocacy groups.

Chapter Nine

Housing, Zoning, and the Public Interest Neil K. Ko mesar

In 1926, the United States Supreme Court, in the case of Euclid i>. Ambler Realty, declared largescale governmental restriction on land use to be constitutionally permissible.' The process, dubbed "zoning," included not only limiting the location of noxious industry, but even limiting and segregating residential uses - for example, protecting single family residences from the ill effects of apartment houses. The decision and the new process were met with general acceptance by the "liberal" community as a triumph of "public interest" over "private interest," and the zoning power wielded by local communities grew in strength and form.1 While local use of the zoning power was sometimes limited by judicial intervention, it has received its severest challenge only in the last ten years. The new doubts about zoning are captured in the following strongly worded statement: Zoning is a tool fashioned by the dying to house those yet unborn. It does not preserve but rather embalms. For zoning is a tool utilized by the white middle class, in their studies on land use and conservation, sewers, and protected community growth to fulfill their own prophecies and to create white, middle class suburbs in perpetuity. Too few of us recognize it as one of our most blatant expressions of institutionalized racism.3 This chapter examines the role of "public interest law" in attempting to change the location and amount of housing. The first section of the chapter presents a simplified economic analy1. 272 U.S. 365 (1926). 2. See generally, Richard F. Babcock, The Zoning Game (Madison: University of Wisconsin Press, 1966). 3. Igor I. Sikorsky, Jr., "A-95: Deterrent to Discriminatory Zoning," Civil Rights Digest, V, No. 2 (1972), pp. 16-19, 17.

sis of these local land use issues. It begins with an exploration of the source of externalities and the conditions for private market failures. It next explores possible public solutions to these private market failures. A substantial part of this section is devoted to an examination of potential failures in these public solutions. Several models of local decision-making are presented and argument is offered for the applicability of the "majoritarian" model in this context. The second section of the chapter examines the potential role of public interest law (PIL) activity in terms of the relative representation of the various groups that have interests in the degree of land use restriction. In this context, it also examines the conflict between egalitarian and environmental forces in the land use setting and the likely response of the PIL sector to this conflict. The third section examines four cases in which PIL sector lawyers represented groups that sought the removal or reform of land-use restrictions. The fourth section describes the procedure for assessing the impact of PIL activities in the land use and housing area. The fifth section discusses the limitations imposed on PIL activity by the minority position of its clientele and by recent judicial decisions narrowing the role of the judiciary in local land-use matters. The last section draws some conclusions based on our findings.

Theoretical Setting Land Use Externalities Rather than attempting to describe the full set of land-use restrictions, the discussion begins with a simple hypothetical exemplifying the

219 problem which produces the impetus for restriction on use. Consider a tract of land which contains nine five-acre parcels of the form set out in Figure 9.1. The parcels are lettered to indicate their owners. Assume now that E wishes to erect five high-rise units each containing twenty apartments; that each of his eight neighbors would prefer that E build only single family houses on one acre plots; 4 that each of the neighbors values the less dense use of E's land by $1,000 (that is, each neighbor would be willing to pay E that sum if E would promise to build only five singlefamily homes); and that E in turn would gain $6,400 from the high-rise development relative to the less dense use.

A

B

C

D

E

F

C.

H

I

Figure 9.1 The total loss to the neighbors from E's proposed land use, $8,000, exceeds the gain to E, $6,400. But there is still reason to believe that E would build the apartments. There are two means by which "external" costs - external to E's decision — may be internalized by E; that is, included by E in his own cost-benefit analysis. First, E may gain pleasure from benefiting others and therefore include all or part of his neighbors' losses as his own. In the present instance, if E "felt" more than $6,400 worth of the neighbors' losses, he would not build the apartment houses. Second, the neighbors might bring their losses to 4. Although the sources of this preference may be important in subsequent sections, they are purposely left vague here to isolate the efficiency problem without the volatile trappings associated with arguments about these sources.

Housing and Zoning E's attention by offering him payment to desist from building the apartment. Thus, if E were offered any amount in excess of $6,400, his own cost-benefit analysis would favor the less dense housing choice — single family homes. In legal terms, he would sell his neighbors an interest in his land - a covenant restricting his land use. The question becomes how or whether E would be made to consider his neighbors' losses. In the transaction-costless world of Ronald Coase, this removal of the potential externality would occur instantaneously. 5 The neighbors would compensate E an amount ranging from $6,400 to $8,000 in exchange for his promise to restrict his land use to five single family houses. Without the extreme Coase assumptions, however, it remains uncertain whether the neighbors will succeed in purchasing the land use restriction from E. There are eight neighbors, none of whom is threatened with sufficient loss to justify the minimum restriction price of $6,400. Each of the neighbors would prefer that another set of neighbors purchase the restriction, producing a "free rider" situation.' There may be substantial costs involved in organizing the eight neighbors, determining and levying their share, and bargaining with E, in addition to the incidental costs for lawyers, filings, and so on. If these costs are sufficiently high to block the purchase of the land use restriction, a potential private market failure is present. It is a "failure" because despite the fact that the "social" or aggregate loss from the proposed apartments exceeds the "social" or aggregate benefits, the private market would still produce the less desirable apartment use. The 5. Ronald Coase, "The Problem of Social Cost," Journal of Law and Economics, III (October 1960), pp. 1-44. 6. If any seven neighbors - for example B, C, D, F, G, H, and I - each expended slightly less than $925 each, they could in combination exceed the minimum price necessary to restrict E without the inclusion of the eighth, A. A would be particularly fortunate if this occurred; he would be saved from E's undesired land use without any expenditure on his part. Here A would be a "free rider." If the process worked just as described, it might produce an unfair distribution of the benefits of the restriction, b u t it would at least produce the socially preferred land-use pattern. However, each of the neighbors would like to be in A's position and, therefore, each has an incentive to wait to see if the others will purchase the restriction. If each waits, none will act, the restriction will not be purchased, and the socially preferred land-use pattern will not be observed. This ramification of the free rider problem is a form of "prisoners' dilemma" (see note 14).

220 failure is "potential" since it remains to be seen whether there is an alternative solution from either the public or the voluntary sector that will produce the restriction at costs that are less than the costs of unrestricted land use.' There are several alternative public solutions. First, the neighbors might seek a judicial determination that E's multiple dwellings would constitute a "nuisance" — public or private — and therefore should be enjoined. Nuisance actions are sometimes employed to stop such externalities as smoke or particle pollution, but the nuisance approach generally is not employed in connection with residential use." Second, the neighbors might attempt to prevail on a legislative or administrative authority to employ an eminent domain power, which could "take" the apartment building use from E and pay E the value of the lost use, an amount determined by the authority. If the nine tracts were a political and taxing jurisdiction (an assumption soon employed more extensively), if each neighbor were in a similar tax position, and if the "correct" value were determined, the eminent domain solution would closely approximate the "Coase" or private solution.' The public entity, with its power to impose costs

Area Studies: Public Interest Law in Action most widely used — and the most controversial — public solution, we will discuss it in some detail. The Zoning Process The zoning process controls land use without attempting direct compensation for any losses imposed by the controls. We will examine several models of the zoning process and the general form of land use restrictions that each is likely to produce. To aid in the analysis a few facts will be added to the hypothetical. Assume that in addition to preferring one-acre single-family homes to multi-unit dwellings, each of the neighbors would prefer vacant land (open space with the natural setting of trees, flowers, and the animals of the forest) to one-acre single-family homes; that each neighbor would receive benefits from such a use of $500; and that E would lose $6,000 if such a restriction were imposed." The Omniscient Dictator: Allocative Efficiency Criteria. Assume first that land-use decisions are made by a dictator who has the ability to determine costlessly the relative values of many land use arrangements. He is hired by the 45-acre jurisdiction defined by our nine tracts of land and instructed to seek the most efficient allocation of resources. In particular, he is told to

(taxation) and perhaps its economies in factual

investigation, would be substituted for private bargaining at presumably lower transaction costs. While the "compensation" scheme might have some marginal function in the housing restriction case, there are several reasons to believe it will be far less frequently used than the third form of public solution: zoning.10 Since zoning is the 7. In our hypothetical, the social value of the removal would be $1,600. Presumably, the costs of the public solution would have to be less than $1,600 to justify such a solution. 8. For an interesting, if somewhat strained, attempt to extend the "nuisance" doctrine, see Robert C. Ellickson, "Alternatives to Zoning: Covenants, Nuisance Rules and Fines as Land Use Controls," University of Chicago Law Review, XL, No. 4 (1973), pp. 681-781. 9. The two solutions would be identical if no tax was imposed on E, qua taxpayer, in the process of raising the funds to compensate E, qua landowner. 10. One important reason lies in the costs of the compensation scheme - the administrative costs, not the transfer payment. Where a complex land-use regulation is involved, it is difficult to assess the value of the loss and to separate real from illusory claims. In an important sense, the reluctance of courts to declare losses associated with governmental activity as "property" losses and therefore compensable under the Fifth

or Fourteenth Amendments of the U.S. Constitution probably lies in a sense of the complexity of assessing the loss. For a similar treatment, see Frank I. Michelman, "Property, Utility and Fairness: Comments on the Ethical Foundations of 'Just Compensation' Lav/" Harvard Law Review, LXXX, No. 4 (1968), pp. 1165-1258. A second reason for the preference of the "zoning" over the "eminent domain" approach stems from the "majoritarian" bias discussed subsequently. Even if the administrative costs associated with compensation were zero, the majority, which may make the decision, may prefer to see a distribution of the benefits and costs of the public program that is favorable to them. Here it is the transfer, not the administrative costs, that controls the decision. Where the courts determine that such a legislative process indeed took place, the courts are likely to override the legislative decision, because it produces a non-cost-justified, unfair distribution of costs and benefits. See, for example, Vernon Park Realty v. City of Mount Vernon, 307 N.Y. 493, 121 N.E. 2d 517 (1954). 11. It should be emphasized that the restriction to single-family use (over open space) and the restriction to multi-family use (over single family) are not overlapping, but rather are cumulative. Thus, the loss to b of a restriction to open space relative to multi-family use is the sum of the loss from the restriction from multifamily to single-family ($6400) and the loss from the restriction from single-family to open space ($6000) $12,400 in total.

221 impose land-use restrictions only where the aggregate benefits of the restriction to the citizens of the community exceed the aggregate losses. Given the hypothetical, he would presumably impose the one-acre, single family restriction, but refuse the more stringent "open space" restriction." The Majoritarian Model. Assume that the jurisdiction puts each zoning decision to a public vote and the restriction is imposed if a majority (over 50 percent) of the voters favor it. Given the hypothetical, it is quite likely that the more stringent open space restriction would be imposed. There are eight voters who are benefited by the open space restriction and only one who is harmed. The fact that E's harm is greater than the neighbors' benefit is not determinative. The outcome described assumes that E is unable to purchase the votes of at least four of his neighbors, and that the neighbors do not view the vote as a precedent that can produce a future decision of sufficient adversity to them. The presence or absence of laws against vote selling, the size of transaction costs involved in bargaining for and purchasing a sufficient number of votes, and the tastes of the neighbors are all factors that determine the stability of the conclusion. It is sufficient, for the present, to note that it is possible and even substantially probable that the majoritarian system would have the bias suggested. " The Influence Model. Assume that the decision is again made by a dictator, but not an omniscient one. The dictator in fact has none of the information necessary for his land-use decision. He bases each decision solely on the arguments of the interested parties. Assume further that the effectiveness of the argument is a function of the expenditures by the interested parties on investigators, lawyers, and economists, and that there are positive economies of scale in the production of effective argument. 12. As seen previously, the restriction from multifamily to single-family has a net "social" benefit of $1600 ($8000 - $6400). The restriction from singlefamily to open space would have a net "social" loss of $2000 ($4000 - 6000) and therefore would not be imposed. 13. The results could be assured by restating the model in terms of the dictator. That dictator could be instructed to impose the restriction if the number of citizens benefited by the restriction exceeded the number harmed.

Housing and Zoning Given the hypothetical, it is now possible that no restriction will be imposed. To the extent that the costs of organization keep the neighbors from pooling their efforts, the information they produce about the single family house restriction may be less than that produced by E, despite the greater total amount at stake for the neighbors. This would be so because they would duplicate efforts and because each would be faced with the relatively high cost of small scale. In addition, the "free rider" and "prisoner dilemma" problems may lead each neighbor to await the efforts of the others, with the result that the neighbors will produce little or no expenditure to affect the land-use decision.14 It is important to note that the three models represent a complete spectrum of decisionmaking as defined by a single parameter, dispersal of interests. The second and third models — majoritarian and influence — are the polar cases on this spectrum. Given any specified amount of interests — benefits or detriments — on either side of a controversy, the majoritarian model will give greater weight to the side that has the greatest dispersion of interests, while the influence model will give greater weight to the side with the greatest concentration of interests. The first model — the omniscient dictator — is unaffected by the dispersion or concentration of interest, and so falls in the middle of this spectrum. Constitutional Constraints. Up to this point, the sources of the losses or benefits were left purposely vague; the analysis dwelt in the economists' neutral world of allocative efficiency. Now suppose that the omniscient dictator is told that he is to place different weights on losses or benefits depending upon the source or form of those losses or benefits. In other words, the dictator is told to maximize efficiency subject to certain constraints. 14. The term "prisoners' dilemma" arose from a case in game theory where two players must collude for rational benefit, but because of lack of knowledge, each player will perform a less than optimal action that will result in less gain than could have been obtained by collusion. The term itself came from an application of the theory to the questioning of suspects in a crime. For a discussion of an application of the "prisoners' dilemma" in the area of land use and urban renewal, see Otto A. Davis and Andrew B. Whinston, ' T h e Economics of Urban Renewal," Law and Contemporary Problems XXVI, No. 1 (1961), pp. 105-112. Its relationship to free rider problems is pointed out in note t.

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Area Studies: Public Interest Law in Action

For example, suppose that the dictator is told to disregard — that is, place zero weight upon — any loss associated with living near people of different skin color. Suppose further that the losses to the neighbors in our hypothetical stem solely from their belief that E's proposed apartments will be populated by persons of a skin color different than that of the neighbors. In that case, the constrained dictator would ignore the neighbors' losses and impose no restriction upon E.

neighbors' aversion to the apartment houses was prompted by racial motives, it is also possible that they wish to prevent the construction of multi-family housing because of the close correlation of such a land use and low-income residents, and because they dislike living next to lowincome people. The structure of the income constraint is much the same as the structure of the racial constraint; neither, for example, has been cast in terms of efficiency. The exclusion of the income This "racial" constraint is a simplified version criterion from decisions based on efficiency, of a constraint on legislative action that is con- however, is far more questionable than is the 16 tained in the Fifth and Fourteenth Amendments' exclusion of the racial criterion. It is sufficient "equal protection" clauses in the United States for present purposes to raise the possibility of an Constitution and in analogous provisions of state income criterion that is not based on efficiency constitutions. 15 Similarly, constraints involving considerations. Outside Interests. In general, the zoning religion, national origin, and sex could also be power is granted by state legislatures to local included. A more controversial constraint - at least in political jurisdictions — municipalities, townterms of actual constitutional doctrine - would ships, or counties. While these local political enbe one involving income. As it is possible that the tities are seldom as small as our hypothetical township, they are still relatively small jurisdictions and most states contain a sizable number of IS. It is feasible that the constitutional concern for racial equality, usually implemented through the "equal such political subdivisions. protection" clauses of the Fifth and Fourteenth AmendThese relatively small jurisdictions increase ments to the United States Constitution, is really an the possibility of "spill-over" effects - external"efficiency" concern based upon the conviction that either the "majoritarian" or the "influence" model — ities among governmental units. Thus, to the most usually the former - biases decisions. In other extent that Alphabet Township, the nine-tract words, the constitutional provisions may only reflect the conviction that, given a "transaction costless" political unit in the hypothetical, minimizes the world, racial restriction would never be purchased. externalities associated with greater housing denWhile there is no way to determine the validity of such sity within its jurisdiction, it may impose exteran analysis with certainty, the case of Shelley v. nalities elsewhere. Given a fixed regional or naKraemer, 334 U.S. 1 (1948), which effectively outlawed overtly racial private land-use restriction (restriction tional population, the people excluded from Alimposed by unanimous consent of the landowners) phabet by its restriction on population density implies that there is more than "efficiency" at stake will go elsewhere to reside. The fiscal, racial, where "race" is involved. Another constraint consistent with actual constitu- esthetic, ecological, or other problems avoided tional provisions would call upon the dictator to avoid by Alphabet may become more intense for neighany zoning restrictions where the distribution of costs boring jurisdictions.17 and benefits deviated by an indicated margin from a uniform distribution and where the costs of determining, collecting, and dispensing compensatory payments were less than a designated figure. Such a constraint is a simplified version of the "talcing" provision of the due process clauses of the Fifth and Fourteenth Amendments to the United States Constitution and analogous provisions of state constitutions. See note 10. None of these constitutional provisions is meant to fully represent reality. Even the constraint on racial motivation is highly qualified. In the real world, the guardians of the constitution are not endowed with knowledge of the source of the benefits or the motivation for legislation. Thus, a more realistic approach might involve an instruction to the dictator to disallow "racial losses" of a particularly flagrant (noticeable or sizeable) variety.

16. F"or an indication of the limited nature of the constitutional constraints on the income criterion, see James v. Valtierra, 402 U.S. 137 (1971). 17. The fiscal effects in zoning have been extensively discussed by economists. See, for example, Bruce Hamilton, "The Impact of Zoning and Property Taxes on Urban Structure and Housing Markets," Working Paper 1207-15, Urban Institute, Washington, D.C., May 1972; Bruce Hamilton, "The Effects of Property Taxes and Local Public Spending on Property Value: A Theoretical Comment," Working Paper 1207-13, Urban Institute, Washington, D.C., October 1972. It may be that the adverse impact of the proposed multi-unit dwellings is unrelated to their physical appearance, the physical or ethnic characteristics of their

223 Such "competition" among jurisdictions may involve "prisoners' dilemma" problems where each jurisdiction restricts land use more because it assumes the same behavior in other jurisdictions. Some jurisdictions will be at a particular disadvantage in this process and will suffer most of the adverse spillover effects. Jurisdictions such as cities, which are already relatively highly developed, will probably be unable to reduce their densities. The legal (constitutional) impediments associated with attempting to preclude an already existing land use, plus the greater heterogeneity of the urban population, make the establishment of an effective exclusionary strategy more difficult in such jurisdictions. Thus, the more densely developed urban areas usually lose in inter-jurisdictional zoning competition." o c c u p a n t s , or their impact on trees, flowers, and wild animals. T h e opposition of the neighbors m a y b e traced t o their local tax b u r d e n . Where local public services are provided f r o m the general (local) tax f u n d and t h e a m o u n t each t a x p a y e r pays is related to the value of his real property (land plus i m p r o v e m e n t s ) , existing taxpayers may be adversely a f f e c t e d if the p r o p o s e d use will either mean a lower tax base per new t a x p a y e r than the proposed alternative (public services c o n s u m e d per h o u s e held c o n s t a n t ) or greater c o n s u m p t i o n of public services per n e w taxpayer (tax base c o n s t a n t ) . T h u s , in the h y p o t h e t i c a l , E's proposed high-rise project w o u l d mean 100 new families while the single family restricted use would m e a n 5 new families. If all 105 families w o u l d each c o n s u m e the same a m o u n t of public services, the assessed value of the high-rise p r o j e c t w o u l d have t o be 20 times that of the single family project t o make the neighbors fiscally neutral between the uses. Depending o n t h e demographic and e c o n o m i c characteristics of the p r o j e c t e d o c c u p a n t s and the e c o n o m i c s of provision of the public service, the per family consumption of services might be greater, the same, or less for the high-rise p r o j e c t than for the single family units. Thus, the m a i n t e n a n c e of roads, the installation of sewers, and the provision of mass t r a n s p o r t a t i o n might be lower per capita f o r the high-rise than for the singlefamily units. However, the n u m b e r of children of school age and t h e e x p e n d i t u r e s on police services, especially for traffic p r o b l e m s , might be greater per capita for the high-rise t h a n for t h e single family use. It is sufficient f o r present purposes t o n o t e that o n e source of the " e x t e r n a l i t y " may b e fiscal. This source is singled out along with race, income, and conservation because, like the others, it has played an explicit role in the land-use d e b a t e and may - like race - b e a " t a i n t e d " source of concern. 18. T h e r e is arguably a private solution t o this potential public m a r k e t failure. A freely operated "Tieb o u t " e f f e c t - migration of families in response to the package of public services and tax-prices associated w i t h a given locale - which p r o d u c e d fiscal, racial, and esthetic h o m o g e n e i t y might decrease these spillovers. However, the strength of the T i e b o u t e f f e c t is questionable. O n e i m p o r t a n t impairment is local zoning laws

Housing and Zoning

The Role of Public Interest Law: Underrepresentation of Housing Interests Problems of representation and organization form the basis for PIL intervention according to the theoretic analysis in Chapter Two. In this section, we will examine the potentially underrepresented interests in the land-use restriction and housing area. We will discuss not only the organizational problems of these interests but also their potential for representation by other groups or individuals with related interests but better organization. Pro-Restriction Groups Neighbors. The first potentially underrepresented group exposed in the hypothetical was E's neighbors. They were unable to bargain away E's multiple-dwelling use because they were unable — that is, it was too costly for them — to organize to present their position to E. With the possibility of zoning present, the extent of their underrepresentation depends on the determinants of the zoning decision. To the extent that the "influence" model describes the actual process, the neighbors still must be considered an underrepresented group. To the extent that either the "efficient" or "majoritarian" models characterizes the actual process, however, the interests of the neighbors — as measured by their willingness to pay - will be represented in the public market (overrepresented in the majoritarian case). It appears relevant, then, to inquire which model is more applicable to local zoning decisions. Information on the question is scarce, but some inferences can be drawn. There are several factors that decrease the applicability of the influence model. As we noted earlier, zoning is a power of local rather than state or national jurisdictions. The land-use controversies which are the subject of this chapter generally involve smaller, less populated locales — suburbs and exurbs rather than large urban centers — and the zoning authorities involved usually are elected directly by the local constituents or serve at the pleasure of an official so elected. Land-use issues, although complex, are usually of sufficient substance and moment to constitute a t h a t a t t e m p t to accomplish their fiscal goal in an indirect and t h e r e f o r e inefficient m a n n e r . See Bruce Hamilton, " T h e I m p a c t of Z o n i n g . "

224 basic interest for local landowners. " These factors — limited population, visible decisionmakers, and locally important issues - tend to reduce the probability of a deviation from the will of the majority. If the local zoning decision is likely to be relatively sensitive to the local political majority, it remains to determine whether a majoritarian bias exists. Such a bias would be a deviation from the efficient solution ascribed to the omniscient dictator. If the loss or benefit to each voter was approximately the same, the majoritarian model would approximate the efficient solution. A deviation occurs when one side of the issue has a different proportion of votes to interest (that is, a different amount of benefit or loss) than the other side. In our hypothetical, the open space restriction (relative to the efficient single family restriction) involved a loss to one voter (E) of $5600 and a benefit to eight voters (A-D, F-I) of $500 each ($4,000 in total). The deviation from efficiency by the majoritarian model in this case is traceable to the substantial difference in the per capita interests of the voters on the two sides of this issue. 10 19. Consider the following excerpt from a recent New York Times article, which gives some insight into the role of local landowners in local zoning jurisdictions which are undeveloped: "The typical ex-Miamian who settles here says, 'I'm in, now shut the door,' said Jack Noble, an ex-newsman who is supervisor of Martin County, the highest non-political office. 'They are the reason why we are five years ahead of the rest of the state in our planning for the future.' " Jon Nordheimer, "A Tiny Florida County Undertakes the Struggle Against Too Much Growth," New York Times, Sunday, February 17, 1974, p. L-61. 20. The condition stated in the text is a necessary but not a sufficient condition for the difference in outcome. The outcome will be different if the difference in proportions is of sufficient magnitude - an amount dependent on the particular setting. Thus, in our hypothetical, if E's loss from the restriction were less than $4,000 (say $3,900) the outcome of the "majoritarian" and "efficiency" models would not differ despite the fact that the proportions differed $3,900 per capita on one side and $500 per capita on the other. It should also be noted that there are several studies purporting to show that the amount of benefit from restrictions is relatively small. See John P. Crecine, Otto A. Davis, and John E. Jackson, "Urban Property Markets: Some Empirical Results and Their Implications for Municipal Zoning," Journal of Law and Economics, X (October 1967), pp. 79-99, and Bernard H. Siegan, Land Use Without Zoning (Lexington, Mass: Lexington Books, 1972). There are also several recent studies that indicate that the land-use restrictions imposed by zoning laws contribute substantially to housing costs. See Lynne B.

Area Studies: Public Interest Law in Action There is not much evidence regarding the actual amounts involved in the land-use controversies which are the subject of this chapter. There are, however, some indications that the relative interest per voter on the anti-restriction side is substantially greater than that on the pro-restriction side. Most of the controversies involve restrictions on the development of large tracts of presently undeveloped land. The antirestriction side is generally composed of people who-own larger tracts of land than do the majority of citizens in the jurisdiction. To the extent that benefits or losses are proportional to the amount of land the voter owns, then there exists a majoritarian bias in favor of the proponents of restriction. Conservationists. This group comprises those outside the political jurisdiction who receive benefit from the preservation of natural or near natural settings. It includes people from various geographical locations who gain a variety of benefits from restriction. While it is possible to point to active conservation organizations, we might still expect that the sort of organizational problems discussed in Chapter Two will produce less representation for conservationists than would be manifested by complete internalization of these dispersed interests. There are, however, two reasons to believe that the representation available to conservationists may be more complete than would appear at first glance. First, to the extent that the interests of the neighbors and the conservationists coincide, and the "majoritarian" model of zoning decision prevails, the underrepresentation of the conservationists' cause is somewhat compensated by the overrepresentation of the neighbors' interests. The second source of adjustment lies in the degree of dispersal or underrepresentation of those who oppose restriction. As we will see, the anti-restriction camp is replete with "underrepresentation." The difficult concept of "relative representation" has been dealt with in Chapter Sagalyn and George Sternlieb, Zoning and Housing Costs: The Impact of Land-Use Controls on Housing Price (Center for Urban Policy Research, Rutgers University, the State University of New Jersey, 1973), and George Lefcoe, "The Ecology Kick and Exclusionary Zoning: Must it be Nesting Spots for Terns or Housing for Humans?" Address delivered to Council of State Governments, August 11-18, 1972, Carmel-by-the-Sea, California, p. 14.

225 Two. It is sufficient to note that the relevant degree of representation of any interest here is a function not only of the characteristics of the particular group but also of the strength of its allies and the weakness of its opponents. Anti-Restriction Groups Consumers. Consumers are among the most dispersed and unorganized of the groups dealt with in this book (see Chapter Fourteen). Even when limited to "consumers of housing services," the group is heterogeneous and dispersed. On the issue of land-use restrictions, however, the interests of housing consumers are closely tied to the interests of housing suppliers. In the hypothetical, actor E, as a housing developer, appeared to internalize all the advantages involved in the unrestricted state. As such, he should be able to represent his interest through private market purchase of legal services and capture the benefit to his consumers in the purchase price. If, however, the effect of E's legal activities will extend beyond E's land to the land of other developers either in the local jurisdiction or elsewhere, there exist uncaptured (external) benefits from E's legal activities and, therefore, potential underinvestment in legal services or other forms of representation. This void could be filled by an association of builders or developers on the appropriate level (local, state, or national),21 or by a single builder of sufficient scale to internalize the benefits.' 1 21. See Geoffrey Shields and L. Sanford Spector, "Opening Up the Suburbs: Notes on a Movement for Social Change," Yale Review of Law and Social Action, II, no. 4 (1972), pp. 317-318 for a discussion of the role of the National Association of Home Builders (NAHB) in the legal battle against restrictions. In this connection, consider the paramount role of a builders association in two recent federal court cases, Construction Industry Association v. City of Petaluma, 375 F. Supp. 574 (N.D. of Calif. 1974), reversed, 522 F. 2d 897, cert, denied, 47 L.E. 2d 342, 96 S.Ct. 1148 (1967); and Warth v. Seldin, 422 U.S. 490 (1975). 22. Consider the following comment: "Fifteen years ago [the housing industry) . . . with rare exceptions, consisted of a multiplicity of small builders, few of whom had national markets and even fewer any commercial interests beyond the sale of a house. Today scarcely a week goes by without some corporation, national in scope, immense in capital, and diversified in market ambitions, announcing its entry into the housing field by acquisition or by internal expansion. Alcoa, Boise Cascade, ITT, Westinghouse, to name a few, believe investment in housing - indeed low-income housing - makes sense either for synergistic or other equally profit-oriented reasons. Public utilities, con-

Housing and Zoning Racial or Low-Income Minorities: Integration. Non-white and low-income consumers of housing would be represented by developers to the extent of their willingness and ability to pay. To the extent, however, that societal values on racial integration or income distribution are not represented via willingness and ability to pay, there are reasons to believe that the interests of these special classes of housing consumers will be underrepresented before legislative and judicial decision-makers. Equity considerations, for example, may provide extra weight to the desires and needs of non-whites or the poor, but if those equity considerations are not matched by increased ability to pay, a developer is likely to underweigh and therefore underrepresent those desires and needs. In addition, there are other people, white as well as non-white, rich as well as poor, who might benefit from integration. " Such externalities are also unlikely to be captured in the developer's decision-making calculus." cemed about the deterioration of their central city markets, seek modification of rules of the SEC or the FPC that inhibit their entry into the low-income housing market. These sophisticated aggregates are chagrined to discover that village codes often are a major barrier to marketing their dwelling-related products." Richard Babcock, "The Courts Enter the Land Development Market Place," City (January-February 1971), p. 2. T o a considerable extent, the recent concern about suburban land-use controls stems from the migration of industry from the center of the urban areas to their outskirts. An employer who is considering a move to a suburb would have some financial incentive to promote less land-use restriction because it should mean lower labor costs, especially unskilled and semi-skilled labor. There are, however, two factors that tend to lessen the possibility of direct employer involvement. First, the move itself would reflect a change to a production technique that is less labor-intensive and more landintensive. One attraction of the suburbs is the lower property taxes. Higher density housing may lessen this tax advantage. Second, the employer might be subject to retaliation by the local political administration in a number of ways if he lends his support to an antirestriction campaign. A source of representation for housing consumers qua employees that is not as likely to be affected by these factors is the labor union. The union may provide an in-house legal staff or at least easily accessible legal services. 23. The precise form of this benefit is conjectural, although evidence of its existence is presented in Chapter Six of this study. It can be considered as an educational benefit, or as one connected to " p u r e " altruism, or as one associated with a diminution of other social problems such as crime or racial tension. 24. For a discussion of the "external" benefits associated with "economic" as well as "racial" integration,

226 The most obvious means of providing representation for these interests may be via a "subsidy" for housing that is integrated by race or income." The developer with his ear tuned to the ability to pay would then represent these "special" interests simply by representing his self-interest in profit. There are, however, two sources of difficulty here. First, since the beneficiaries of the subsidy are dispersed, a less than optimal subsidy may be provided. A full analysis of this problem would require an examination of the structure for deciding what subsidies are granted. Decisions regarding subsidies are usually not made locally, but rather on a state, or, more often, a national level. The second problem lies in the symbolic role of a non-white or low income representative. Effective representation before a court or legislature may require a non-white or low-income representative, independent of the developer and his "tainted" profit motive. Whether such a requirement is rational is not in question here. It is sufficient to note that it is almost certain that the presence of a group representing poor or non-white interests - independent of the developer's sponsorship — is helpful in lending credibility to the "profit tainted" developer in many public decision-making contexts." Other Jurisdictions. As we noted, local zoning decisions may adversely affect neighboring jurissee Anthony Downs, "Are Subsidies the best Answer for Housing Low and Moderate Income Households?" Urban Law, IV (Summer 1972), pp. 405-416, and Anthony Downs, Urban Problems and Prospects (Chicago: Markham Publishing Co., 1970). 25. This subsidy might take several forms, such as reduced mortgage rates, tax breaks, or rent supplements, and they may emanate from any level of government local, state or federal. 26. Developers d o not engender attractive images, at least among the "liberal" members of the community. " P r o f i t " is still essentially viewed as a "private" interest and therefore, seen as somehow the antithesis of the "public" interest. The situation is described in the following statement: " N o one, including a judge, likes to believe that his opinions will not find some acceptance. So it is fortuitous that at this moment the civil liberty lawyers have discovered what we less articulate, less well-connected land-use lawyers have known for some time: local zoning practice can deny someone's constitutional rights. How it does help in any attack on antiapartment zoning to have the National Committee Against Discrimination in Housing join Sam Lusack's Golden Years Development Corporation." Babcock, "Courts Enter Land Development Marketplace," p. 60.

Area Studies: Public Interest Law in Action dictions. These jurisdictions face the same potential problems of organization, funding, and "free riding" that other underrepresented interests face. The neighboring jurisdictions are further handicapped by a lack of access to judicial proceedings to correct the situation. State enabling acts give each jurisdiction authority to zone, and while the use of that authority might be challenged by local citizens or landowners and perhaps even by persons directly excluded from the jurisdiction, another township is generally without standing to attack a zoning ordinance in court. Foreclosed from the courts, the other jurisdictions might seek redress from larger legislative entities, most often the state legislature. The state legislature could create a regional or statewide land-use authority to review local zoning ordinances or to develop its own zoning plans. There are infrequent attempts to create such authorities to deal with problems of housing density. The two major examples are the Massachusetts Anti-Snob Zoning Law and the New York Urban Development Corporation." There are, however, potential biases at the state level which may cause underrepresentation of those jurisdictions adversely affected by the restrictions imposed by neighbors. The underrepresented jurisdictions are likely to be those with the largest populations and the greatest heterogeneity of population with respect to such social characteristics as race, income, and education. These factors make it more difficult to organize political action that will correct the representational imbalances among jurisdictions than it is for the less populated, less heterogeneous suburbs or exurbs. Further, recognition of the effects of land-use restrictions — a complex subject — is likely to vary with education and perhaps with wealth, and the beneficiaries of the restrictions — the present occupants of these suburban districts - will tend to possess more education and wealth per capita." 27. Chapter 406, General Laws of Massachusetts as amended by the Acts of 1969, ch. 774; Chapters 174177 of La ws of the State of New York (1968). 28. Even the Massachusetts and New York state zoning laws have met with considerable political resistance. In the case of the New York law, the resistance was sufficient to lead to emasculation of any power the agency possessed to override local decisions. Chapter 443, 1973, Session Laws of the State of New York.

227 Conflicts The following quotations may serve t o introduce a subject that presents difficult and important issues for the public interest law sector: The ecological crusade, if taken literally, will either stifle growth or will drive up housing costs; in either event the heaviest burden will fall on the poor. By the same taken, the production of all the housing that is needed, at the right price and near j o b opportunities, may be expected to have adverse effects on the environment that has become so precious to the white middle c l a s s . " Just coming into the public consciousness is the most powerful legitimizing source of racial and economic exclusion we have had since slavery: the environmental movement. 3 0 Conservationists and egalitarians (those concerned with income redistribution and integration) may find themselves on opposite sides of the land-use restriction issue. One of the aims of the conservationists is less intensive use of land for any purpose including housing. The aims of the egalitarians are associated with more intense development of land — especially non-urban vacant land — for housing. 3 1 The "egalitarians" usually visualize their opponents as "selfish suburbanites" interested in preserving their domains and desirous of excluding those with different skin color or social characteristics. The "conser29. Richard I'. Babcock and David L. Callies, Ecology and Housing: Virtues in Conflict (Baltimore, Maryland: Resources for the Future, 1973), p. 2. 30. Lefcoe, "The Ecology Kick," p. 2. 31. It should be noted that there is also an internal conflict within the egalitarian camp relating to the location of housing for poor and non-whites - the "integration-segregation" debate. While integration may mean access to better schools and other public services, greater proximity to better jobs, and escape from the negative externalities of urban, segregated living, it is argued that it may also produce deleterious effects on the non-white population as a whole. It is argued by some black leaders that integration dilutes the growing black political base in urban centers by depleting the numbers of blacks and by removing the blacks who may be the most qualified urban leaders. The full range of these arguments is discussed elsewhere. See David M. Trubek, "Civil Rights and Cities: Rethinking the Open Suburbs Movement," A Report to the Taconic Foundation, 1974, pp. 7-12, and Richard F. Babcock, "Exclusionary Suburban Zoning: One More Black Rebuff to the Latest Liberal Crusade," speech delivered at Fisk University, April 7, 1972. It is important to note here that the controversy complicates the role of public interest law in this area. The effect of this complication on available strategies will be discussed subsequently.

Housing and Zoning vationists" see themselves pitted against the "nasty developer" characterized as greedy and without the soul to understand the importance of Nature. Thus far, the two forces have not clashed openly — at least not in trial court. Rather, the issues have been joined through surrogates. Aside from PIL, the two major representatives of the pro-restriction and anti-restriction camps are local landowners and developers - the "neighbors" and " E " in the hypothetical. The thin line between indirect confrontation through these surrogates and a direct confrontation between public interest law groups cannot long endure. Two relatively recent Long Island cases show an interesting geographical juxtaposition of the two positions. In one case, a group calling itself the Suffolk County Defenders of the Environment brought action in federal district court attacking the local zoning ordinances in Huntington for allowing development without consideration of "the physiographic, hydrologjc, geologic, meteorologic, and ecological characteristics of the Regional Ecological S y s t e m . " 3 1 The plaintiffs sought an injunction against any construction until provision was made in the zoning structure for consideration of these ecological impacts. The concern had been aroused by a proposed high density housing development. 3 3 At approximately the same time a case was filed, also in federal district court, against the town of Oyster Bay — less than five miles from the locus of the previous controversy, in adjoining Nassau County. The plaintiffs included a familiar cast of characters — a developer of lowincome housing and a group of low-income blacks, represented by NAACP lawyers. The complaint was similar to that in previous cases: the town was alleged to have excluded lowincome and non-white persons by its overly restrictive zoning o r d i n a n c e . " Thus, the NAACP was seeking the very sort of housing development 32. Complaint, Suffolk County Defenders of the Environment v. Suffolk County et al., #70-C-1278 (filed 10/8/70, E.D. of New York). 33. Carter B. Horsely, "Ecological Zoning Code Sought in Huntington Town Pilot E f f o r t , " New York Times, January 25, 1970. The case was dismissed in June 1972. 34. Fair Housing Development Fund p. Town of Oyster Bay, #71-C-328 (filed March 24, 1971, E.D. of New York). At last notice, this action was still pending.

228 in Oyster Bay that the Defenders of the Environment were fighting five miles away in Huntington. More important is a California decision, Friends of Mammoth v. Board of Supervisors of Mono County," brought by environmental groups, which declared that under the California counterpart of the National Environmental Policy Act (NEPA), a local zoning authority must issue an "environmental impact" statement before issuing a building permit; the specific use in question was recreational second homes." This case, much trumpeted by environmentalists, could signal greater direct standing for ecological interests in local zoning decisions in any state whose environmental protection act is similarly interpreted. The conflicts between the environmentalists and those seeking to expand the supply of suburban housing for low and moderate income persons was pointedly exemplified in the case of Construction Industry Association of Sonoma County v. The City of Petaluma." The city of Petaluma had developed a master plan that was to slow population growth by limiting the number of new units allowed built in the city to a figure far below normal market demand.3* The city's plan was challenged by a building industry trade group, and the district court declared the plan unconstitutional.39 On appeal to the circuit court, such environmental organizations as the Sierra Club and the Natural Resources Defense Council filed amicus briefs in support of the City, while amicus briefs were filed in support of the builders by the National Committee Against Discrimination in Housing (NCDH) and other "civil rights" organizations.40 The circuit court 35. 8 Cal. 3d 347, 104 Cal. Reptr. 16 (1972). 36. An analogous doctrine seems to hold for first homes as well. See Residents of Beverly Glen, Inc. v. Gty of Los Angeles, 34 Cal. App. 3d 117, 109 Cal. Rpts. 724 (1973) where a group of local citizens was allowed standing to attack the granting of a use permit for a residential development. 37. 375 F. Supp. 574 (N.D. Calif. 1974), reversed 522 F.2d 897 (9th Circuit 1975), cert, denied 424 U.S. 934 (1976). 38. While normal growth and demand for new housing units in Petaluma was approximately 2,000 units per year, the master plan called for the city to issue permits for not more than 500 new units per year. There were also other restrictions on new population influx. 39. 375 F. Supp. 574 (N.D. Calif. 1974). 40. Potomac Institute Metropolitan Housing Program, Reporter Memorandum #74-11, Nov. 30, 1974, p. 8 (Potomac Institute, Washington, D.C.).

Area Studies: Public Interest Law in Action reversed the decision of the lower court, and the Supreme Court refused review of the case. These cases present arguments analogous to those we will observe in the sections that follow. The arguments in these and the later cases are that the zoning ordinances or public housing locational decisions should be invalidated because they failed to give sufficient weight to the particular interests involved; sometimes it is ecological interests, but in other cases it is the interests of blacks or the poor. However, the analogy may be misleading. To the extent that the majoritarian model characterizes local zoning decisions, the interests of the anti-development group — including the environmentalists — may in fact be better represented in the public legislative decision than are the interests of the pro-development group (blacks, the poor, developers). Low diversity and low density housing programs serve the purposes of those concerned about detrimental fiscal, racial, social, or ecological effects, but not those with unmet housing needs. The strength of the anti-development coalition of landowners, environmentalists, and others is captured in the following comment: Supporters of local stop-growth movements argue, however, that stopping growth can be justified as the first step in a general rebellion against the present patterns of development. The ideological leadership of the movement is provided by the Sierra Club and other organizations that see the imposition of limits on growth as a general corollary to the zero population growth movement. One who witnesses one of these public meetings where grandmother and granddaughter stand shoulder-to-shoulder agreeing perhaps for the first time on one thing - that all their problems are caused by the nasty developer - can hardly avoid a feeling of openmouthed amazement.41 The use of "ecological" defenses for zoning ordinances is growing. Arguments about depletion of natural resources have replaced older, less successful arguments about public expenditures on sewers and water supply. Whereas the realization that the "nasty developer" might also represent more attractive interests once meant greater judicial scrutiny of local zoning procedures, the 41. Fred P. Bosselman, "Can the Town of Romapo Pass a Law to Bind the Rights of the Whole World?" Florida State University Law Review I, No. 2 (1973), pp. 234, 248.

229 use of the environmental arguments may now diminish the willingness of the judiciary to strike down such ordinances. Given the majoritarian bias in local legislation, such a shift could present problems for the egalitarians, who would no longer be able to count on the judiciary to correct the majoritarian bias. It is no doubt this impending danger that prompted the following comment: Compromise is never easy and it is doubly hard when the one side appears to be riding a wave of national sentiment, particularly among the ascendant middle class, while the other side, the ill-housed, is largely inarticulate, underrepresented, and often dependent for satisfaction of its material needs not only upon distributive justice but also upon an increased productivity that too often makes headlines only in terms of oil spills or nuclear waste. 41 In the abstract, both egalitarian and environmental interests have strong claims to voluntary sector legal representation. Both groups can be described as dispersed and unorganized. The egalitarians, however, have a relatively well organized champion in the developer, while the overrepresentation of landowners that may result from a majority decision process may lessen the need for the presentation of separate environmental arguments for less residential density.

Case Studies In this section we shall examine several PIL attempts to solve the market failure problems described earlier. The few cases discussed in depth here are but a small sample of anti-restriction (pro-housing) PIL cases; they were chosen because they provide particularly interesting contexts in which to examine the principles thus far discussed. The Gautreaux Cases Gautreaux i>. Chicago Housing Authority, 265 F. Supp. 582 (N.D. Illinois 1967); 296 F. Supp. 909 (N.D. Illinois 1969); 304 F. Supp. 736 (N.D. Illinois 1969); affirmed 436 F.2d 306 (7th Cir. 1970); cert, denied 402 U.S. 922, 28 L. Ed. 2d 661, 91 S. Ct. 1378; 342 F. Supp. 827 (N.D. Illinois 1972); affirmed 480 F.2d 210 (7th Cir. 1973). Gautreaux v. Romney, 448 F.2d 731, (7th Cir. 42. Babcock and Callies, Ecology and Housing.

Housing and Zoning 1971); 332 F. Supp. 366 (N.D. Illinois 1971); reversed 457 F.2d 124 (7th Cir. 1973); 363 F. Supp. 690 (N.D. Illinois 1973), 96 S. Ct. 1538 (1976). The first PIL activity we shall discuss involves litigation in the city of Chicago. Zoning per se is not involved in these cases, which concern decisions of the local and federal authorities that determine the allocation and location of public housing. These locational decisions, however, are clearly land-use decisions and have many of the elements of the zoning process, albeit not under the same formal title. In particular, the latest stages of the cases have greatly expanded the potential location of public housing in suburban as well as urban areas. In 1966, a group of named plaintiffs, described as Negro citizens of the United States, residents of Chicago, and either tenants of "regular family" public housing or persons who were eligible for and had applied for such housing, filed two class actions in the United States District Court for the Northern District of Illinois on behalf of themselves and others "similarly situated." In one action, the Chicago Housing Authority (CHA) and its members were named as defendants. In the other, the Department of Housing and Urban Development (HUD) and its director, George Romney, were named as defendants. The plaintiffs were represented by lawyers from the Chicago chapter of the American Civil Liberties Union (ACLU). 43 The plaintiffs alleged in the CHA suit that since 1950, CHA had selected public housing sites almost exclusively within neighborhoods in which the racial composition was predominantly black, with the purpose of, or with the result of, maintaining existing patterns of racial segregation in housing. In particular, the plaintiffs alleged that CHA's site selection procedures and policies maintained a racially segregated pattern of housing in violation of the plaintiffs' right to equal protection under the Fourteenth Amendment. The plaintiffs alleged in the Romney suit that HUD approval and funding of CHA public housing projects perpetuated a pattern of racial discrimination in housing in violation of their rights 43. The ACLU has a network of attorneys who work for private law firms and donate time to various cases.

230

Area Studies:

Public Interest Law in Action

under the due process clause of the Fourteenth to perpetuate this housing pattern. First, CHA Amendment and their rights under the Civil used a " p r o x i m i t y " rule to select tenants f o r particular housing sites, which meant that Rights Act of 1964. The named plaintiffs in these actions were in tenants were chosen from the neighborhood in fact passive participants in an action initiated by which the housing project was located. Secondly, a group of lawyers working initially under the all public housing project proposals were submitauspices of the ACLU. The actions stemmed ted to the alderman in whose district the project from the discovery by a member of the Chicago was to be located for his informal approval or ACLU board of the "aldermanic veto" system, veto. This informal veto procedure resulted in which allowed city aldermen to veto the location the rejection of 99 percent of the projects slated of new public housing projects in their districts. for development in white neighborhoods, while Following general ACLU practice, the litigation projects slated for black neighborhoods suffered was funded primarily by the lawyers themselves, a rejection rate of only 10 percent. at least as t o the major input in the litigation — The aldermanic veto system has some of the the individual lawyers' time. Both the principal problems of public sector decision-making that PIL lawyers in the cases — Alexander Polikoff we discussed earlier. First, each alderman will and Milton Shader — were then major partners in tend to be concerned primarily with the interests private Chicago law firms. within his district. Since most of the people who Given the projected size and dispersion of a would benefit from locating the housing in preclass described as Negro residents of Chicago who dominantly white areas — potential non-white were either tenants of or eligible for "regular occupants and persons who favor integration — family" public housing, the transactional costs are likely to live outside the predominantly white associated with the actual organization of the aldermanic districts, while most of those who members of the class would have been prohibi- would be hurt if the project were located in tive. In addition, since racial integration was the those districts live there, the alderman's decision object of the action, there were presumably per- is likely to exhibit the sort of public failure we sons who were not members of the class — both have characterized as interjurisdictional spillblack and while — who were benefited by the overs. Second, there is a greater likelihood that action. The costs of organizing this group, too, opposition t o the location will include elements seem prohibitive. Thus, the organizational condi- with racially tainted motivations than that the tions for PIL activity were met, and considering side favoring the location will include such elethe magnitude of the underorganization, it is not ments — a possible failure of constitutional 45 surprising that the impetus and direction came (equity) constraints. almost exclusively from the lawyers. On the strength of the evidence presented, the The parties moved first on the action against plaintiffs received a summary judgment in their CHA. Between 1966 and the district court's deci- favor. 46 The judge subsequently ordered that the sion on the merits in 1969, the plaintiffs' lawyers conducted extensive pre-trial discovery, including CHA projects and 90 percent of the applicants on the many interrogatories of CHA officials. Armed waiting list of 13,000 persons. CHA operated 4 projects with their findings, which included admissions by in predominantly white neighborhoods, none of which had a black occupancy rate greater than 8 percent, with the CHA officials that the site selection process two out of the four having a black occupancy rate of was consciously biased toward non-white areas, 4 percent or less. Exclusive of the 4 white sites, 99 percent of CHA's family housing tenants were black; the plaintiffs sought a summary judgment. 99.5 percent of the total units operated were in neighThe evidence submitted showed that public borhoods 50-100 percent black, and 92 percent of the housing was generally occupied by blacks and total units operated were in neighborhoods 75-100 perthat public housing projects were located almost cent black. 45. Problems of "majoritarian bias" may also be exclusively in neighborhoods which were prepresent. If the interests of all voters who favor the 44 dominantly black. Two mechanisms were used integrated sites were significantly greater than the inter44. As of July 1968, CHA was operating 54 family housing projects consisting of 30,848 units at 64 sites. Blacks comprised 90 percent of the tenants occupying

ests of all voters who oppose integration, the majoritarian outcome could significantly deviate from the efficient solution and produce segregated housing. 46. 296 F. Supp. 907 (N.D. Illinois 1969).

231 CHA build no new housing in census tracts with more than 30 percent non-white population (called Limited Public Housing Areas) until at least 700 dwelling units were built in census tracts with less than 30 percent non-whites (called General Public Housing Areas). Thereafter, 75 percent of all units must be built in the General Public Housing Areas. The court ordered the CHA to make "best efforts" to increase the supply of dwelling units as rapidly as possible. In addition, the court ordered CHA to provide periodic progress reports to the plaintiffs, the Civil Rights Division of the U.S. Department of Justice and the Regional Administration of HUD, as well as to the court. 47 The lawyers for the plaintiffs had waged a tactically sound battle and won the judicial relief they initially sought. They had discovered a suspect pattern of site selection employed by the CHA and the Chicago City Administration. They had organized a class of plaintiffs to represent the aggrieved low income black residents. They had framed the issues in concise and direct form. They had skillfully compiled evidence of the CHA's procedures so overwhelming that few courts could resist their conclusion. They had framed remedies which struck directly at the segregation they wished to end and even included a reporting mechanism which reduced the cost of policing such a system. The subsequent history of the case, however, shows how complex and costly was the translation of the judicial victory into a behavioral victory — increased integration and increased welfare for the plaintiff class. Subsequent to the judgment order of July 1, 1969, HUD reserved funds for at least 1500 units of public housing for Chicago. Under Illinois law, however, all proposals for public housing in Chicago had to be submitted to the Chicago Planning Commission and the Chicago City Council for approval, but as of July 1, 1970, CHA had submitted virtually no new sites for approval. One reason for the delay was that the CHA wished to delay submission of proposed sites until after the election of city officials in the Spring of 1971, since the city administration felt that the dispersal of public housing sites into white areas would be unpopular with a majority of the city's voters. During this period, CHA 47. 304 F. Supp. 736 (N.D. Illinois 1969).

Housing and Zoning lawyers had been negotiating with the plaintiffs' lawyers, in many instances with the judge present. On July 20, 1970, the plaintiffs' lawyers obtained an order from the court directing the CHA to submit proposals for no fewer than 1500 public housing units to the Chicago Planning Commission before August 20, 1970, and to advise the City Council of appropriate sites before September 20, 1970. This time the order was appealed to the Circuit Court of Appeals. The CHA lost on appeal in a decision handed down on December 16, 1970. 4 * The agency's motion for rehearing was denied on March 8, 1971. 4 9 The CHA, however, had achieved the politically palatable delay it had sought, and soon submitted plans for approximately 1700 units to the City Council for its approval. But by October 1971, the City Council had approved less than 200 units. At this point, the Romney case gained new importance to the plaintiffs. On September 1, 1970, the district court had dismissed the action against HUD and its director, George Romney, 5 0 but on September 10, 1971, the plaintiffs' lawyers won a reversal of the dismissal in the Circuit Court. 5 1 The case returned to the district court at an opportune time for the plaintiffs. The court, obviously angered at the delay of over two years in the approval of new public housing units, ordered HUD to withhold $26,000,000 in Model Cities funds from the City of Chicago until the City Council approved at least 700 more units of public housing. The Model Cities funds, which were only tangentially related to public housing, supported a number of activities such as educational and job training programs, health care centers, and day care centers. Approximately 4,000 jobs were involved. The magnitude of the losses to the city, and the fact that "the chief beneficiaries [of the Model Cities funds] are the poor people of Chicago, many of whom are black," prompted the Circuit Court of 48. 436 F. 2d 306 (7th Circuit 1970). 49. 91 S. Ct. 9 8 0 ( 1 9 7 1 ) . 50. The decision was apparently unpublished. It appears that the court's decision was based upon the tenuous connection between HUD and the pattern that had surfaced as well as a "sovereign immunity" argument (that HDD was immune from suit as an agency of the federal government). 51. 448 F.2d 731 (7th Circuit 1971).

232 Appeals to reverse the district court's decision and release the f u n d s . " By April 1972 - nearly three years after the original judgment order - the City Council had approved no more public housing sites. Returning to the CHA suit, the plaintiffs' lawyers sought and received an order from the district court that suspended the Illinois statute which required City Council approval for CHA public housing projects and that ordered CHA to proceed with the projects without City Council approval. 53 The history of the cases from the 1969 judgment order to the 1972 order circumventing the City Council raises several interesting points. First, the court ultimately found it necessary to remove public housing decision-making from the legislative process. To the extent that the legislative process reflected the majoritarian bias, the judicial process can be viewed as a potent tool for overcoming governmental failures. The severity of the order also suggests the strength of the bias; the court apparently felt that it could not provide sufficient incentives, short of removal, for correcting the failure in the legislative process. Second, the complexity of the issues involved in the Gautreaux cases is apparent. The plaintiffs' lawyers decided that it was in their clients' interest to block the Model Cities funds even though at least some members of the class might be hurt by the move. The lawyers no doubt felt that the Chicago City Council would consider the loss of the Model Cities funds too high a price and that the Council would therefore choose to approve the sites and receive the Model Cities funds. A sizable gamble was involved in the choice, the outcome of which was not observed because of the reversal of the order. Similarly, one outcome of the initial actions was the cessation of public housing starts in Chicago for three years. Again, the plaintiffs' lawyers had chosen to pursue a course that involved short-run costs to the class they represented. The allocation of decision-making responsibility to these lawyers was the natural result of the private market failures which severely reduced the chances that the class could articu52. 457 F.2d 124 (7th Circuit 1972). 53. 342 F. Supp. 827 (N.D. Illinois 1972), affirmed 480 F.2d 210 (7th Circuit 1973).'

Area Studies: Public Interest Law in Action late its demands through organization. The PIL lawyers made a choice involving issues of considerable complexity and the questions raised in Chapter Five concerning the relative abilities of PIL lawyers to make such determinations may be relevant here. Even the circumvention of the City Council, however, did not produce the desired housing starts. The voices of the pro-restriction advocates, which had been reflected in the nowbypassed political mechanism, were now to be heard directly. In 1972, a coalition of local community organizations and individuals within the city of Chicago, which had incorporated into the Nucleus of Chicago Homeowners Association, brought action against CHA and HUD, their directors and officials, for failing to file an "environmental impact" statement in violation of the National Environmental Policy Act of 1969, 42 U.S.C §4332, §102(2)(c). The plaintiffs argued that the tenants of public housing possessed "a higher propensity toward criminal behavior and acts of physical violence, a disregard for the physical and esthetic maintenance of real and personal property, and a lower commitment to hard work," and that "these factors will have a direct adverse impact upon the physical safety of the plaintiffs residing in close proximity to the sites, together with a direct adverse impact upon the esthetic and economic quality of their lives." 54 The plaintiffs were represented by two local lawyers, Joseph Karaganis and Lawrence G. Martens, who were directly compensated by funds obtained from individual members of NO-CHA (the acronym can be considered intended by the plaintiffs). Interestingly, Karaganis previously had been a lawyer with Businessmen and Professional People for the Public Interest, a group which Polikoff now heads and from which Polikoff now directs the Gautreaux litigation. The lawyers for the NO-CHA plaintiffs were able to obtain a temporary order restraining HUD and CHA from proceeding with public housing plans at 100 sites pending determination by the court of the defendants' motion to dismiss the suit. On November 21, 1973, the court did dismiss the action in a short opinion characterized by the following cryptic comment: "it 54. Nucleus of Chicago Homeowners GERC 1094 (N.D. Illinois 1973).

v.

Lynn,

233 must be noted that although human beings may be polluters (i.e., may create pollution), they are not themselves pollution (i.e., constitute pollution)." 5 5 Nevertheless, the NO-CHA plaintiffs had succeeded in further delaying the construction of integrated public housing. The Gautreaux cases are still pending, and indeed are expanding in scope. The plaintiffs' lawyers asked the court to extend jurisdiction in the case to the counties surrounding Chicago, claiming that these outlying areas must play a role in a regional plan for integration by accepting a share of the region's "regular family" public housing. The district court rejected the request, 56 but was reversed by the circuit court, which ruled that any plan to promote housing integration must be regional in scope. 5 7 Following the circuit court's decision, the district court, at the request of the plaintiffs, added the housing authorities in four suburban counties, and relevant Illinois state agencies as defendants in the lawsuit. 58 In February 1975, the U.S. Solicitor General, on behalf of HUD, filed a brief with the U.S. Supreme Court seeking review of the circuit court decision that a comprehensive metropolitan plan for public housing be drawn up and implemented. The Supreme Court upheld the decision of the circuit court, ruling that HUD's authority extended over much of the relevant market area (coterminous with the boundaries of the standard metropolitan statistical area) by virtue of HUD's independence of local governments and its power to contract directly with developers. 5 9 55. Ibid. 56. 363 F. Supp. 690 (N.D. Illinois 1973). 57. 503 F.2d 930 (7th Circuit 1974). 58. The additional defendants include the housing authorities of Cook, Dupage, Lake, and McHenry counties, Housing authorities of the municipalities in these counties, the Northwestern Illinois Planning Commission, and the Illinois Department of Local Government Affairs. 59. 96 S. Ct. 1538 (1976). The scope of this decision is important. The success of the Gautreaux plaintiffs is apparently strongly tied to their ability to establish HUD as a defendant culpable independently from the local housing authority. In this connection compare the case of Mahaley v. CMHA, 355 F. Supp. 1 2 4 5 , 3 5 5 F. Supp. 1257 (1973) 500 I'.2d 1087,ce/7. denied, 419 U.S. 1108 (1974). In Mahaley, the plaintiffs sought to force low-income publicly assisted housing to be built in the suburban areas of Cleveland, Ohio. The district court judge ordered the Cleveland Metropolitan Housing Authority to draw up a plan to determine the number

Housing and Zoning The thrust of this decision is, however, somewhat unclear. The Court noted that the local suburban jurisdiction retained the power to affect HUD's choices or plans through their own regulations — principally zoning and other land-use controls. The proclivity of such jurisdictions to resist housing that would strain their fiscal positions and perhaps violate their perceptions of racial and economic integration might be somewhat curbed by HUD's control over the disposition of several forms of federal grants that these jurisdictions desire. 60 This newest development in the Gautreaux litigation has several important elements. First, it again points up the scope and complexity of the issue with which the PIL lawyers attempted to deal. What began ten years earlier as a reaction to the discovery of the aldermanic veto system of the City of Chicago has now become an attempt to devise a plan encompassing several other political jurisdictions. The PIL lawyers are obviously interested in more than the removal of a suspect procedure. Their objective is apparently both racial integration and greater housing opportunities for their non-white, low-income clients. To these ends, they have sought a number of reforms in the land-use decision-making process, and they have succeeded in eliminating an impressive list of legislative and administrative roadblocks. But they are still in court, and it is not obvious that they have achieved their ultimate objectives to any perceptible d e g r e e . " The alleged "public market failure" is apparently more complex and pervasive than they — or perhaps anyone - would have suspected in the beginning. Second, the new strategy for the first time explicitly involves the suburban jurisdictions that were the subject of the early part of this chapter. of low-income housing units that each suburban community would require as determined by the housing needs of each community, and of the Cleveland region. The Sixth Circuit appeals court reversed the district judge and ordered the lawsuit, and the district court order, dismissed. The U.S. Supreme Court refused to review the case. 60. The efficacy of this leverage is discussed later in this chapter, under "Limits of PIL Activity." 61. While they were able to gain judicial victories, their utlimate objectives - both ai the outset of litigation and at the present with its expanded scope - must also include increased racial integration of public housing without market deterioration of housing opportunities for their low-income, non-white client group.

234 The proximity to jobs and better schools, which forms the core of the benefits to the poor and non-whites, may not be realistically available if the land-use mechanism of an urban area is reformed without broadening the jurisdiction in which that mechanism operates. On the other hand, if HUD is prompted to install public housing in areas that are remote from jobs or social opportunities for prospective public housing dwellers, it is possible that the low-income group may, in the net, be worse off, although other groups may still benefit. The "spillovers" created by overrestriction in surrounding suburbs may substantially increase the costs to Chicago of unilaterally removing restrictions. In turn, these greater costs may explain some of the resistance by the administrative and legislative agencies of the city to the efforts of the Gautreaux lawyers. By including these suburban areas, the Gautreaux lawyers are attempting both to overcome the "prisoners' dilemma" and to achieve greater integration benefits.

Area Studies: Public Interest Law in Action explains this phenomenon. The national housing market in general and federally subsidized housing in particular have been in a severe economic slump. The long-run achievements of Gautreaux both in the quantity and locational quality of Chicago area public housing may justify the short-run costs. But these costs appear to be substantial and continuing. The resource costs expended on the case also appear sizable, although they may not be excessive relative to the perceived potential of the case. Several lawyers whose alternative private sector earnings would have p l a c e d t h e m conservatively in the $50,000-$ 100,000 per year bracket expended considerable amounts of time on behalf of the plaintiffs. The government expended considerable resources for its attorneys and for the judicial resources involved.

On the benefit side, the lawyers in Gautreaux have shown considerable creativity in adapting their tactics to changing conditions. They have recast the problems in terms more favorable to the politically potent administration of the city of Chicago. Their work has produced a structure It is interesting to note the recent formation which has a reasonable potential for yielding of a coalition of civic, business, and political leaders in the Chicago area who are seeking a greater integration in Chicago area public hous"balanced distribution of low and moderate in- ing. Their cases have yielded precedents widely come housing for the six-county Chicago area." cited in the decisions of other courts. It is difficult to compare costs and benefits. The coalition has been aided — if not conceived — by the office of the mayor of Chicago. The cases show that even some of the most This politically potent coalition may not have creative and initially successful PIL activity can been formed without the pressure applied by the yield surprising and sometimes perverse results Gautreaux litigation. The coalition would appear at least in the short run. The complexity of the to be an important example of the secondary issues and the strength of feeling on all sides in the land-use and housing controversy are likely effects of PIL litigation. Any attempt to assess the importance and to produce such a scenario. Further, the choices effects of the Gautreaux litigation must be highly available to those who would correct perceived qualified. The information now available does failures in this area are very limited. not allow us to easily separate the effects of the The distributional effects of the Gautreaux many forces that affect the level and distribution cases are also difficult to determine. The failure of public housing in Chicago; nor are we able to to build sufficient public housing creates the point with ease to alternative approaches that possibility of losses for the plaintiffs - black would be "obviously" better or worse. At best citizens of Chicago who live in or are eligible for we can sketch the outlines of the efficiency im- public housing. Arguably, these losses will be pacts and the distributional effects associated justified by long-term gains for the plaintiffs in with these cases. the form of better located housing — that is, For a substantial period of time, there has housing that provides the plaintiffs with better been a paucity of public housing starts in the access to jobs, better educational opportunities, City of Chicago, which may be partly due to the and, ultimately, better race relations. If these litigation. The pursuit of the remedies in long-term gains are realized, it may mean a parGautreaux, however, is not the only force that tial release for the class represented by the plain-

235 tiffs from what Anthony Downs has called "the externalities of p o v e r t y . " ' 2 If the long-term net benefits are positive for the plaintiffs, then one group of beneficiaries is black. Similarly, given the NO-CHA case and the experience with the aldermanic veto, one group of losers is apparently white. This simple racial split is complicated by the indirect beneficiaries of integration who may be white. Interestingly, these often seem to be whites w h o do not live in the districts to be integrated.

Kennedy Park and Black Jack: Public Housing, Private Developers, Integration, and Local Zoning Another form of the battle over the location of housing rages between local communities and private developers of subsidized public housing. The local community's weapon is the zoning authority. This section concentrates on those cases in which the racial motive or effect played a primary role. The cases in the next section will deal with a broader set of motives or effects. Kennedy Park Homes Association v. City of Lackawanna 318 F. Supp. 669 (W.D.N.Y. 1970); affirmed 436 F. 2d 108 (2nd Cir. 1970); cert, denied 401 U.S. 1 0 1 0 ( 1 9 7 1 ) . In 1968, a Lackawanna, New York, civil rights group, the Colored Peoples Civil and Political Organization (CPO), formed the Kennedy Park Home Association (KPHA) as a medium for the development of a federally subsidized low-income housing project. The CPO had obtained 30 acres of land for this purpose from the Roman Catholic Diocese of Buffalo. The land was located in the predominantly white Third Ward. Most Lackawanna non-whites (over 98 percent) lived in the city's First Ward. The First Ward had the standard ghetto problems - crime, ill health, poor education — plus a large Bethlehem Steel Plant which operated round the clock, emitting great clouds of smoke. Previous attempts by non-whites to leave the First Ward and settle in the Second or Third Wards had met with strong albeit informal resistance from both private and public authorities. Lackawanna, like many older industrial cities, had been suffering from various land-use prob6 2 . See A n t h o n y Downs, " A r e Subsidies the Best Answer?" pp. 405-416.

Housing and

Zoning

lems. As a result of poor planning, the city had a history of sewer problems and some trouble with flooding. The city, however, had not restricted development in answer to these problems, and at the time CPO acquired the 30 acres in question, the area was zoned appropriately for the proposed housing project. News of the proposed project was met with considerable public outcry. A Third Ward group called the Taxpayers Interested in Civic Affairs (TICA)was formed to mobilize opposition to the proposed project. Public meetings were held, petitions were circulated, and protest letters appeared frequently in local newspapers. Subsequently, and presumably as a reaction to the proposed Kennedy Park project, the City Council adopted a moratorium on all new building until the city's sewer problems were solved, and designated certain areas, primarily those around and including the 30-acre tract, as park and recreation land. The City Council cited as reasons for its decision the sewer problems, studies on the need for recreation, and the Corps of Engineers' designation o f t h e a r e a a s a flood plain. Shortly thereafter, the present suit was filed by KPHA, CPO, the Diocese of Buffalo, and a group of black residents of the First Ward who wished to move into the proposed project. The Diocese was represented by its own local counsel. KPHA, CPO, and the black residents of the First Ward were represented by counsel associated with the NAACP Legal Defense F u n d . " On the subsequent appeal, the NCDH 64 and the National 6 3 . Shields and S p e c t o r describe the Legal Defense F u n d (The Inc. F u n d ) as follows: " T h e Legal Defense F u n d . . . is a national civil rights litigation organization with its main o f f i c e in New York, a branch o f f i c e in San Francisco, field offices t h r o u g h o u t the S o u t h , and over one h u n d r e d c o o p e r a t i n g a t t o r n e y s scattered a r o u n d the c o u n t r y . T h e F u n d ' s program c o n c e n t r a t e s on p r o t e c t ing the c o n s t i t u t i o n a l rights of blacks and traditionally the greater p a r t of its activity has b e e n in the S o u t h , although some of its m a j o r campaigns, for instance that against capital p u n i s h m e n t , have been plainly national in scope and have aided a p r e d o m i n a n t l y non-minority client group. T h e Inc. F u n d has b r o u g h t m o s t of the i m p o r t a n t S o u t h e r n school desegregation cases. Although the F u n d was originally f o u n d e d as the legal arm of the National Association f o r the A d v a n c e m e n t of Colored People . . . since the mid-1950s it has been a totally separate organization, f i n a n c e d by f o u n d a t i o n g r a n t s . " Shields and S p e c t o r , " O p e n i n g Up t h e Subu r b s , " pp. 302-303. 64. The NCDH carries on a broad set of activities in the housing area including research, administrative lob-

236 Urban Coalition" submitted an amicus brief in support of the plaintiffs' position. Unlike Gautreaux, Kennedy ,Park was not a case conceived and managed solely by public interest lawyers. The Diocese, which had previously owned the 30-acre tract and apparently participated in the project from its inception, funded its own legal representation. CPO was not a paper organization formed for the purposes of litigation; it had a long history of activity in the Lackawanna area. While some of CPO's members may have been lawyers, its membership was a cross-section of the non-white population of Lackawanna. The class plaintiffs were passive but they were drawn from the CPO membership. Thus, while legal representatives were provided by a PIL organization, the parameters of the case had been set prior to their participation. The difference between Gautreaux and Kennedy Park in the role of PIL lawyers and plaintiffs is probably due to the more limited geographic scope of the controversy in the latter. While Gautreaux involved public housing in general within the entire Chicago area, Kennedy Park involved only a specific project with a specific developer. More organization of the interest group was possible in Kennedy Park; moreover, to produce a bona fide specific project, such organization was necessary. Unlike Gautreaux, Kennedy Park explicitly involved the standard zoning scenario discussed earlier in this chapter: the struggle between a land owner or developer and the zoning authority which acted on behalf of the developer's neighbors. The plaintiffs alleged that the defendants had rezoned the Kennedy Park site and declared a moratorium on new subdivision construction in order to exclude low income and minority families from the white area, thereby denying those families decent housing in violation of the Fourteenth Amendment equal protection and due process clauses, the Civil Rights Act bying, technical planning assistance, and housing sponsorship and administration as well as litigation. NCDH is supported primarily by the Ford Foundation although it receives grants from other foundations and does some work on paid subcontract for, among others, HUD. Shields and Spector, "Opening Up the Suburbs," p. 301. 65. The coalition is funded primarily by private, for-profit corporations and non-for-profit foundations. Shields and Spector, "Opening Up the Suburbs," p. 304.

Area Studies: Public Interest Law in Action of 1964, and the Fair Housing Act of 1968. Soon after suit was filed, the United States, represented by lawyers from the Civil Rights Division of the Justice Department, intervened as plaintiffs. In February 1969, the City Council rescinded the ordinances, but gave notice that other tactics would be employed to block the KPHA project, including refusal to approve the necessary sewer connections. The district court, however, granted judgment to the plaintiffs and ordered that the sewer connections be approved, that there be no public interference with the construction of the housing project, that construction of all other subdivisions which might tax the sewer system be enjoined until the Kennedy Park project hooked in, that defendants report on all sewer problems and that steps be taken to alleviate the sewer problems." The court retained jurisdiction until the project was completed. The decision was affirmed on appeal to the United States Circuit Court 61 and appeal was refused by the United States Supreme Court." Park View Heights Corp. >>. City of Black Jack, 335 F. Supp. 899 (E.D. Mo. 1971); reversed 467 F. 2d 1208 (8th Cir. 1972). The factual setting of the Black Jack case makes its inclusion here useful. The geographic setting was St. Louis County, the area of Missouri surrounding the city of St. Louis. From 1950 to 1970, the population of the St. Louis region — the city and the suburban area surrounding it — had grown by 570,000 people. The growth, however, was not distributed evenly across the area. The city's population had declined by 252,000 while the suburban area had grown by 822,000, with 550,000 of this growth in suburban St. Louis County. At the same time, the black population of the city had grown from 154,000 to 280,000 - from 17 percent of the total city population to 45 percent. By contrast, the black population of St. Louis County had increased by only 10,000 people and had shown a decrease in percentage of the population — from 4.1 to 2.1 percent. Approximately 95 percent of all additions to 66. 318 F. Supp. 669 (W.D.N.Y. 1970). 67. 436 F.2d 108 (2d Circuit 1970). 68. 401 U.S. 1010(1971).

237 the housing inventory in the region since 1960 had been in the suburbs, but less than 1 percent of the homes built in suburban subdivisions since 1962 had been sold to blacks. Eighty percent of the black population in the region lived in housing that was at least 30 years old, with 43 percent of all blacks living in housing that was seriously substandard, and another 33 percent living in housing that was drastically overcrowded. Adverse effects on education and employment for non-whites were linked to these housing problems." In late 1969 and early 1970, a coalition of religious organizations interested "in addressing urban problems in the St. Louis region" entered into a contract for the purchase of an 11.9-acre tract of land in the unincorporated northern portion of St. Louis County, and applied for federal assistance under Section 236 of the Federal Housing Act. The project was to consist of ten townhouse complexes of two and three stories each and was to be known as Park View Heights. Eligible tenants would have maximum incomes ranging from $5500 per year for a single person to $9800 for a family with six children. 69. While 5 percent of the total school enrollment in St. Louis County is black, black enrollment in the city is 64 percent. Of the 22 school districts in St. Louis county, twelve had less than 1 percent black enrollment, four had between 1 and 3 percent, and eight had between 3 and 20 percent, with the remaining two districts having black enrollments of 90 percent and 100 percent. Between 1951 and 1969, the number of payroll jobs in St. Louis County increased by 448 percent, but the total number of such jobs in the city of St. Louis was 12.9 percent compared to 2.9 percent for the region. In 1968, 62 percent of the city's unemployed were black, a condition attributed to the fact that unskilled jobs were increasingly being found in the St. Louis suburbs far from the inner-city slums where most black unskilled laborers lived. These facts and those in the accompanying text are found in the plaintiffs' complaint in Park View v. City of Black Jack. The compilation of the data indicates extensive investigative efforts. The plaintiffs were apparently aware of the importance of social science data. This observation receives further support from the fact that the plaintiffs commissioned a study by the Urban Institute on the connection between racial concentration, housing types, and local zoning in the Black Jack (St. Louis) area. The study, which employed the talents of a systems analyst, an economist, and a lawyer, was submitted in evidence during the proceedings. See Ronald F. Kirby, Frank de Leeuw, and William Silverman, "Residential Zoning and Equal Housing Opportunities: A Case Study in Black Jack, Missouri," 712-781, The Urban Institute, Washington, D.C., 1972.

Housing and Zoning Strong opposition to Park View Heights arose immediately from residents in the area. They formed the Black Jack Improvement Association and the Spanish Lake Improvement Association which mounted a concerted campaign against the project, including mass meetings to mobilize opposition, letter writing campaigns directed at public officials, publication of position papers, and dispatch of a delegation to present HUD with a petition. On June 5, 1970, HUD issued a "feasibility letter" for the project, which was tantamount to a contractual obligation to assist the project, and which resulted in a formal reservation of funds for the project. The opponents of the project immediately began a drive to incorporate the area surrounding and including the proposed site as a separate political jurisdiction. On June 26, 1970, representatives of a group calling itself Citizens for the Incorporation of Black Jack presented to the St. Louis County Council two petitions, bearing a total of 1425 signatures, which requested incorporation. On August 6, 1970, the County Council voted to incorporate the area as the City of Black Jack. On October 20, 1970, the new Black Jack City Council adopted a zoning ordinance which prohibited multi-family dwelling use in the new jurisdiction. It had taken extra sessions to pass the ordinance so quickly because it required notice and public hearings as well as preliminary reports by a local zoning commission. The 11,9-acre tract owned by the Park View Heights Corporation was now zoned to permit only single-family residences on a minimum 15,000 square feet lot size. Under the previous zoning, which permitted the multi-family units contemplated, the 11.9-acre parcel had a value of $20,000 per acre, while under the new zoning, the maximum property value was $9000 per acre. In 1971, suit was brought in federal district court by the Park View Heights Corporation, a corporation formed by the religious organizations to develop the parcel, and eight individuals representing themselves and other black residents of the city of St. Louis who wished to live in the suburban areas of St. Louis County. All of the plaintiffs were apparently represented by lawyers from the local chapter of the American Civil

238 Liberties Union (ACLU) and by two lawyers from the ACLU Foundation of New York City, Lawrence Sager and Melvin Wulf. 70 The defendants were the City of Black Jack and its mayor, city council, and zoning commission. The actions of the project's opponents dramatically demonstrated the efficacy of public land-use restriction as a tool for representing their dispersed interests. Given organizational outlays sufficient to obtain signatures on petitions and submit them to the County Board, the opponents were able to establish a small political jurisdiction. Thereafter, they could depend on the public mechanism to reflect the majority position without the necessity of fully organizing and taxing the citizens themselves. It became less relevant whether the amount of prospective loss to the project's opponents exceeded the amount of prospective gain to project proponents, and more relevant whether the number of local voters who would lose if the project were built exceeded the number who would gain. Since those who would lose were concentrated primarily within the new jurisdiction while the project's beneficiaries were located almost exclusively outside the jurisdiction, the restriction on land-use might have been expected because of the majoritarian bias in the local zoning process.

Area Studies: Public Interest Law in Action equal protection clause of the Fourteenth Amendment. Third, they argued that the rezoning and resultant drastic devaluation of the parcel constituted an unjustified taking of property and therefore was a violation of the due process clause of the Fourteenth Amendment. The plaintiffs sought to enjoin defendants (1) from enforcing the zoning ordinance as it applied to the Park View Heights site, (2) from using municipal land-use powers to prevent or interfere with construction on the site, (3) from failing to take whatever affirmative steps were necessary to allow development to begin, and (4) from attempting to obstruct the project in any way.

In addition to the efficiency criterion, the equity criteria relating to race and income seem to favor the proponents of the project. Those excluded from the area by the new zoning ordinance were clearly non-white and, considering the income limitations on occupants of the proposed housing, low income. The neighbors were primarily white and apparently in higher income brackets. The plaintiffs based their attack on three basic arguments. First, they alleged that the zoning ordinance was adopted for the purpose of, and with the effect of, excluding black persons from residing in Black Jack. Second, they alleged that the zoning ordinance had the purpose and effect of excluding lower and moderate income groups from residing in Black Jack, in violation of the

In the Black Jack case, the district court granted the defendants' motion to dismiss the action as to all plaintiffs except the Park View Development Corporation, which held the title to the land." The plaintiffs appealed, with Mr. Sager representing them, to the United States Circuit Court, where the plaintiffs succeeded in obtaining a reversal of all the district court's determinations that were adverse to them. The appeals court remanded the case for trial on all counts.' 1 Upon remand, the case was settled. Under the settlement, the City of Black Jack is liable to Parkview Heights Corporation for $450,000 in damages. In return, the city receives the site of the proposed housing development and is not required at this time to provide through changes in its land-use laws for other sites for low and moderate income housing. 73 In the interim, the United States had filed a separate action against the City of Black Jack, based upon alleged violations of the Civil Rights Act of 1968. The district court dismissed this complaint against the city on the grounds that the city had not committed an act of racial discrimination when it rezoned the Park View Heights site. 14 On appeal, the circuit court reversed the district court, 75 and declared the zoning ordinance that prevented construction of the Park View Heights project to be in violation of Title VIII of the Civil Rights Act of 1968. The

70. The ACLU Foundation is the tax exempt portion of the National ACLU organization. The ACLU, in general, is funded mainly through membership dues and private contributions. The ACLU has over 170,000 members nationally, most of whom are white and middle class. Shields and Spector, "Opening Up the Suburbs," p. 302.

71. 335 F. Supp. 899 (E.D. Missouri 1971). 72. 467 F.2d 1208 (8th Cir. 1972). 73. Potomac Institute Metropolitan Housing Program, Reporter Memorandum #76-2, February 28, 1976, p. 2. 74. 372 F. Supp. 319 (E.D. Missouri 1974). 75. 508 F.2d 1179 (8th Cir. 1974).

239 circuit court ordered a permanent injunction enjoining the enforcement of the ordinance. Upon denial of a rehearing by the circuit court, the City of Black Jack appealed to the Supreme Court, which refused to consider the appeal. 76 In a sense, both Kennedy Park and Blackjack appear to be "easy" cases. In both cases, the group attempting to exclude a housing project from its district took steps that — primarily because of their timing — allow few other inferences than that they were prompted by the desire to exclude the particular project itself. The racial imbalance in both areas provided the plaintiffs with a strong argument that the exclusion had a substantial racial intent or, at least, effect." Despite these seemingly strong grounds, however, both cases have failed to achieve their most immediate objective - the construction of the individual project. The Kennedy Park plaintiffs did obtain a favorable determination from the trial court, which they defended successfully on appeal. The officials of Lackawanna, however, have placed a continuous set of roadblocks in the way of the project, including requirements that would raise the costs of the project beyond the limits of the federal subsidy program." Michael Davidson, the Legal Defense Fund lawyer in charge of the Kennedy Park case, commented, "This type of post-adjudication sparring is becoming more common, because municipalities are increasingly couching their refusals to permit to develop land 76. 422 U.S. 1042 (1975). 77. In contrast, the Supreme Court was recently able to rebuke a claim by a low-income housing developer based on the lack of evidence that the zoning in question was a reaction to the particular housing project. There the zoning had long been set in a manner inconsistent with the proposed use, and therefore the intent to exclude based on race was more difficult to prove. Village of Arlington Heights v. Metropolitan Housing Corporation, 373 F. Supp. 208 (N.D. 111. 1974), reversed 517 F.2d 409 (7th Cir. 1975), affirmed 45 Law Week 4 0 7 3 (1977). 78. Michael Metsner and Phillip G. Schrag, "Postlitigation Strategy and the Public Interest Lawyer," Pro Bono Report, XII, 3 (1973), p. 6. While direct refusal to okay a court order would place the defendants in a position to be cited for contempt, the complexity of land-use controversies - with the associated uncertainty concerning the ultimate impact of a particular response - allows defendants who wish to stall or place roadblocks in the way of a given project sufficient leeway to frustrate the substance of the order, at least in the short-run.

Housing and Zoning in terms of environmental protection or of safety. Of course, we have to conduct expensive and time-consuming factual studies to rebut such technical claims." " This comment reflects not only the difficulty of turning a judicial success into a behavioral success but also the difficulties inherent in the conflict between environmental and egalitarian interests. Those difficulties are not avoided in a case like Kennedy Park, despite the likelihood that the environmental arguments are offered as excuses to avoid a project which is actually being opposed on other grounds. The adverse environmental effects may actually exist even if they did not motivate the particular decisions. The Black Jack plaintiffs found a less favorable reception at the trial court. However, given several circuit court appeals, they appear to have won partial victories in the form of a sizable pecuniary award and a judicial declaration that the ordinance in question was invalid. However, the housing project has been lost in the shuffle. In a sense, both Kennedy Park and Black Jack have a narrower scope than Gautreaux because they were concerned with specific projects rather than area-wide plans. This narrower scope has two implications. First, it coincidentally means less risk of perverse effects, at least initially. While Gautreaux may have involved substantial short-run costs for the PIL clients in the form of fewer new units of public housing, Kennedy Park and Black Jack were far less likely to produce initial effects adverse to the PIL clients. This does not mean that the long-run net benefits are greater than in Gautreaux. It simply indicates a lower probability of initial gross costs. Second, this narrow scope raises questions about the role of voluntary sector legal resources. The immediate remedies sought in these cases do not potentially affect as many people (racial integrationists, the poor, future tenants) as did those in Gautreaux, so the efficiency effects are less salient. In addition, there was a developerplaintiff present in both Kennedy Park and Black Jack and presumably the potential pecuniary return to him via the federal subsidy would encourage him to bring action. As a producer of lowincome housing, such a developer is a potential representative of low-income housing consumers 79. Quoted in Metsner and Schrag, "Postlitigation Strategy," p. 3.

240

and will recoup their benefits from the litigation in the form of rents from the project." 0 In addition, HUD and the Justice Department appear ready to assist where there are potential benefits external to the particular project in the form of general precedent. There are several senses in which the developer may not provide sufficient representation, so that the case would require assistance from the government or a PIL firm. First, the precedential value of such cases can be substantial. Both Kennedy Park and Black Jack have been cited by many courts on issues ranging from standing to the limitations on local zoning p o w e r . " These external benefits would not be captured by the developer. Second, the developers in these cases were non-profit organizations whose benefits were primarily non-pecuniary. These organizations themselves represented only part of the dispersed group who would draw non-pecuniary benefits from the project, but the organizations could not tax the non-member beneficiaries to obtain their much-needed financial assistance. Third, the dispersion of those who wish racial (or economic) integration, or those who wish greater income equality, may cause underrepresentation of their interests to those who determine public allocation of housing subsidies or the allocation of public legal inputs. Fourth, the role of a "public interest group" may have an important symbolic role in successful litigation. Due process arguments in which the developer, like our hypothetical friend E, have argued that a zoning law is invalid because it severely affects the value of his property, had, for years, generally fallen on deaf judicial ears. It has only been since the developer's loss has been translated into a loss for consumers — particularly urban, non-white, low-income consumers — 80. Consider Crow v. Brown, 332 F. Supp. 382 (N.D. Ga. 1971), an action brought and apparently financed by prospective private developers of private housing against the county zoning commission and others, based on grounds analogous to those in Kennedy Park and Black Jack. They obtained judgment in their favor which not only allowed them to proceed but which ordered affirmative action by the Atlanta Housing Authority on a county-wide basis, a remedy analogous to that obtained in the Gautreaux cases. 81. Shepard's Federal Case Citations shows that these cases have been cited in other opinions at least 119 times.

Area Studies:

Public Interest Law in Action

that the courts have been willing to scrutinize local zoning decisions more closely. In reality, the developer may have always represented these consumers, but it was difficult to impress the courts with this connection. While courts may sometimes accept the "exclusionary" or equal protection arguments from the mouths of the developers, the arguments seem to have far more force coming directly from members of the excluded group itself, represented by counsel independent of the developer and his often suspect profit motive. Another interesting point is raised by these cases. Again the potentially dispersed "proexclusionary" group (the neighbors) are aided by the majoritarian political process. Like the Chicago City Council, the Lackawanna City Council ably represented the interests of the "pro-excluders." In this connection, the Black Jack case is particularly interesting. When the surburban citizens could not convince larger jurisdictional units — HUD, and perhaps the County Zoning Board — that their position was correct, they formed a jurisdiction of their own. Since the black citizens of St. Louis were outside the new jurisdiction, it was not difficult to pass the necessary restrictions. The New Jersey Cases: Economic Integration, the Supply of Housing, Local Zoning, and the State Courts Oakwood at Madison v. Township of Madison, 117 N . J . Super. 11, 2 8 3 A . 2 d 3 5 3 ( 1 9 7 1 ) ; 62 N.J. 185, 299 A.2d 7 2 0 ( 1 9 7 2 ) ; 128 N.J. Super. 4 3 8 , 3 2 0 A.2d 2 2 3 ( 1 9 7 4 ) . Southern Burlington County N.A.A.C.P. v. Township of Mt. Laurel, 6 7 N.J. 151, 3 3 6 A . 2 d 7 1 3 ( 1 9 7 5 ) , cert, denied, 9 6 S. C t . 18 (1975).

The cases considered thus far have been litigated in the federal courts exclusively on federal grounds (the U.S. Constitution and the federal Civil Rights Acts). Race has been the central issue of the controversies. This section deals with two state court cases that sought a general redefinition of local zoning power. While a racial element may have been present, the arguments and opinions seem primarily concerned with economic integration or the supply of housing. The local enactments were not ad hoc responses to a single, low-income (or non-white) housing project but rather were enactments of general appli-

241 cation whose motivations were more difficult to characterize. The Oakwood case was promoted and prosecuted by lawyers for the Suburban Action Institute (SAI), a group whose sole purpose is the reduction of restrictions on residential land-use in the suburbs. 82 The plaintiffs included two developers whose land was upzoned and a class of low-income persons who had been unable to find reasonably priced housing in the region. The defendants were the State of New Jersey and the Township of Madison, which is located in northern Middlesex County about 15 miles from Newark, just south of Staten Island. From 1950 to 1970, the township population had increased from approximately 7,000 to approximately 48,000. Initially most of the new housing consisted of single-family homes on lots of less than 15,000 square feet; since 1965, it has been primarily low-density apartment developments. The township's real property tax rate increased from one of the lowest in the county in 1950 to the highest in 1970. In 1970, the township enacted a new zoning ordinance. Almost all the remaining vacant land in the township was restricted to single-family homes with a minimum lot size of either one or two acres and a minimum floor space of 1500 or 1600 square feet. The small amount of land allocated for multiple-family dwellings was sufficient to produce a maximum of only 700 new units. No apartment could have more than two bedrooms and even two-bedroom units could not comprise more than 20 percent of the apartments in any apartment complex. In addition, no more than 200 new apartment units would be allowed in any year. The plaintiffs were able to show that, given land prices and building costs, single-family units such as those required by the ordinance would cost a minimum of $45,000 to $50,000 and would therefore be financially available t o only 10 percent of the general population. The plaintiffs in Mt. Laurel included named 82. Shields and Spector "Opening Up the Suburbs," describe SAI as a "foundation sponsored organization whose . . . one central purpose is to gain access to the suburbs for low and moderate income families" (p. 301). SAI has two co-directors, both of whom are city planners as well as lawyers, plus two litigators and two community workers. Most of its financial support comes from the Taconic Foundation.

Housing and Zoning individuals representing three classes: present residents allegedly forced by the actions of the township to live in dilapidated or substandard housing; former residents allegedly forced from the township by the absence of adequate housing; and prospective residents now living in urban areas who desire to move to the area given a supply of adequate housing. Three civil rights organizations also entered as plaintiffs.* 3 They were represented by lawyers from Camden Regional Legal Services, Inc., a federally funded organization.' 4 Mt. Laurel Township is located in Burlington County in the Camden-Philadelphia metropolitan region." 5 Since 1950, the township had been growing rapidly in population, doubling each decade between 1950 and 1970, as commuters from the Camden-Philadelphia area moved into the community. Despite attempts to attract industry, Mt. Laurel remained a rural township with scattered developments of new, predominantly expensive single-family h o m e s . " At the time of the lawsuit, nearly two-thirds of the land in the township remained undeveloped." Since 1950, the township's zoning laws had been amended four times. By 1972, the only land available for residential use was zoned for 83. The Civil rights organizations were Southern Burlington County N.A.A.C.P., Camden County C.O.R.E., and Camden County N.A.A.C.P. 84. Strictly speaking, this group is a public-sector, not a voluntary-sector, entity (see Chapters Two and Four). However, given the broad definition of the public interest law industry in Chapter Two and the complementary aspects of Mt. Laurel and Oakwood, the case is included here as an example of PIL-like activity. On appeal, the Legal Services lawyers were supported by amicus curiae in the form of Normal Williams, Jr., a member of the Rutgers Law School faculty on behalf of the Public Interest Research Group of New Jersey and a lawyer from the New Jersey State Office of Legal Services. 85. The township of Mt. Laurel is approximately 20 minutes by automobile from Camden, N.J., and is easily accessible by highways, including an interstate route. Southern Burlington County N.A.A.C.P. v. Township of Mt. Laurel, 128 N.J. 223; 336 A.2d 713 at 718-719(1975). 86. The population of Mt. Laurel was 2187 in 1950, 5249 in 1960, and 11,221 in 1970. (336 A.2d at 718.) Despite the zoning by Mt. Laurel of some 30 percent of the township's area for industry, only some 100 acres of land (less than 3 percent of the area zoned industrial) had actually been industrially developed. (336 A.2d at 719.) In the newer developed sections of the township, the average value of the single-family homes in 1971 was $32,500. (336 A.2d at 719.) 87. 336 A.2d at 718.

242 single-family dwellings, with most of the available lots zoned for a minimum lot size of 20,000 square f e e t . " No provisions existed in the township's zoning laws for attached townhouses, apartments, or mobile homes." While apartments had been built in Mt. Laurel, the township had placed restrictions on the units to assure high rent units so as to protect the community tax base.®0 No housing development authority existed in the township to aid the development of lower-income housing," and most of the existing lower-income housing was concentrated in an older, rural section of the township that also 88. The zoning law of the township divided it into ten districts; only five of the ten had land zoned at the time of the lawsuit. Zone R-l was single-family residential with a minimum lot size of 9315 square feet; R-2 was single-family residential with a minimum lot size of 11,000 square feet; R-3 was single-family residential with a minimum lot size of 20,000 square feet (336 A.2d at 718-720). At the time of the lawsuit, some 18 percent of the township's land was zoned R-l; 1 percent was zoned R-2, 51 percent was zoned R-3, 28 percent zoned industrial, and 1 percent was zoned neighborhood commercial. (Brief of the Defendants, Southern Burlington County N.A.A.C.P., Plaintiffs, v. Township of Mt. Laurel, Defendants, Supreme Court of New Jersey, Docket #A-2846-71, filed Decembers, 1972, pp. 4-6.) Of the 2526 acres zoned R-l, some 928 were undeveloped at the time of the trial. No land was left for development in the R-2 zone, and 4463 of the 7155 acres in the R-3 zone were undeveloped. Thus of all the undeveloped areas of the township that were zoned for residential usage, some 83 percent were zoned for lots with a minimum square footage of 20,000 square feet. (Brief of the Defendants-Respondents, pp. 4-6.) An expert witness for the township testified that even in the R-l zone, the most inexpensive house would sell for $23,000, and the same house built with union scale wages and the minimal amenities required by federal programs would cost between $26,000 and $27,000. These minimum construction costs apparently precluded usage of Section 235 (homeownership) and Section 236 (rental subsidy) federal housing programs to provide housing for low-income persons. Since Mt. Laurel had no housing authority, it could not take advantage of public housing programs. (Brief of the Plaintiffs, Southern Burlington County N.A.A.C.P., Plaintiffs, v. Township of Mt. Laurel, Defendants, Supreme Court of New Jersey, Docket #A-2846-71; filed Jan. 5, 1973, pp. 38-39.) 89. 336 A.2dat 719. 90. 336 A.2d at 721-722, the township ordinance would allow apartments to be built only if the developers agreed to numerous open spaces and other items, bedroom number restrictions, and tuition payments to the township if the apartments brought in too many school-age children per bedroom. 91. Brief of the Plaintiffs, Southern Burlington County N.A.A.C.P., Plaintiff, v. Township of Mt. Laurel, Defendants, Supreme Court of New Jersey, Docket #A2846-71; filed Jan. 5,1973, pp. 38-39.

Area Studies: Public Interest Law in Action contained 80 percent of the township's minority residents.' 2 In Oakwood the Court ruled that the Madison ordinance was invalid because it exceeded the powers granted by the New Jersey enabling act. The Township had offered two types of explanation for its enactment of the ordinance. The first and primary reason was the desire to "balance the community" by bringing in upper-income groups to go along with the lower-income groups already in the township. The balancing was aimed at alleviating the fiscal problems of the township by decreasing the tax payments of its present residents. The court rejected this purpose because it ignored the "general welfare" of the region, and particularly, the needs of the urbanghetto areas. 93 Second, the township argued that zoning for low-density development had ecological benefits because it "provides protection against floods and other surface drainage problems and against diversion of water from an aquifer, an underground water resource. 94 The court found insufficient information in the record to support this conclusion. It noted that ecological impact was a complex question requiring expert study and testimony. The court declared the ordinance invalid in its entirety. 95 The township appealed to the New Jersey Supreme Court; while the appeal was pending, Madison township amended its 1970 zoning ordinance to provide for additional land for multi-family housing. The Supreme Court remanded the case to the lower court for a determination of the effect of the 1973 amendments on the ruling. 9 ' The trial court on remand held that the 1973 amendments were inadequate and that the entire zoning ordinance remained invalid." The township has appealed this decision and at this writing the decision is pending. In Mt. Laurel, the trial judge ruled in favor of the plaintiffs and declared the entire Mt. Laurel zoning ordinance to be unconstitutional. The judge ordered the township to prepare a study of the housing needs of the township's residents 92. Ibid., p. 7. Some 99 percent of the residents in the newly developed areas were white. 93. 117 N.J. Super. 11, 283 A.2d 353 (1971). 94. 283 A.2d at 358. 95. 117 N.J. Super. 11, 283 A.2d 353 (1971). 96. 62 N.J. 185, 299 A.2d 720 (1970). 97. 128 N.J. Super. 438, 320 A.2d 223 (1974).

243 both present and prospective, and to develop an affirmative action plan to meet the housing needs as outlined in the court-ordered study." Mt. Laurel appealed the decision to the New Jersey Supreme Court in June of 1972, seeking a reversal of the lower court judgment on all issues. The township's brief argued that its zoning laws did not act to deny constitutionally protected rights, that available administrative remedies should first be exhausted by the plaintiffs, and that the relief sought by the plaintiffs was not within the scope of judicial powers." The plaintiffs answered the appeal by arguing that the lower court judgment be affirmed on grounds that Mt. Laurel zoning laws violated the equal protection clauses of the New Jersey and U.S. constitutions, that they restricted the plaintiffs' right to travel, and that the township had presented inadequate reasons to overturn the lower court's ruling. The plaintiffs also filed their own appeal, asking the Court to order the township to consider the regional needs for low- and moderate-income housing, and not just the township's needs, in the survey and plans that the l o w e r c o u r t had ordered Mt. Laurel to 1 00

prepare. After two years of consideration and two sets of oral arguments, the New Jersey Supreme Court, relying on the New Jersey Constitution, 101 declared the Mt. Laurel zoning ordinance invalid and proposed a general standard by which to judge the land-use policies of communities such as Mt. Laurel. The court concluded that every developing municipality, such as Mt. Laurel, has an affirmative obligation to provide for an appropriate variety of housing in its landuse regulations. 103 In particular, the municipality must provide a realistic opportunity for a sufficient amount of low- and moderate-income housing to be developed, with low- and moder98. Southern Burlington County N.A.A.C.P. v. Township of Mt. Laurel. 119 N.J. Super. 164, 290 A.2d 465 (1972). 99. Brief for the Defendant, Southern Burlington County N.A.A.C.P., Plaintiffs, v. TownshipofMt. Laurel, Defendant, Supreme Court of New Jersey, Docket #A2846-71, filed December 5, 1972, pp. 2-3. 100. Shields and Spector, "Opening Up the Suburbs," pp. 114-122. 101. Reaching this decision under the New Jersey Constitution removed the possibility of reversal by the federal courts. 102. 336 A.2d at 724.

Housing and Zoning ate-income housing defined as the "fair share" of "present and prospective regional needs." 103 The defense offered by Mt. Laurel for its failure to plan for low- and moderate-income housing — protection of the local treasury, and space requirements for septic tanks — were judged not sufficient by the court to exempt Mt. Laurel from the need to plan for low- and moderateincome housing. 104 The New Jersey Supreme Court did modify the judgment of the trial court, declaring that only portions of the township's zoning ordinances were invalid and vacating the study plan order. The Court also gave the township time to amend its ordinances to conform to the decision. 105 These New Jersey cases constitute a substantial victory for the PIL or PIL-like groups involved. The sweeping pronouncements in Mt. Laurel, especially the emphasis on regional criteria, provide for some potential to alleviate "spillover" and "majoritarian bias" problems in the land-use decisions of New Jersey. Both decisions, but especially Mt. Laurel, stress the need to accommodate low- and moderate-income housing. The realization of the potential of this case will not be easy, however. The mechanism for considering regional concerns is still' the local zoning decision. Since the political pressures (incentives) upon the zoning authorities remain local, such a mechanism will not be self-policing. Public interest law groups and the courts must play a more substantial continuous role — potentially a high-cost venture. In addition, the decisions place constraints unequally upon the specific defendant locales, so that the constrained locale will join the major urban area as the recipient of negative spillover effects from the unconstrained neighbors. This would involve more uncompensated loss than would a plan or constraint imposed on a regional basis.106 The presence of the "ecological" arguments 103. Ibid., 733. 104. Ibid., 729-730. 105. Ibid., 734. 106. This problem might be alleviated by use of a "class defendant" approach. In a recent case promoted by SAI, this approach is employed to directly bind all the townships in a region of New Jersey to the decision in a case attacking many forms of "exclusionary" zoning practice. Urban League v. Mahweh (filed in Bergen County Superior Court, trial apparently awaiting the outcome of the appeal in Oakwood).

244 and the way in which they were handled by the Oakwood court raises the possibility of future problems for those who seek to limit local zoning power. Given significant negative ecological impact from high (or higher) density development, Madison Township or any other New Jersey township could quite feasibly generate the expert data necessary to establish some probability of ecological damage, and thereby justify its zoning ordinance. By exaggerating this "acceptable" basis for restriction, the townships may be able to defend ordinances with suspect motives or inefficient effects. This aspect of the Oakwood case produces vibrations of a serious problem facing the "egalitarian" camp. These problems might be alleviated if there were a major change in the state's enabling act which shifted land-use controls to a regional or state level. It is likely that the New Jersey Supreme Court intended to foster such a change through its sweeping pronouncements in Mt. Laurel. The problems associated with local zoning, however, have been known to the state legislature for some time. Their failure to respond by changing the laws of land-use decision-making may indicate resistance to such a change sufficient to overcome the pressures from the judiciary. Without such a legislative response, the New Jersey courts will be faced with the unenviable task of closely monitoring all the local zoning jurisdictions, a task that properly belongs to a regional zoning authority. Oakwood also raises questions about the use of voluntary sector legal resources when developers are present as plaintiffs. In Oakwood, unlike Kennedy Park and Black Jack, the developers were not civic or religious not-for-profit organizations. They apparently were private developers arguably motivated at least in part by the potential profits involved. What is the role of developers as active participants in and financiers of legal work against land-use restrictions? In this connection, Oakwood can be compared with three slightly earlier Pennsylvania decisions in which the problems of regional control, exclusion of the poor, and jurisdictional spillovers provided the bases for the invalidation of local zoning l a w s . , 0 , The law107. National Land and Investment Company i>. Easttown Township Board of Adjustment, 4 1 9 Pa. 4 6 6 , 215 A.2d 5 9 7 ( 1 9 6 5 ) ; In re Kit-Mar Builders, 4 3 9 Pa.

Area Studies: Public Interest Law in Action suits were financed by the landowner w h o wished to develop, and were presumably brought because of the landowner's direct pecuniary interest in the outcome. One major difference between these cases and Oakwood is the type of housing involved. The Pennsylvania cases involved single-family houses on one-acre lots and high-rise "luxury apartments," which would certainly have been inaccessible to low- and moderate-income families. By contrast, the developers in Oakwood were planning to erect low- and moderate-income housing. Thus, the Pennsylvania cases are n o t as likely to produce the economic integration sought in Oakwood. It is not clear which kind of case would have the greatest long-run impact on the supply of low-income housing (and the price paid by low-income persons for housing), nor which provides the most stable source of attack on "overzoning." As indicated in the second section of this chapter (on the underrepresentation of housing interests), developers themselves may be insufficiently organized and may be symbolically less attractive to the judicial or administrative decision-maker than the group organized and represented without the tinge of the profit motive. The Pennsylvania cases represent sporadic, independent actions whose conceptual whole was provided more by the court than by any discernible developer interest. The New Jersey cases represent parts of a more general plan — fostered primarily by SAI - to change the scheme of zoning in New Jersey. A recent New Jersey case presents an amalgam of the two types of cases. In 1971, Allan-Deane Corporation, a subsidiary of the building products firm, Johns-Mansville, brought action against the Township of Bedminister. That township, located about twenty-five miles from Newark, had a five-acre minimum lot zoning ordinance. The ordinance had been in existence for over 2 0 years and had been approved in an older New Jersey supreme court decision. But the New Jersey judiciary's view of local zoning was obviously changing, and Allan-Deane wanted the five-acre restriction lifted from its 467 acres. It planned to develop the area with a combination of uses including "single-family homes on oneacre parcels of land, town houses, multi-family 4 6 6 , 2 6 8 A.2d 765 ( 1 9 7 0 ) ; In re Girsh, 4 3 7 Pa. 2 3 7 , 2 6 3 A.2d 395 ( 1 9 7 0 ) .

245 dwellings, an office-research complex, a motel and a golf course." (Allan-Deane Corp. v. Township of Bedminister, 121 N.J. Super. 288, 291 [1972]). Allan-Deane alleged that the zoning ordinance was exclusionary and that it discriminated against the poor and racial minorities. Allan-Deane was not alone in its interest in Bedminister. In 1972, a class of low-income persons represented jointly by lawyers from SAI and the New Jersey Civil Liberties Union brought action against Bedminister alleging that the Bedminister zoning ordinance excluded "black and Spanish-speaking people, blue-collar workers, young married couples, other young adults, the elderly, and other persons of low and moderate income." (121 N.J. Super, at 292). Less than a month later, they asked to intervene in the Allan-Deane action. They sought a declaratory judgment that the zoning ordinance was unconstitutional, an injunction prohibiting the enactment of "exclusionary zoning laws" and requiring an affirmative action program to right previous wrongs, and an injunction requiring AllanDeane, as part of its project, to construct a significant amount of low- and moderate-income housing. The new plaintiffs pointed out that while Allan-Deane was arguing that the zoning ordinance discriminated against the poor, the housing it proposed to build would sell at prices ranging from $35,000 to $90,000. The lower courts refused the new plaintiffs' petition for intervention because it would delay the litigation and because the Allan-Deane tract represented only a small part of the 13,000 acres in Bedminister. (121 N.J. Super. 288 [1972]). However, the plaintiffs lawyers were able to obtain a reversal of that decision from the New Jersey Supreme Court. (63 N.J. 591, 311 A.2d 177 [1973]). The results of the trial are not available at this writing. However, the township apparently made some token changes in its ordinance and refused additional alterations on "environmental grounds." As SAI notes: "The most interesting aspect of the case is the environmental defense coupled with the fact that the New Jersey Department of Environmental Protection has filed an amicus brief in the case."10* 108. Suburban Action Institute, Report on 1973 Program Activities, December 1973, Litigation Appendix, p. 10.

Housing and Zoning

Assessing the Impact It would be ideal if we could now offer a concise and accurate determination of the costs and benefits of PIL activities in the land-use and housing area. Instead, we must explain the absence of such a determination. At its simplest level, such an analysis would include at least an accounting of the efficiency effects without the complications of equity constraints. It would be necessary to know whether there was a bias from the efficient (omniscient dictator) solution at the local level and the spillover-corrected omniscient dictator on the general level. It would also be necessary to know the direction and extent of the bias, the extent to which PIL activity has corrected the bias, the resource costs associated with all the PIL activity in the area, and any costs imposed by the PIL activity. To establish accurately the presence, extent, and direction of the bias would require either a highly reliable model that indicated the realworld determinants of a bias and its direction, or a general substantive accounting of all the interests in all the cases involved. The latter would require establishing the amounts of such diverse and amorphous, albeit important, interests as racial integration, racial prejudice, and preservation of wildlife, as well as fiscal effects and lost profits that are easier to quantify. These amounts would have to be scaled to an acceptable common index — usually dollars. Given the establishment of the efficiency component of this mythical accounting, the next step would be an evaluation of the equity constraint and the integration of equity and efficiency into one estimate. It would be necessary to establish the equity constraints, and a system by which their trade-off with efficiency is determined. Then the distributive impact could be charted across the groups, determined, and integrated into an estimate. Upon completion of these Herculean efforts, still more is demanded. The scope of the analysis in this chapter has been broad but still it focused on only part of the picture. The general equilibrium effects would have to be determined for a complete picture. It would be necessary to determine which industries would be stimulated by removal of the zoning laws, which factors of production would receive the brunt of this

246 stimulation, and what adjustments in the factor market would occur. The first level of this analysis could imply a second, and so on. While it is far beyond the scope of this chapter to make such determinations, we have provided some fragments for the process. The direction of the bias was tentatively suggested, and some steps were taken toward the isolation of determinants. The form, if not the extent, of the trade-offs was charted, producing a picture of conflict between important PIL goals. The small sample of cases we have studied revealed costs to client groups through delays in the construction of needed housing (Gautreaux), and frustration in attempting to turn a judicial victory into a behavioral victory (Gautreaux and

Kennedy Park). At several points, the distributive effects of the particular cases have been charted, albeit tentatively. In general, the process of charting distributive effects is treacherous. If most of the important cases in this area involved the direct inclusion of low-income, racially integrated housing in previously predominantly white, higherincome areas, we might tentatively say that the distributive effects are pro-poor, and pro-nonwhite. The statement would be tentative because of questions concerning the real desires of the relocated citizens and the impact of relocation on long-range strategies such as the concentration of black political power. We must also consider the indirect benefits of racial integration which may accrue primarily to whites living in districts unaffected by integration orders and with incomes higher than those of whites who live in the affected districts or who oppose integration. Many cases, such as Oakwood and the Pennsylvania cases, require that housing be built for people with lower incomes than the zoning restrictions would have allowed, but do not necessarily, or even probably, require housing for lowincome people. Measuring the distributive effect of such cases would require following complex indirect effects such as "filter down" or "trickle down" effects, although even without such measurements we can assert that the effect is likely to be pro-poor and pro-nonwhite. The scope of the chapter is already extensive enough to preclude much charting of the effects already identified. A wholesale expansion in search of general equilibrium effects seems fruitless. One effect, however, is worth brief mention.

Area Studies: Public Interest Law in Action The zoning restrictions discussed in this chapter operate as a tax on housing density and, in turn, on the activity of the housing industry. Presumably, the reduction of the tax would stimulate activity in that industry and employment of its factors of production. The extent of the incidence of this tax reduction would depend on market demand, factor supply, and production techniques.

Limits of PIL Activity In Chapter Five, the limitations on the effectiveness of the PIL sector were discussed in general terms. A few words on the application of that analysis — in particular, the efficacy of legislative and judicial strategies - to the subject matter of this chapter seem in order. Two commentaries on cases such as those we have discussed, which are part of the Open Suburbs Movement, have been critical of the failure to make more extensive use of a "political" or "bargaining" strategy. Shields and Spector suggest that three general sources of political support for the movement are present: the urban blacks, the "liberals," and the suburban population. 109 The last, they prudently note, is an unlikely source. Trubek suggests that a bargaining strategy should be used to augment the litigation approach and that without such augmentation little real success can be gained. 110 It is inherently difficult to discuss "political action" because the term has such diverse meanings. The civil rights movement of the 1950s and 1960s is a popular model of a combined political action and litigation approach. In that movement the political wing included such diverse activities as lobbying and mass demonstrations. Racial discrimination in the delivery of such public services as education, and of such private services as restaurant and hotel facilities, were issues on which the civil rights movement was able to focus public attention and to generate public concern. Indeed, the issue of open housing — the elimination of overt racial discrimination in the sale or rental of housing — closely borders on the issues discussed in this chapter. The civil rights movement was successful in generating both important judicial decisions and favorable federal and state le109. Shields and Spector, "Opening Up the Suburbs," pp. 306-308. 110. Trubek, "Civil Rights and Cities," pp. 23-40.

247 gislation. As the cases discussed in this chapter indicate, this legislation has provided the Open Suburbs Movement with many of its litigation tools. Another example of apparently successful political action involves the environmentalist activities in controlling development and preventing the depletion of natural settings and resources that development entails. One documented example of this is the campaign to preserve San Francisco Bay. A coalition of environmental groups waged a campaign that culminated in legislation establishing a Bay Area commission to control development. The campaign made use of the media to generate public outrage against local developers - labeled "despoilers." Any legislator who opposed restrictions on development was labeled a protector of private interests and their "speculative" profits and an opponent of the public interest." 1 This successful example of political action is all the more important because of the effects it may have had upon the interest groups discussed in this chapter. A number of the developments halted by the Bay Area legislation had been earmarked for low-income housing. Most of the black and Chicano residents of the Bay Area live in the lowlying area near the Bay waterfront, and were affected by the restrictions. Many of the employees who lost jobs because of the relocation or cancellation of low-income housing projects were low-income nonwhites." 1 Given the frustratingly slow, halting, and precarious success of the litigation strategy of the Open Suburbs Movement, and the apparent success of legislative strategies in related areas, it is understandable that new, more "political" strategies are being proposed. There are, however, reasons apparent in our discussion which reduce the potential of a primarily political strategy. The political entity initially involved in the zoning question is the local zoning authority (or 111. For a description of this campaign waged by a coalition of traditional environmental groups, see Note, "Saving San Francisco Bay: A Case Study on Environmental Legislation," Stanford Law Review XXIII, 2 (1971), pp. 349-366. 112. The situation prompted one commentator to note: "Programs for saving the Bay, as conceived by the purists, will benefit those with 'view* lots, yachts, and interests in estuarine wildlife, at the expense of those least able to pay for and to defend their interests." Richard L. Meier, "Insights Into Pollution," Journal of the American Institute of Planners IV, 4 (1971), p. 211.

Housing and Zoning the local housing authority). It is doubtful that a political strategy would be successful at that level, because the local zoning authority depends on the local public for votes. If the public were aroused and all interests were articulated and informed, the informed votes would favor restriction. The cases we have discussed here — in particular, Black Jack — indicate where the interests of the local majority generally lie. While activity at the state level may not be plagued by as many difficulties, the San Francisco Bay legislation and the history of the New York Urban Development Corporation and the Massachusetts Anti-Snob Zoning Legislation raise doubts about the value of political strategies on behalf of the Open Suburbs Movement. The complexities of the interaction among various land uses are difficult even for supposedly sophisticated lawyers and social scientists, and the effects of change are not as dramatic as school or lunchcounter desegregation. "Black power" strategies requiring concentration of blacks and a stronger interest among blacks in problems that are closer to home have combined with these complexities to make political organization of non-white contingents difficult. The private market failures here involved more than organization: they involved education. Thus, even if the non-white voters were organized, it is not clear that their support for the anti-restrictionists would be strong. The core of "liberal" white voters is also necessary. But liberal voters are not a likely source of strong support because of their conflicting associations with the "environmental" camp. Despite this dim prognosis on the state and local level, however, there has been a potentially significant legislative response on the federal level. The Housing and Development Act of 1974113 conditions the receipt of "community block grants" on a showing by the applicant community that it has a housing assistance plan that considers the housing needs of persons "residing or expected to reside in the community" 114 and that locates federally assisted housing so as to offer broad housing opportunities and promote income-integrated locational opportunities." 5 HUD has already denied the applications of three communities — Parma, Ohio; 113. Public Law 93-983, 88 Stat. 683 (1974). 114. Title I § 104(a)(4)(A). 115. Title I § 104(a)(4)(C).

248 Midland, Texas; 1 1 4 and Burlington C o u n t y , New Jersey — and is considering a complaint filed b y the N A A C P t o deny grants t o Detroit suburbs."7 Whatever the potential of the Act, however, its application has been linked to a large e x t e n t to present or previous PIL l i t i g a t i o n . 1 " F u r t h e r , provisions d o n o t appear to encompass the full range of "exclusionary" land use problems, 119 and its general funding formulas may have questionable impact on the urban poor. It does create an i m p o r t a n t tool for use by PIL groups, and a potential for litigation in b o t h administrative and judicial contexts. This tool takes on greater importance in light of the Supreme Court's recent decision in Gautreaivc, discussed earlier. Since the Court indicated that local jurisdictions could continue t o withstand, through their local land-use provisions, any HUD a t t e m p t s to place public housing within their boundaries, H U D will need leverage to influence these jurisdictions in their land-use decisions. The withholding of f u n d s under the Housing and Development Act - alluded to b y the Gautreaux Court - provides one such means. In this connection, the recent case of City of Hartford v. Hills is important. 1 2 0 There the City of Hartford brought suit blocking the flow of f u n d s to seven of its suburbs for failure to indicate sufficient planning for low- and moderateincome housing. At last notice, HUD had decided not to appeal the decision. 1 1 1 The Hartford decision is i m p o r t a n t because it provides precedent for leverage by an urban area against its suburban neighbors and because it gives indications that HUD m a y be more willing to employ its p o w e r to withhold funds. It should be noted that while this legislation 116. Upon reconsideration, this application was granted. 117. See Potomac Institute, Inc., Metropolitan Housing Program, Reporter Memorandum #75-4 (April 24, 1975), and BNA, Housing and Development Reporter, May 5, 1975, p. 1245, and June 2, 1975, p. 17. 118. Parma, for example, had been under attack in the courts and Burlington County is the locus of the Mt. Laurel case. 119. The House rejected by voice vote a proposal to deny funds to suburban areas that employed zoning laws to prevent construction of low- or moderateincome housing. 1974 Congressional Quarterly Almanac, p. 360. 120. 408 F. Supp. 889 (Conn., 1976). 121. BNA, Housing and Development Reporter, AprilS, 1976, p. 1119.

Area Studies: Public Interest Law in Action and these cases provide additional tools for P I L e f f o r t in this area, that e f f o r t must be careful n o t t o locate low-income housing at places t o o remote f r o m the e m p l o y m e n t opportunities of the prospective tenants. There are here, as elsewhere, trade-offs between the interests of integration, the dispersion of public services, and the welfare of the low-income tenants. The history of the Housing and Development Act including its recent judicial and administrative interpretations provides indications that greater c o m m u n i t y organization, lobbying, or negotiation e f f o r t s will n o t always fall on deaf e a r s . 1 " Our analysis of the housing and zoning area, however, does suggest that success by means of political action on a massive scale is unlikely. The governmental failure inherent in the majoritarian bias, the equity interests (race and perhaps income) with their reliance on constitutional arguments, the complexities of the issues, and the conflicts with the n o w popular ecological concerns leave a substantial residual role for PIL action. The courts, however - at least the federal courts — have indicated a strong reluctance to interfere with the land-use decisions of local governments. In the recent United States Supreme Court decision in Boraas v. Village of Belle Terre,'" the first p r o n o u n c e m e n t of that court in the zoning area since the 1920s, the C o u r t , in a cryptic opinion, narrowly defined the bases for judicial intervention in the local land-use process. While the desire of the Court to avoid so complex a question is understandable, the likelihood of a strong majoritarian bias and the potentially adverse e f f e c t s of that bias on groups that have traditionally suffered inequitable treatment low-income and non-white groups - make the decision questionable on normative grounds. On positive grounds, it signals a diminution in the efficacy of a lawyer-intensive constitutional strategy in the correction of governmental failures in the land-use area. A n o t h e r recent Supreme Court decision im122. The Open Suburbs Movement might be able to generate wide support for legislation that broadened the taxing jurisdiction. If local public services were not primarily dependent on the local tax base, the fiscal problems - which apparently motivated the zoning ordinances involved in at least Oakwood and Mt. Laurel could be eliminated. Political support for such reform would come from many individuals or groups who are opposed to diminution in the zoning power. 123. 416 U.S. 1 (1974).

249 posed substantial costs on PIL challenges of local zoning ordinances in federal courts. In Warth v. Seldin,*" the Supreme Court upheld a lower court's denial of standing to plaintiffs - individual and group — purporting to represent a variety of classes, including low-income and minority individuals allegedly excluded by the zoning laws of Penfield, New York, a suburb of Rochester; taxpayers of the City of Rochester; residents of Penfield denied the benefits of racial and economic integration; and builders and developers. The taxpayers of Rochester and the residents of Penfield who had been denied the benefits of integration represented interests which the Court felt were insufficient for standing. Excluded individuals and thwarted developers were interests deserving of a claim on the Court's time, but, in the view of the Court, the plaintiffs attempting to assert these interests in this case had failed to make showings sufficient to associate them with the interests. The analysis in this chapter has tended to support a case for spillovers as a potential problem with local zoning decisions and one that is not represented by interests within the jurisdiction, even given the omniscient dictator model for local decision-making. The interest in racial integration by persons outside the jurisdiction would, thus, need separate representation even without bias in the local decision-making structure. These individuals, like the developers, would seem to have some basis for a claim based on biases in that structure. The Court's denial of standing to the excluded plaintiffs and developers imposes a substantial requirement at the pleading stage and seems to severely hamper a broad attack on general zoning ordinances like the one in Mt. Laurel. The requirement seems to limit standing to cases like Kennedy Park and Black Jack where a specific project is at issue. Whatever the merits of the Court's decisions in Boraas and Warth, they do severely lessen the possibility of successful action in the federal courts by anti-restriction groups in general, and traditional PIL groups — representing dispersed interests - in particular.

Summary and Conclusion The first section of this chapter discussed the rationale for a public sector role in local land-use 124. 4 2 2 U.S. 4 9 0 .

Housing and Zoning decisions and traced the potential problems with the actual workings of the major public sector response — local zoning. Three simple models of legislative behavior were presented. They represented a spectrum defined by the concentration or dispersion of the interests involved. With respect to this spectrum, any normative judgments were based on allocative efficiency. The section also added some equity considerations or constitutional constraints — race (racial integration) and income distribution. The second section of the chapter examined the interest groups involved in the local zoning controversy in terms of their relative abilities to represent their interests in various decisionmaking contexts - local legislatures, state legislatures, and the judiciary. The analysis considered the organizational costs associated with representation, and the possibility of indirect representation through surrogates. The section also concentrated on the potential conflict between two groups popularly associated with PIL — egalitarians and conservationists. This conflict has particular importance because of the high probability that those PIL lawyers and judges who have been willing to challenge or overturn zoning ordinances may also be those who have a substantial interest in conservation or environmental protection. This potential conflict, therefore, may play an important role in the behavior of key participants and decision-makers in the local zoning controversy. The third section examined several PIL cases concerning the location of housing and the activity of local legislatures. The first set of cases the Gautreaux cases - involved an attempt through litigation in the federal courts to alter the racially segregating locational choices made by the local public housing authorities in the city of Chicago. The second set of cases — Kennedy Park and Black Jack - involved PIL efforts in the federal courts to overcome attempts by local authorities to use their zoning power to block publicly subsidized housing that would promote racial integration. Here, as in Gautreaux, judicial victories did not lead automatically to the acceptance or even the erection of the housing sought by the PIL advocates. The third set of cases - Mt. Laurel and Oakwood — involved litigation in state courts challenging the state's definition of local zoning powers. These last two cases represent a strong push by the New Jersey Supreme

250 Court for general reformation of that state's zoning structure. Again the real impact of these PIL litigation victories is yet unknown. The fourth section of the chapter examined the difficulties associated with charting the impact of these PIL cases. The fifth section examined the potential range of PIL strategies in terms of the analysis presented in the first section. It cast doubt on the potential efficacy of legislative strategies, leaving the PIL advocates with the frustratingly slow judicial strategy. It is difficult to determine the "bottom line" for PIL activities in this area. The low probability of success for legislative strategies seems to leave judicial strategies as the better alternative. While this conclusion provides some justification for lawyer-intensive corrective devices such as PIL activity, the prospects for PIL have been reduced by recent federal decisions; nevertheless, the Housing and Development Act of 1974 provides

Area Studies: Public Interest Law in Action new prospects for effective action on both the administrative and judicial fronts. The victories in New Jersey hold out some hope for efficacy at the state court level. The cases outlined in this chapter, however, do not suggest that there will be dramatic changes in the substantive positions of anti-restriction clients even after court victories. The best that can be concluded is that the small probability of success may be justified by the importance of the issues associated with housing location, such as access to better schools and racial integration. Recent controversies over busing of school children and equalization of education financing (Chapter Twelve) are closely related to the iiousing location problem, and enhanced opportunities for racial and economic integration in household location may provide the best long-run solution to these problems.

Chapter Ten

Public Interest Law and Employment Discrimination Joel F. Handler with George Edgar and Russell F. Settle

This chapter discusses the role of public interest law in dealing with the problems of discrimination in e m p l o y m e n t . In the first section, we discuss the nature of e m p l o y m e n t discrimination in the private sector. We are concerned with whether private decisions produce e m p l o y m e n t patterns that conflict with the public interest in either equity or efficiency. The next section discusses the public sector's responses to the private market failure and why and how the public sector, in turn, also fails to deal effectively with employment discrimination. Various government programs are reviewed. We also review an important hybrid device - the use of private attorneys by victims of discrimination, with statutory provision for the payment of counsel fees to plaintiffs w h o prevail. We then turn to the operation of public interest law firms and point out h o w these firms can avoid some of the difficulties of government and private attorney e n f o r c e m e n t . Our conclusion, however, is that n o single institution or agency is capable of dealing effectively with e m p l o y m e n t discrimination, but that a variety of agencies must be used employing different m e t h o d s and techniques.

a n u m b e r of forms: as an unwillingness t o hire or work with certain types of employees ( f o r example, blacks, Chícanos, or w o m e n ) ; as a refusal to pay equal compensation for equal w o r k ; and as a reluctance t o allow members of some groups equal access t o j o b s in certain professions or above certain levels.' As a result of e m p l o y m e n t discrimination, we would expect white males to be overrepresented in the higher-paying or prestigious occupations, to earn more than other types of workers doing the same work, and to enjoy better success than others at b o t h finding and keeping jobs. T h e e x t e n t to which these expectations are fulfilled is suggested by the facts presented in Tables 10.1 through 10.5 which provide i n f o r m a t i o n about occupational distributions, median earnings, and u n e m p l o y m e n t rates for selected groups.

E m p l o y m e n t discrimination is defined as work-related behavior toward others that is not motivated b y objective market considerations such as differences in training, experience, or natural ability.' This behavior manifests itself in

Table 10.1 compares the distribution of whites across major occupations with the distribution of non-whites across the same occupations for selected years. Table 10.2 makes the same comparison between male and female workers. T h e occupations are listed in descending order of median earnings. Clearly, white workers are concentrated in the better-paying occupations, with 63.9 percent of all whites working in the three highest-paying occupations in 1972. In contrast, only 37.5 percent of all non-whites f o u n d work in these relatively desirable occupations. Compared to the situation in 1957, however, w h e n 58.8 percent of the whites and only 18.5 percent of the nonwhites worked in these occupations, the 1972 distribution represents a

1. Gary Becker, The Economics of Discrimination (Chicago: University of Chicago Press, 1971), p. 39. This definition is not the legal definition which is set forth in Part Three.

2. Owen M. Fiss, "A Theory of Fail Employment Laws," University of Chicago Law Review, XXXVIII (Winter 1971).

Private Market Outcomes and the Public Interest

252 considerable advance. Columns 7 through 9 in Table 10.1 offer further evidence that nonwhites have enjoyed improved access in recent years to the more desirable occupations. If there were n o differences in white and nonwhite occupational distributions, then the ratios in columns 7-9 would all equal unity. While nonwhites remain underrepresented in higher-paying occupations and overrepresented in the lower-paying ones, the degrees of under- and overrepresentation have lessened significantly since the 1950s. Female workers, on the other hand, have enjoyed substantially less success at expanding the occupational choices available to them. In 1950

Area Studies: Public Interest Law in Action only 17 percent of the female labor force was classified as working in the top two occupations, whereas 37.1 percent of all male workers were found in these two categories. By 1973 the proportion of women workers in these occupations had increased to only 21.3 percent, while the proportion of men working these occupations increased to 47.5 percent. Fully 41 percent of all female workers were classified as clerical or sales workers in 1973. Further, about 25 percent of the female labor force works as secretaries, stenographers, bookkeepers, elementary school teachers, waitresses, or household workers. As columns 7-9 in Table 10.2 indicate, this sort of

Table 10.1 White and Nonwhite Occupational Distributions, 1957-1972 White Distribution Occupation

Professional and Managerial Craftsmen Clerical and Sales Operations Service Nonfarm Laborers Farm Workers Total 3 a

Nonwhite

Distribution

1957 (1)

I 960 (2)

1 972 (3)

1 95 7 (4)

1 960 (5)

1 972 (6)

22.2 14.4 21.9 19.3 9.1 4.5 8.6

23.8 13.8 22.7 17.9 9.9 4.4 7.4

25.2 13.8 24.9 16.0 11.8 4.6 3.8

5.8 5.7 7.0 21.2 32.0 14.9 13.5

7.4 6.0 8.8 20.4 31.7 13.7 12.1

13.2 8.7 16.6 21.3 27.2 9.9 3.0

100.0

99.9

100.1

101.1

100.1

99.9

Ratio of Nonwhite to White Distribution 1 95 7 (7)

0.26 0.40 0.32 1.10 3.52 3.31 1.57

1 960 (8)

0.31 0.43 0.39 1.14 3.20 3.11 1.64

1 972 (9)

0.52 0.63 0.67 1.33 2.31 2.15 0.79

Totals may not add to 100 due to rounding errors.

Source:

Statistical Abstract of the United States, 1973, Table 373.

Table 10.2 Male and Female Occupational Distributions, 1950-1973 Male Distribution Occupation

Professional and Managerial Craftsmen Clerical and Sales Operations Service Nonfarm Laborers Farm Workers Total* a

1950 (1)

1960 (2)

1973 (3)

1950 (4)

1960 (5)

1973 (6)

1950 (7)

1960 (8)

1973 (9)

0.82 0.06 2.70 0.91 3.44 0.06 0.47

0.71 0.05 2.92 0.78 3.65 0.05 0.46

0.74 0.07 3.19 0.70 2.72 0.11 0.29

19.3 17.8 12.8 20.9 6.4 8.2 14.7

24.5 19.0 13.0 19.6 6.5 7.9 9.6

26.8 20.7 12.9 19.2 8.1 7.6 4.8

15.9 1.1 34.5 19.1 22.0 0.5 6.9

17.4 1.0 37.9 15.2 23.7 0.4 4.4

19.8 1.5 41.1 13.5 22.0 0.8 1.4

100.1

100.1

100.1

100.0

100.0

100.1

Totals may not add to 100 due to rounding errors.

Source:

Ratio of Female to Male Distributions

Female Distribution

Statistical Abstract of the United States, 1973, Table 372.

253 Table 10.3 Relative Median Earnings of Women by Occupation, 1956-1971 Year Occupation

Professional Managerial Clerical Sales Craftsmen Operations Service Workers a

1956 (1)

196 S (2)

1971 (3)

.62 .59 .72 .42

.65 .53 .67 .41 .57 .57 .55

.66 .53 .62 .56 .56 .61 .59

a

.62 .55

Base too small to be statistically significant.

Note: Relative median earnings is the ratio of the median earnings of all females in an occupation to those of all male employees in that occupation. Source: Economic Report of the President, Table 28.

1973,

occupational concentration improved little, and in some instances worsened between 1950 and 1973. Tables 10.3 and 10.4 indicate the relative median earnings of females and nonwhites in various occupations for selected years. These data suggest that even when women or nonwhites obtain

Employment Discrimination jobs in the more preferred occupations, they will generally earn considerably less than white males. In fact, across all the occupations listed in Table 10.3, the best occupational category for women in 1971 was "professional," where women earned 66 percent as much as males in the same category - down from 72 percent in 1956. As with the degree of occupational concentration, there has been little improvement in the relative earnings of women between the 1950s and the 1970s. In contrast, nonwhites have enjoyed significant gains in closing the gap between white and nonwhite earnings. Nevertheless, there remain substantial differences between the earnings of white males and nonwhite males or females; although, notably, the gap between white female and nonwhite female earnings was virtually closed by 1969. Finally, Table 10.5, which presents relative unemployment rates for various groups, confirms our expectation that white males enjoy relative success at finding and keeping jobs. These data reveal that for every 1 percent of the white male labor force that was unemployed in 1973, 1.43 percent of the white female labor force was unemployed, 2.05 percent of all nonwhite male workers were unemployed and 2.84 percent of all nonwhite female workers were unemployed.

Table 10.4 Relative Median Earnings of Nonwhites by Occupation and Sex, 1949-1969 Nonwhite Occupation

Professional Managerial Clerical Sales Craftsmen Operations Service Private Household Workers Nonfarm Laborers Farm Laborers a

1949

(') .58 .50 .84 .55 .63 .72 .78 .91 .81 .72

1959 (2)

Nonwhite

Male a

I969 (3)

Female

1949 (4)

1959 (5)

1969' (6)

.69 .57 .84 .56 .66 .70 .76

.72 .66 .85 .64 .72 .82 .86

.85 .45 .95 .75 .79 .77 .87

.97 .56 .99 .98 .82 .79 .95

1.02 .95 .98 1.13 .88 .93 1.18

1.05 .83 .71

1.03 .91 .73

1.01 .89 .88

.99 .84 .92

1.17 .98 .72

Data are for Negroes rather than nonwhites.

Note: Relative median earnings is the ratio of male (female) median earnings to those of all males (females) in the relevant occupation. Source: R. B. Freeman, "Changes in the Labor Market for Black Americans, 1948-72," in Brookings Papers in Economic Activity, 1, 1973, Table 2, pp. 80-81.

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Area Studies: Public Interest Law in Action

Table 10.5 Relative Unemployment Rates by Race, Sex, and Year Year

1955 1960 1965 1970 1973

White Female (1)

Nonwhite Male (2)

1.16 1.10 1.39 1.35 1.43

2.39 2.23 2.06 1.83 2.05

Nonwhite Female (3)

2.27 1.96 2.56 2.33 2.84

Note: Relative unemployment rate is the ratio of the unemployment rate for the group in question to the unemployment rate for white males. Source: Statistical Abstract of the United States, U.S. Department of Commerce, Washington, D.C., various years.

Compared with white males, this measure indicates some improvement in the position of nonwhite males between 1955 and 1973, but a worsening in the relative employment prospects for both white and nonwhite females. The measures presented in Tables 10.1 through 10.5 are, of course, only rough indicators of the extent of "employment discrimination." Females, for example, have traditionally been socialized to "prefer" certain types of occupations, so the occupational concentration of females — while in part the consequence of direct employment discrimination - may be partly the result of "freely" exercised occupational choices by women. However, there is some evidence that suggests that about 60 to 70 percent of the earnings differential between whites and nonwhites and perhaps the entire differential between males and females is attributable to employment discrimination.3 Consequently, our broad indicators in Tables 10.1 through 10.5 may not severely overstate the extent of employment discrimination. Explanations of Employment Discrimination A number of reasons for the existence of employment discrimination have been advanced in recent years, and we will briefly consider each 3. See A. S. Blinder, "Wage Discrimination: Reduced Form and Structural Estimates," Journal of Human Resources, VIII (Fall 1973), pp. 436-455. See also Charles R. Link, Edward C. Ratledge, and Kenneth A. Lewis, "Male-Female and Black-White Discrimination in the Labor Market," unpublished, University of Delaware, 1974.

of them. 4 One explanation suggests that employment discrimination occurs because accurate information about the likely productivity of potential employees is costly to acquire. Consequently, employers will frequently make hiring decisions based on sketchy — even incorrect - information, and such hiring practices can produce discriminatory outcomes. To illustrate, if a profitmotivated employer believes, mistakenly, that many minority-group members are less productive than white workers in many capacities, he may unwittingly hire less productive whites over more productive minority-group members. Since it is costly to determine, with much confidence, a specific job applicant's "true" capabilities, employers frequently rely on generally-accepted "rules-of-thumb" (such as "blacks are too poorly trained and educated to succeed in supervisory positions"). This type of employment discrimination — arising because of incorrect information can actually be desirable in terms of economic efficiency: if the costs of making individual determinations exceed the costs created by applying imperfect "rules-of-thumb," then stereotyping potential employees advances the public interest in efficiency. 5 Nevertheless, this type of 4. For a recent overview of the economics literature on racial discrimination, see Ray Marshall, "The Economics of Racial Discrimination: A S u r v e y J o u r n a l of Economic Literature, XII (September 1974), pp. 849871. 5. Clearly, rules-of-thumb can convey incorrect information with respect to particular individuals in a group but still impart statistically accurate information about the average (or expected) characteristics of the individuals in the group. For further discussion of this source of discrimination, see Kenneth J. Arrow, "Models of Job Discrimination," in Anthony Pascal, ed.,

255 employment discriminaton would still be considered by many to create serious conflicts with the public interest in equity — a point considered below. A second theory of employment discrimination suggests that such behavior occurs because the discriminators have a "taste for discrimination," that is, they simply dislike working with, say, blacks or women.6 As with any type of employment discrimination based on considerations other than productivity, discrimination grounded in the preferences and prejudices of white (male) employers and employees will cause the nation's income to be less than it would otherwise be - although employment discrimination allows whites (males) to increase their income relative to the incomes of other groups. However, to the extent that such preferences are responsible for employment discrimination, we would have to accept employment discrimination as being consistent with the public interest in efficiency. Individuals (discriminators) are merely purchasing, with the foregone income, the opportunity to associate and work with some people and not others. Once again, though, this behavior may conflict with the public interest in equity. A third explanation of employment discrimination treats the white labor force as a "collective monopolist" that employs its monopoly power to improve its economic position at the expense of other groups (such as blacks, women) in the economy.7 This white labor market monopoly is maintained both through governmental repression and coercion and through a mutually reinforcing pattern of discrimination involving not only the employment of the less-advantaged groups but also their education, training, and socialization. Minority-group members will not invest in education for managerial positions if Racial Discrimination in Economic Life (Lexington, Mass.: D.C. Heath, 1972). 6. The seminal work in this area is Becker, The Economics of Discrimination. Also see Arrow, "Models of Job Discrimination," and Kenneth J. Arrow, "The Theory of Discrimination," in Orley Ashenfelter and Albert Rees, eds., Discrimination in Labor Markets (Princeton, N.J.: Princeton University Press, 1973). 7. For an elaboration of this theory, see Lester C. Thurow, Poverty and Discrimination (Washington, D.C.: The Brookings Institution, 1969), especially pp. 130143.

Employment

Discrimination

they know that employment discrimination will prevent them from becoming managers, and this lack of training and education provides additional reasons for not advancing such workers. As is usually the case when monopoly elements are present, the exercise of "white monopoly power" creates economic inefficiencies. While whites as a group may gain by discriminating against others, practices such as that of advancing less-qualified whites over better qualified blacks nevertheless impose net costs on society. (This conclusion ignores the "taste" for discrimination aspect discussed above.) These employment discrimination theories suggest that, depending upon the underlying cause, discriminatory behavior may, or may not, advance the public interest in efficiency. Ignorance or the presence of a white monopoly can produce an economically inefficient use of the nation's labor resources. On the other hand, if the "facts" are relatively costly to obtain or if whites have a taste for discrimination, then job discrimination can enhance efficiency. Equity Considerations Regardless of whether employment discrimination enhances the public interest in efficiency, it surely detracts from the public interest in equity. First, employment discrimination worsens income-distributional equity because it affects low-income minority groups most severely. Thus, the public interest in incomedistributional equity would be furthered by a greater equalization of job opportunities. That is, the "benefit" from reduced job discrimination is in large measure a redistribution of income from which some people gain and others lose. The desirability of this redistribution depends, of course, upon society's social welfare function — its vision regarding the "desired" distribution of income. Alternatively, the concept of "equity" can be interpreted as involving "equality of opportunity or access" rather than equaltiy of results (such as income). In fact, this equity principle, namely, equal employment opportunity, was established as a right with the passage of the Civil Rights Act more than a decade ago." Conse8. 42 USC §2000e (Executive Order No. 11478): "It is the policy of the Government of the United States to provide equal opportunity in Federal employment

256 quently, a greater equalization of employment opportunities, which by definition improves "equality of access," furthers the public interest in equity. Employment discrimination based on characteristics such as race or sex — even though perhaps desirable on efficiency grounds — produces, therefore, "inequitable" or "unfair" results. Of course, whether the equity gains and, where relevant, the efficiency gains arising from efforts to lessen employment discrimination exceed the social costs of such efforts is an empirical question — and clearly there are social costs associated with attempts to enhance the equality of employment opportunities that should not be overlooked. In addition to resource costs of such activities as adjudication and enforcement, antidiscrimination efforts can produce social costs if they "go too far." For example, if hiring quotas prevent better qualified white males from being hired or from advancing in accordance with their true productivity, a misallocation of resources results. Moreover, even abstracting from the efficiency implications, anti-discrimination arrangements such as hiring quotas can still give rise to undesirable outcomes in an equity sense. For instance, many feel that it is "unfair" to practice "reverse discrimination" against individuals (for example, white male workers) who themselves may be completely blameless for the past discriminatory hiring practices of firms. While such efficiency and equity costs of anti-discrimination efforts are generally difficult - if not impossible - to quantify, we must nevertheless recognize their potential importance, and thus the fact that society cannot costlessly obtain greater equalization of employment opportunities. Nevertheless, the social consensus seems to be that the effort to equalize employment opportunities should be made.

The Role of the Public Sector This section focuses on the role of the public sector, and particularly the role of the federal government, in the employment discrimination area. Initially, we merely outline the history of governmental efforts, through regulatory laws for all persons, to prohibit discrimination in employment because of race, color, religion, sex, or national origin."

Area Studies: Public Interest Law in Action and enforcement, to reduce job discrimination. We then turn to a consideration of the "adequacy" of these governmental efforts. There is a long history of governmental regulatory activity in the employment discrimination area. Since this story has been told elsewhere, we present only the briefest outline of the history and structure of anti-discrimination laws.' Efforts to enact federal legislation dealing with employment discrimination extend back into the last century.10 However, it was not until 1941 that the federal government dealt with employment discrimination outside of federal employment. An Executive Order issued by the President in that year prohibited racial discrimination in federal and defense industry employment." The Order created a Fair Employment Practice Committee to implement the government's policy of equal employment opportunity. This first Committee was abolished in 1946, although the executive order approach to the problem continued through the 1950s. During its short lifetime the Committee had little impact, for it was severely understaffed and underbudgeted. In 1945, for example, the Committee had a budget of only $485,000 and was allowed about 130 permanent positions. In contrast, the Equal Employment Opportunity Commission (discussed below) alone spent over $50 million and employed nearly 2400 people in its antidiscrimination efforts. 11 Of even greater importance than the lack of money and staff, however, was the Committee's lack of enforcement powers. In 1945, the courts held that employment discrimination by labor unions was covered by the National Labor Relations Act.13 After these 9. See Michael I. Sovern, Legal Restraints on Racial Discrimination in Employment (New York: Twentieth Century Fund, 1966). 10. See, for example, the Civil Service Act of 1883 which established the principle of merit employment, and subsequent executive orders which attempted to forbid racial and religious discrimination in Federal employment. 11. Executive Order No. 8802, 6 Fed. Reg., 3109 (1941). 12. See Sovern, Legal Restraints, and also the U.S. Budget (various years). 13. Steele v. Louisville and Nashville Railroad Co., 323 U.S. 192 (1945), Wallace v. NLRB, 323 U.S. 248 (1945). For a discussion of Steele and other cases, see the discussion of the NAACP in this chapter.

257 rulings, unions were supposedly bound by a "duty of fair representation" not to discriminate.' 4 Violations of this duty could result in loss of certification as the exclusive bargaining representative. 15 Enforcement of the Act was entrusted to the National Labor Relations Board and the Federal district courts. On the whole, there was not much employment discrimination litigation under the "duty of fair representation r u l e . " " Eventually the NLRB began to impose more responsibilities on the unions to combat discrimination and also refused to certify unions that discriminated as a matter of membership policy." Immediately after World War II, several states created state fair employment practices commissions modeled after the old U.S. Fair Employment Practice Committee and the National Labor Relations Board. These bodies usually could hold administrative hearings, and several had some form of judicial enforcement mechanism for their orders. Some state laws simply expressed a policy of non-discrimination with no enforcement provisions. Most commentators would agree that, prior to the 1960s, equal employment opportunity enforcement efforts were so uncoordinated and under-funded that their impact could not have been great. In an empirical study of the effectiveness of state fair employment laws, for instance, William Landes found that after allowing for other factors that could influence wages, "relative wages were higher by [only] about 5 percent . . . in states with fair employment laws compared with states without these laws in 1959." 18 The ineffectiveness of state FEPC's is 14. "We hold that the language of the [Railway Labor] Act [45 U.S.C. §§151 et seq.) . . . expresses the aim of Congress to impose on the bargaining representative of a craft or class of employees the duty to exercise fairly the power conferred upon it in behalf of all those for whom it acts, without hostile discrimination against them." Steele v. Louisville and Nashville Railroad Co., 323 U.S. 202, 203. 15. Ibid.; also see Sovern, Legal Restraints, and the U.S. Budget (various years). 16. Vaca v. Sipes, 386 U.S. 171 (1967); Humphrey v. Moore, 375 U.S. 335 (1964). 17. Pioneer Bus Co. Inc., 140 NLRB 18 (1962); Hughes Tool Co., 147 NLRB 166 (1964). 18. William Landes, "The Economics of Fair Employment Laws," Journal of Political Economy, LXXVI (July 1968), p. 554.

Employment

Discrimination

confirmed by the data presented in Table 10.6, which show the disposition of FEPC cases in selected states from the effective date of the state law to the end of 1961. During this period, only 0.32 percent of the FEPC cases in these states even reached the hearings stage. Only in slightly more than 0.1 percent of the cases were cease and desist orders issued, and in less than 0.1 percent of the cases was the matter adjudicated in state courts. Clearly, alleged discrimination faced only the slightest chance of interference by state FEPC's. The federal programs that had been initiated before 1960 were invigorated and supplemented by the changes in the government enforcement effort during the 1960s. The Executive Order program was given teeth as contractors and first level sub-contractors were prohibited, as part of the federal contract, from discriminating on the basis of race, creed, color, sex (added in 1968), or national origin, and were also required to take affirmative action to implement the nondiscrimination policy." Detailed affirmative action obligations were required and penalities and sanctions were available for contractors who failed to make good faith efforts to meet the planned "goals and timetables." Specific enforcement power was granted to government agencies such as HEW (which were designated "primary compliance agencies"), with coordinating and research responsibilities placed in the Office of Federal Contract Compliance. Many states have similar executive order programs. In 1963 Congress passed the federal Equal Pay Act requiring employers to pay men and women equally for equal work. 20 The Act does not extend to most federal, state, and local governmental workers. Though the federal government initiated equal pay regulations for female federal employees in 1870, and some state legislatures had passed weak equal pay acts, little progress had been made prior to 1963 in achieving wage and job equality for women in the private sector or in most state and local governments. Enforcement of the Equal Pay Act can be accomplished through a private suit or by a suit on behalf of the complainant by the Wage and 19. Executive Order No. 11375, 3 CFR 406, 32 FR 14303 (1967). 20. 29 USC §206(d) (i).

258

Area Studies: Public Interest Law in Action

Table 10.6 Disposition of Cases by Selected State Fair Employment Practice Commissions State

California Colorado Connecticut Massachusetts Michigan Minnesota New Jersey New York Ohio Oregon Pennsylvania Rhode Island Total

Cases Received

Hearings

Cease and Desist Orders

2 4 4 2 8 1 2 18 2 0 19 0

2 3 3 2 6 1 2 6 1 0 0 0

1,014 251 900 3,559 1,459 184 1,735 7,497. 985 286 1,238 286 19,394

62

(0.32%)

26~ (0.13%)

Court Action 2

1 3 0 4 1 2 5 0 0 0 0

I?

(0.09%)

Note: Time period is from effective date of the state law to the end of 1961. Source: "Equal Employment Opportunity, 1965," Hearings Before the General Subcommittee on Labor of the House Committee on Education and Labor, 89th Congress, Washington, D.C., 1965, p. 173.

Hour Division of the Fair Labor Standards Administration of the Department of Labor, which is responsible for governmental enforcement of the A c t . " The Wage and Hour Division also has the enforcement responsibility for the Age Discrimination in Employment Act of 1967." The U.S. Civil Service Commission has been given responsibility for ensuring equal employment opportunities in federal employment. In addition to providing an administrative hearing process for individual complainants, this enforcement agency requires each federal department and agency to develop and submit affirmative action proposals. State and local governmental bodies are covered by the Civil Rights Division of the Department of Justice. The agency is responsible for ensuring nondiscrimination in state and local municipal employment, including such departments as the police and fire services or sanitation workers. The first major attempt to deal with employ21. See John E. Burns and Catherine G. Burns, "An Analysis of the Equal Pay Act," Labor Law Journal, XXIV (February 1973), pp. 92-99. 22. 29 USC §§621 etseq.

ment discrimination on the grounds of race, color, sex, religion and national origin is Title VII of the Civil Rights Act of 1964." The Act covers employers with over fifteen employees, employment agencies, labor unions with 15 members or more, state and local governments, governmental agencies, political subdivisions, departments and agencies of the District of Columbia, joint labor-management committees that control apprenticeship or training programs, and educational institutions. Exemptions are made for religious corporations, associations or societies, and for elected officials and their personal assistants. Enforcement can either be by a private suit in federal court or by the Equal Employment Opportunity Commission (EEOC), which was created by the Act. Title VII prohibits discrimination against any individual with respect to his or her compensation, terms, conditions or privileges of employment including hiring and discharge, because of race, sex, color, national origin, or religion. Also prohibited are attempts to limit, segregate, or classify employees in a manner that would deprive or tend to deprive any individual of 23. 42 USC §§2000eetseq.

259 employment opportunities because of race, sex, religion, color, or national origin. Employment agencies may not refuse to refer persons for employment because of race, color, sex, national origin, or religion. The EEOC provides an administrative hearing mechanism for individual complainants and also may bring "pattern and practice" suits and individual complaint suits against nongovernmental respondents in federal court. Most states have an enforcement agency similar to the EEOC, although the quantity of resources committed and the enforcement power granted vary from state to state. This variety of state and federal anti-discrimination laws and agencies was developed to reduce employment discrimination by either providing information, or raising the cost of discrimination by apprehending and punishing violators. As may be obvious, the overall system of enforcement agencies has considerable overlap. For example, unions are covered by both Title VII and the National Labor Relations Act. But, despite this overlap among agencies, perhaps the greatest barrier to governmental action lies within the individual agencies themselves - an issue to which we now turn. Public Sector Failure. There are a variety of theoretical reasons to expect that anti-discrimination laws will be underenforced. There are two types of enforcement agencies. One type is purely reactive - it responds only when an individual brings a complaint. For example, an individual will sue an employer under a civil rights statute (such as 42 U.S.C. §1981) in a federal court. The court, if the claim is proved, will enforce the law, but the court will not act on its own: it will act only in response to individual complainants. The other type of enforcement agency is the self-starter. Enforcement agencies like the state fair employment practices commissions, the EEOC, the Justice Department, OFCC, U.S. Civil Service Commission, and the Wage and Hour Division are both reactive agencies and selfstarters; that is, they respond to individual complaints but they can also initiate activity of their own. For both types of agencies— the reactive and the self-starter - there is likely to be underenforcement of the laws (in an efficiency sense). To illustrate this point, consider first a situation involving a government agency which has a reactive component. This system depends upon

Employment

Discrimination

the complaining individual. In order for that individual to make a complaint, he or she has to have information (a) that he or she has suffered discrimination; (b)that the discrimination violates a legal right; and (c) that the potential private benefits from pressing the case outweigh the expected private costs. Some individuals or groups will, of course, push for government involvement. Other individuals or groups, however, will fail to complain even though the expected social benefits would justify doing so, either because they are unaware that illegal discrimination has occurred or because the expected benefits from filing a complaint are, at individual levels, small relative to the costs of filing a complaint. In principle, the governmental agencies are designed to encourage private responses to employment discrimination by relieving individuals of the actual burden of litigating an anti-discrimination case. However, governmental agencies that handle masses of individual cases primarily from lower socio-economic classes — are characterized by backlogs and delays that tend to diminish the expected private benefits from filing a complaint. Part of the reason for the backlog is that agencies take cases on a "firstcome, first-served" basis. This type of arrangement may cause an agency to devote a substantial amount of its resources to cases unlikely to contribute much, if anything, to the public interest in either equity or efficiency. Furthermore, this case-acceptance method provides no incentive to "lump" cases together when that is possible. Of course, as delays and backlogs increase, the advantages to any one individual of registering a complaint diminish. Consequently, some complaints that would clearly be in the "public interest" to make, and that would be made under different case-selection arrangements will never be made as a result of this "first-come, firstserved" system. Some fair employment agencies, in efforts to deal with these problems, have supplemented the individual complaint process with the "patterncentered" investigation, which gives priority to complaints that are believed to affect large numbers of similarly situated persons. Other selfstarting agencies conduct similar kinds of investigations — company or industry-wide — on their own; that is, the investigations are not necessarily triggered by complaints; they may

260 just as well arise from the agency's expertise. In either event, one would still predict that these agencies might fail to fully enhance the public interest in equity or efficiency, since in both situations, the government agencies depend upon information, and the accuracy of this information often cannot be fully evaluated. Consider, for example, that the victims of discrimination are perhaps the least likely to have their demands heard. Government agencies, whether they are reactive or self-starting, respond to information, and those groups that are best organized are most likely to have their voices heard. Because they are often poorly educated and relatively less wealthy, victims of employment discrimination are more likely to be suboptimally organized than those groups in society who favor the status quo. Because of the disparity in the ability to transmit information, agencies charged with enforcement of the antiemployment discrimination laws may frequently fail to respond in the "public interest," even when they initiate their own suits. An additional reason enforcement agencies, including self-starting agencies, may fail to meet their responsibilities is that, like most public bureaucracies, they tend to be encumbered with inefficient operating procedures; staffed by poorly trained, inexperienced personnel; and confronted with a lack of coordination with other agencies. These problems are often cumulative. For example, an enormous caseload and bureaucratic red tape are disincentives for even a high quality staff, and tend to exacerbate existing problems. The following examination of the work of present enforcement agencies demonstrates that these theoretical tendencies toward underenforcement are borne out in reality. The National Labor Relations Board. The NLRB provides a government-paid remedy for persons discriminated against by unions. According to the NLRB Associate Counsel, the agency has been a little-used remedy for many reasons. First, few people are aware or believe that the NLRB can do anything about union discrimination, so relatively few complaints are registered. Second, the NLRB cases have different and perhaps more stringent proof and standards requirements than Title VII; for example, in NLRB cases a union may fulfill its duty of fair represen-

Area Studies: Public Interest Law in Action tation by a good faith e f f o r t . " Third, "duty of fair representation" cases where the facts are "clear" will go directly to a federal district court, bypassing the NLRB. Fourth, unlike Title VII cases, the NLRB class action requirement demands that all affected workers must be identified at the time of the hearing. Fifth, the statute of limitations is shorter for NLRB actions than for Title VII. Sixth, and of great significance, is that in general, NLRB remedies are negative sanctions rather than affirmative remedies as under Title VII. The NLRB sanctions of decertification and prohibition against becoming the exclusive bargaining representative are simply not that important to established unions. In sum, the NLRB has other duties that consume most of its time and resources and it does not have adequate procedures or remedies to assist large numbers of affected persons.*5 The Wage and Hour Division. The Wage and Hour Division, which enforces the Equal Pay Act and the Age Discrimination Act, has 1500 investigators nationwide who routinely investigate employers' compliance with the Equal Pay or Age Discrimination Acts, or who investigate a particular employer as the result of a filed complaint. But in fiscal 1970, less than 4 percent of the establishments covered by the Act were investigated. This is even more significant because the Education Amendments of 1972 substantially increased the number of persons covered. Since 1964, only 104,000 employees have received compensation of $43,000,000 for violations of the Equal Pay Act — or an average payment of slightly more than $400 per worker. This fact could be attributed to the limited number of persons the Act covered until recently, and the fact that publicity about the Act's provisions has not been extensive." On the other 24. The "duty of fair representation" is breached only when the union discriminates. Except for the construction industry, unions are not usually involved in the hiring process. On the other hand, employer discrimination on the job generally requires the union to contest under grievance machinery. According to Professor Jack Getman, unions are not very skillful in these matters. Another weakness, pointed out by Getman, is that the Board can issue a remedy only against the union in duty-of-fair-representation cases, when it may be the employer's act that is the real discrimination. 25. Interview with Patrick Hardin, Assoc. General Counsel of the NLRB, on June 26,1974. 26. Interview with Carl Heckman, Staff Attorney, Wage and Hour Division on June 19, 1974.

261

Employment

Discrimination

Table 10.7 Resource Expenditures by the Wage and Hour Division to Enforce the Age Discrimination Act Dollar Expenditure

Manpower

Expenditure

Year

Budgeted Outlay (in thousands)

Outlay Adjusted for Inflation (in thousands)

As Percent of Total W and H Division Budget

Actual Positions

As Percent of Total W and H Division Positions

1969 1970 1971 1972 1973b 1974°

500 530 1,450 1,362 1,441 1,451

500 502 1,313 1,195 1,201 1,088

1.9% 1.9 5.6 4.7 4.7 5.1

46 46 74 69 69 69

2.3% 2.6 4.7 4.3 4.3 4.7

^Expenditures adjusted by the GNP deflator to 1969 prices. Estimate. Requested. Source: "Improving the Age Discrimination Law," a Paper prepared for the Special Committee on Aging, U.S. Senate, Washington: 1973, p. 13.

hand, this outcome may be attributable to a The Civil Rights Division. In addition to the failure to vigorously enforce the law. When given EEOC, which will be discussed later, the Civil the responsibility for enforcing the Equal Pay Rights Division of the Department of Justice is Act in 1965, the Wage and Hour Division re- the major government agency with authority quested only 27 additional investigators to han- over employment discrimination by state and dle what potentially was an enormous task. The local governments. The staff roster currently lists Division claimed that it would merely spread twenty-eight staff attorneys and seven or eight most of the increased work-load among its exist- research analysts. But, at the present time, the ing staff, which already had responsibility for en- Divison has a large number of suits against priforcing the Fair Labor Standards Acts (covering vate discriminators which it retained when such things as minimum wages and overtime authority for "pattern and practice" suits against hours)." private discriminators was transferred to the The Division's handling of the Age Discrimina- EEOC in 1974. As a result, this relatively small tion in Employment Act (ADEA) again implies a staff is even less able to deal with public disfailure to vigorously enforce the law. As Table criminators than might be expected. The Civil 10.7 shows, ADEA occupies little of the Divi- Rights Division attempts to select its suits so that sion's attention; enforcement of ADEA has used its resources are expended where they will less than 5 percent of the Division's total staff achieve the maximum impact in terms of reducand expenditures. In fiscal 1969 - the first year ing employment discrimination. Consequently, the Division had enforcement responsibility for the Division has concentrated on large metroADEA — there were only 46 positions allocated politan areas in hopes that success in these areas to enforcing the federal age discrimination law, would spill over to smaller communities. Conor 2.3 percent of total staff positions. By 1974, centration has been on police and fire dethe Division still expected to devote less than 5 partment employment practices. The Division percent of its staff to ADEA enforcement. recognizes that such metropolitan-area suits, or national settlements in the civil cases retained after the EEOC was formed tend to ignore the 27. There are other problems with the Equal Pay Act. It is often difficult to define what constitutes equal special needs of particular groups or regions, but work where different titles and slightly different duties it believes that these gaps can be worked out are involved, and these cases are usually difficult to later on a local or regional basis. In 1973 the prove.

262 Civil Rights Division, Employment Section, brought twelve Title VII suits against public discriminators involving less than 175,000 persons." It seems unlikely that the Civil Rights Division will have a significant impact on the extent of employment discrimination. One reason for this expectation is that 28 attorneys are simply not enough to deal with the entire U.S. A second problem arises because the Division is currently selecting some of the most difficult and entrenched discriminators; thus, resources may be drained more quickly and with fewer results than if moderate- or small-sized discriminators were selected. A third problem is that the retention of certain civil suits by the Division duplicates the EEOC's responsibilities and thus exhausts resources that the Civil Rights Division might otherwise use against public discriminators. The Civil Rights Division does not respond to individual complaints. Instead, the Divison allocates its resources based upon its own information concerning what is needed. As indicated previously, this means that certain demands for equal employment opportunities are likely to go unheeded since they are unlikely to be heard at the decision-making point for case selection. Civil Service Commission. The U.S. Civil Service Commission has an individual complaint process which handled approximately 33,000 complaints in fiscal 1974. In addition, it requires each federal department and agency to submit affirmative action plans; about 1400 plans a year are reviewed and approved. According to a CSC executive, nearly one-fifth of all federal employees in 1972 were members of minority groups as a result of that agency's efforts. In addition, there has been a substantial increase in minority representation at middle- and uppergrade pay levels." The Civil Service Commission's authority extends only to federal employment. The Commission's budget seems adequate as $97.4 million about twice as much as the EEOC budget — was expended to develop and enforce equal employment opportunity in fiscal 1974. The ability to 28. Interviews with Grover Hankins and Michael Middleton, Staff A t t o r n e y s , E m p l o y m e n t Section, Civil Rights Division, D e p t . of Justice on J u n e 17, 1974. 29. Interview with J a m e s S c o t t , Assistant t o the Assistant Executive Director, U.S. Civil Service Commission on J u n e 26, 1974.

Area Studies: Public Interest Law in Action take control of a violating department's hiring and employment roster would seem to be a sufficiently strong sanction to coerce conformity with the law. Thus, the Civil Service should be able to achieve its goals of equal opportunity and affirmative action for women and minorities. But before the present Commission can achieve those goals effectively it must take three fundamental steps: (1) require all agencies to adopt goals and timetables or supply written reasons explaining why an exception should be made; (2) require that the commitments to action in Equal Employment Office plans be made specific so that they can be evaluated; and (3) develop a testvalidation procedure to ensure adequate and fair employment standards for all federal agencies. The Commission, by statute, has the duty to consult with, and solicit recommendations from, interested individuals, groups and organizations in connection with equal employment opportunity. This statute is meant to encourage a fuller revelation of demands for equal employment opportunities by increasing the expected net benefits from complaining about employment discrimination. Office of Federal Contract Compliance and the Executive Order Program. Another major anti-discrimination effort by the federal government is the Executive Order (EO) program enforced by the Office of Federal Contract Compliance, which coordinates the anti-discrimination programs of 19 "primary compliance agencies" such as the Department of Defense and HEW. The program extends to most federal contractors and grant recipients and potentially includes about one-third of the nation's workforce. The major benefit of the EO program is that broad affirmative action plans may be required without a judicial finding that a particular firm is discriminating. The affirmative action program requires the contractor or grant recipient to assess its employment policies for indications of discrimination — such as lack of women or blacks at management level positions - and to develop plans to correct any deficiencies. The Executive Order program gives a potential discriminator who wishes to receive government contracts or grants a clear choice : if he wants the contract, he cannot discriminate; if he wants to discriminate then he must lose the financial benefits that accompany government contracts or

263 grants. The OFCC and the primary compliance agencies can impose a number of other sanctions, ranging from cancellations of contracts to blacklisting of contractors, on firms that fail to fulfill their affirmative action responsibility. Because it is mostly the larger corporations that are involved in the EO program, it might be expected that this program is a highly effective force in reducing employment discrimination. But, the EO program is full of limitations. First, the OFCC only coordinates primary compliance agency activities, in order to assure that contracting agencies do not work at cross purposes. The OFCC has no direct control over the agencies or their budgets. The result is often confusion about what other agencies are doing or have done. For example, the Department of Defense once awarded a contract to the University of California at Berkeley while that institution was under a contract-grant hold applied by HEW for failure to develop an adequate affirmative action plan. 30 Regulations require that before an award is granted, each agency must perform a pre-award review to determine, among other things, whether any other agency has taken action against the proposed grantee. But a unified approach to the Executive Order Program is precluded by the dispersion of enforcement and reporting authority that essentially allows primary compliance agencies to do as they like. 31 Another problem shared by the OFCC and the primary compliance agencies is the lack of staff people with sufficient technical and administrative experience." There is a need to improve the quality of their staffs through training and more selective recruitment. A third problem in the EO program is that some of the primary compliance agencies believe that the sanctions for noncompliance are too drastic to be used. 33 The withholding of grants is considered to impose too many hardships on too 30. Interview with Carol Polowy, Womens Equity Action League (WEAL) on June 21, 1974. 31. Interviews with Steve Feigin and Dave Drachler, Department of Labor on June 20, 1974. 32. Ibid., also confirmed in interviews with Sam Solomon, Executive Assistant to Director, Higher Education Division, HEW on June 19, 1974, and with James Sisco, Deputy Chief of Supply Contract Administration, Dept. of Defense on June 20, 1974. 33. Interview with Sam Solomon.

Employment

Discrimination

many people. Thus, for example, HEW views its main role toward institutions of higher education as providing technical assistance rather than enforcing contract awards through coercion or litigation. The minor extent to which the various compliance agencies vigorously enforce the EO program is suggested by facts presented in Table 10.8. The table shows that over a fifteen-month period, 7 of the 15 compliance agencies issued no show cause notices to possible discriminators. Six other agencies issued a combined total of only 57 notices. Only two agencies issued a substantial number of such notices. A fourth explanation for the ineffectiveness of the Executive Order program is that the OFCC has always been understaffed and underbudgeted. At the end of 1972 there were only 72 OFCC staff members to coordinate compliance agency activity and to develop guidelines and programs on affirmative action, compliance reports, and so forth. As a result, the OFCC has been able to establish ultimate goals for the Executive Order program but it has not been able to develop specific objectives that would provide the 19 compliance agencies with adequate guidelines to achieve these goals. What is lacking are technical measures that would allow compliance agencies to monitor the contracting firm's affirmative action plan or to determine if the affirmative action plan is sufficient. Simply, the OFCC has not provided adequate technical guidance or leadership in the enforcement of the Executive Order program. This has resulted in the tendency of each compliance unit to develop its own guidelines and its own theory or plan of enforcement. The OFCC recently has allowed interested third parties to intervene in hearings against recalcitrant federal fund recipients. This influx of minority viewpoints may help to balance the hearings. Nevertheless, the EO program usually does not serve to remedy individual complaints. There is little theoretical reason for the OFCC to be as ineffective as it is. Although the Executive Order reaches unions only indirectly, it does reach most, if not all, of the largest firms in the private sector. The Executive Order program can require compliance without the expense of going to court. It also can provide a monetary inducement to stop discriminating, but only if the EEOC can pose a credible enforcement threat.

264 Table 10.8 Show Cause Notices Issued by Agencies, January 1, 1970, t o March 17, 1971 Number of Show Cause Notices Issued

Agency D e p a r t m e n t of Agriculture AID A t o m i c Energy Commission D e p a r t m e n t of Commerce (Maritime) Department of Defense D e p a r t m e n t of Transportation General Services Administration Department of Health, Education and Welfare HUD Department of Interior NASA Post Office Department D e p a r t m e n t of the Treasury TVA VA Total

3 None 7 1 85 11 10 67 22 None None None None None None 206

Source: "Equal Employment Opportunity Enforcement Procedures," Hearings Before the General Subcommittee on Labor of the House Committee on Education and Labor, 92nd Congress, Washington, D.C., 1971, p. 75. Theoretically, this program provides a viable m e t h o d t o establish a m i n i m u m level of affirmative action relief for minorities and women. 3 4

Equal Employment

Opportunity Commis-

sion. While the other government equal employm e n t o p p o r t u n i t y e f f o r t s are limited as to w h o is covered, Title VII, as administered b y the EEOC, covers most private sector discrimination. The EEOC tries t o combine p a t t e r n and practice suits ( t o achieve the greatest impact possible) with an individual complaint process for all persons claiming to be injured. As will be shown, the latter a t t e m p t seems to be failing because of a lack of funding, while the f o r m e r is in part an 34. This view of government enforcement was expressed in interviews with Eliot Lichtman, private attorney, on June 20, 1974; Robert Wallace, Washington, D.C., Lawyers' Comm., on June 25, 1974; Gladys Kessler, private attorney, on June 18, 1974; Carol Polowy, WEAL, on June 21, 1974; Eric Balber, attorney for Legal Action Center, on July 2, 1974, and Ruth Weyland, Associate General Counsel, International Union of Electrical Workers, on June 21,1974.

Area Studies: Public Interest Law in Action expensive and potentially destrictive duplication of the Executive Order program. T h e system envisioned b y Title VII is, o n t h e surface, a rational one. It sees the EEOC as the primary equal e m p l o y m e n t o p p o r t u n i t y enforcem e n t agency, with specialized problems t o be handled b y other agencies. T w o provisions in t h e act are w o r t h noting: first, it allows persons t o sue in federal court after exhausting E E O C remedies; and second, it defers to state agencies on individual complaints in the h o p e that state fair employment practice commissions can resolve most problems. Both of these provisions in Title VII seek t o ensure that individual complainants are n o t restricted t o a single public agency, b u t they have resulted in little relief for victims of discrimination. The problems with private suits will be discussed in the n e x t section ("Private Att o r n e y s " ) . The failure of the state and local fair e m p l o y m e n t practices commissions to do their j o b is the prime factor in the EEOC's inability to satisfactorily remedy the problem of employm e n t discrimination. As Table 10.9 shows, the EEOC has been deferring growing proportions of its total caseload to state or local fair employm e n t practice commissions; by 1973 fully 3 6 percent of the EEOC's cases were so treated. Each year, the state and local FEPC's return approximately 85 percent of these cases t o the EEOC with n o action taken. T h e ineffectiveness of the state agencies is traceable to three sources: inadequate resources, inadequate e n f o r c e m e n t powers, and inadequate political support. Every state fair e m p l o y m e n t practice agency is faced with at least one of these basic p r o b l e m s . " The failure of the states to weed out many or most complaints has meant that EEOC District Offices, which are responsible for processing Title VII complaints, are unable t o handle the current caseload, m u c h less reduce the e n o r m o u s backlog that continues to grow. As Table 10.9 indicates, the EEOC was c o n f r o n t e d with nearly 8 0 , 0 0 0 cases in 1973, and this load was expected to grow to 9 5 , 0 0 0 cases by the end of 1 9 7 4 . " Despite large increases in the budget in recent years, the EEOC simply does not have the re35. Sovern, Legal Restraints, Chap. 3, esp. pp. 56-57. 36. Interview with A. Diane Graham, Associate Director, U.S. Civil Rights Commission, on June 25, 1974.

265 sources to cope with all the complaints it receives. The figures in Table 10.10 indicate that from 1970 through 1973 for example, the EEOC's expenditures (in constant 1967 dollars) nearly doubled and its manpower increased by about 150 percent. Its case load during this period, however, ballooned by nearly 300 percent. Unable to stop the mounting backlog, and recognizing that putting the available resources into the individual complaint system is ineffective, the EEOC has decided to concentrate on pattern-centered complaints. The Commission makes efforts to choose respondents against whom many individual complaints have been filed, which helps to reduce the backlog. This new approach, labeled "track one targeting," is administered by the National Programs Division of the EEOC." The National Programs Division appears to 37. Interview with Larry Long, Attorney Advisor, National Programs Division, EEOC, on June 25, 1974.

Employment

Discrimination

have enough staff and resources to have a significant impact even on the largest discriminators. Additionally, regional litigation teams have been established to bring pattern and practice suits against regional discriminators. At the present time, the only real activity of the EEOC is in the National Programs Division. The most prominent actions of the EEOC National Programs Division have been the consent settlements achieved with AT&T and the steel industry. While these agreements have established a higher level of equal employment opportunity, they have also highlighted the problem of enforcing "favorable" rulings. The first case was the AT&T settlement. That company was involved with the EEOC, the OFCC, the General Services Administration (the primary compliance agency) and the Wage and Hour Division concerning its discriminatory employment practices. At one time GSA and AT&T were about to sign an agreement that provided for no backpay and little affirmative relief. However, the National Organization for Women was

Table 10.9 Measures of EEOC Compliance Activity, 1967-1973 Fiscal Year Item

Total Charges of Employment Discrimination Received Charges Deferred to State or Local FEPC's (% of Total Charges) Charges Returned Without Action from State or Local FEPC's (% of Total Charges) Conciliations Completed (% of Total Charges) Unsuccessful Conciliations (% of Total Concilations)

1967

1968

1969

1970

1971

1972

1973

12,927

15,058

17,272

20,122

33,214

51,969

77,242

1,158

2,136

2,980

4,201

8,516

14,256

27,790

(14.2)

(17.3)

(20.9)

(25.6)

1,941

2,774

3,550

7,000

(9.3)

(12.9)

(16.1)

(17.6)

(21.1)

890

1,244

1,305

1.179

2,438

(9.0)

1,200

12,224

(36.0)

23,268

(23.5)

(30.1)

970

3,879

(6.9)

(8.3)

(7.6)

(5.9)

507

731

729

732

1,026

626

(57.0)

(58.8)

(55.9)

(62.1)

(42.1)

(64.5)

Source: Annual Report of the EEOC, Washington, D.C. (various years).

(7.3)

(27.4)

(1.9)

(5.0) 2,691 (69.4)

Tf vO Os VO 1 ^ "/"I O (N en .i •S 3 t* O o. o. O cV E

_o •a E u •a s c tü

1

oo es"

O r- en O 1 fí o\ O es" 1 eS m

1

TT 00 ''V es"

•t es es 1 O . Stickney on Alabama," internal working paper, Public Interest Law Project, University of Wisconsin, Madison, September 1975.

392 maintain. Luckily, the shortage of available candidates for nursing home placement has prevented most nursing homes from becoming "little back wards." Interviews with former patients indicate that while most of the ex-patients are being maintained on medication, very few are having their medication carefully monitored. In a number of cases, family members pick up a prescription renewal every few months. Many patients are being maintained in the community not because of the mental health services the patient receives, but because of the dedication of family members or friends. Some of the patients in this study seem to have fallen through the cracks in the system. It must be remembered that the patients in this study were released before community mental health services were available in all communities, and this probably increased the likelihood that a patient would be abandoned by the system. The study suggests that many individuals may be suffering in the community without creating the type of disruption that results in assistance programs. The Department of Mental Health would seem to have an obligation to the people in the state who cannot adequately identify their own needs. Yet because of priorities necessitated by those who oversee the hospital's attempts at compliance, the Department of Mental Health until recently had shown more concern with decreasing the patient census than with the incorporation of ex-patients back into the community. The latter was seen as the job of the community mental health centers. On the other hand, a number of patients who had spent major portions of their lives in Bryce Hospital are living in the community quite content with their daily lives, and ex-patients interested in returning to the hospital are few and far between. Conclusion. It is impossible here to adequately assess the success or failure of the Wyatt litigation. Judge Johnson's decision most definitely represented a great victory for those who litigate on behalf of the mentally ill, and there can be no doubt that the decision encouraged the "mental health bar" to increase its efforts on the part of the mentally ill. "Wyatt-type litigation" has been successfully initiated in a large number of states. However, the Wyatt litigation raises some important questions concerning what must

Area Studies: Public Interest Law in Action be done with legal victories in order to transform them into behavioral victories. Recognizing that obtaining a favorable decision does not necessarily mean that implementation will take place in an optimal manner, the Mental Health Law Project has reassessed the role it has played in safeguarding the rights of the mentally ill, and has decided to exert more effort on monitoring rights already won. While the Wyatt litigation has produced benefits not only for current patients, but for future patients in Alabama and, potentially, for patients in other states, the victory has not been without costs. The court's orders have put a great deal of pressure on those charged with administering services for the mentally ill in the state of Alabama. Frequent changes in administration have made long-range planning difficult and have made it difficult to implement the decision. The court's orders have also put a great deal of pressure on all those working in the state's institutions. The fear and frustration experienced by individuals who are engaged in daily contact with the mentally ill is evident with every mention of the court's orders. There have also been costs to the people of Alabama. There is no reason to believe that the present staffing ratios insure the most efficient allocation of resources, especially since medical resources are in short supply in Alabama. Unfortunately, we have not been able to determine, from an allocative efficiency point of view, whether benefits have exceeded the costs. It must be stressed that a great many of the problems evident after the legal intervention are not the result of the legal intervention, but are basic deficiencies in the organization of mental health services in this country. The increase in the use of nursing homes by the elderly mentally ill is most evident in states such as New York and California, where changes have been brought about by administrators, who are often physicians, rather than by the courts or lawyers. The problem is not so much that nursing homes and boarding homes are inappropriate placements for certain types of individuals, but that few communities have the continuum of services necessary for the provision of care in the least restrictive environment necessary. In many ways, nursing homes and boarding homes actually involve more restrictions than the state hospital does.

393 It appears that the suit has moved Alabama toward a more "equitable" mental health care system. It is apparent that there is a consensus in the country that patients should not be confined involuntarily in mental hospitals without adequate treatment, and the Wyatt case was important in establishing this as a legal right. In summary, a great many changes have taken place in the Alabama mental health services delivery system since 1970. Some of these changes are the result of trends that began before the Wyatt litigation was initiated and some of the changes stem directly from the court suit. This chapter has not discussed the actual efforts at compliance with court-ordered standards or the effectiveness of specific standards. Obviously, any comprehensive discussion of the effects of the Wyatt litigation would have to deal with these issues. We can conclude from the above presentation that there has been an increase in funding available for the care of the mentally ill and mentally retarded in Alabama and that the quality of care available in the facilities has improved dramatically. However, changes in patient flow seem to have been initiated by administrative decisions made before 1970 and the pressure exerted by Judge Johnson's initial ruling in 1971. In part, this might be explained by the emphasis on inhospital treatment rather than on developing a system of services sensitive to all the needs of this particular clientele. Of course, it is possible that these favorable trends would have been reversed had the court not set specific standards for care and treatment. What is evident is that optimal results cannot be achieved without careful attention being paid to the inter-relationships among the various institutions — including transitional institutions — that deal with the mentally ill. The chronically mentally ill require a variety of services, and administrators attempting to provide for their needs must recognize the complexity of the problem. The litigation, then, has had a substantial impact on mental health services in Alabama and, to some extent, elsewhere. Nevertheless, there are limits to the ability of the courts to act, not the least of which is the difficulty of determining whether judicial action will have a favorable or unfavorable long-term effect. Perhaps no one is more aware of the limitations of the courts than Judge Johnson:

The Medical Marketplace In the final analysis, then, the courts and the law have a limited role to play in assuring that those in need of state assistance receive adequate and compassionate care with dignity. Where manifest constitutional violations are proved, it is the duty of the Federal Judiciary — just as it has been our duty in protecting the equal rights of all our citizens without regard to race, sex or wealth — to invoke and require adherence to the Constitution of the United States. But, unlike voter registration or school desegregation or equal access to public facilities, no court can permanently accomplish the ultimate and real purpose of litigation over the provision of social services: fair, adequate, and humanitarian treatment. 1 " Wyatt v. Stickney has demonstrated that there is no simple remedy for the plight of the mentally ill, even when all the parties involved agree that a problem exists. What is needed is an extensive analysis of the effectiveness of recent attempts to influence social policy concerning the mentally ill so that the ramifications of different strategies can become clear. Only with a continual monitoring of the developments in this area can a strategy for protecting the rights of the mentally ill be successful.

Conclusion This chapter has approached the problem of health care delivery from two complementary directions. In the first section we looked at the system of health services, and talked about various attempts to correct the maldistribution of those services. In the second section we focused on one PIL effort, not to correct the maldistribution within the system as a whole, but to alleviate a narrower problem, the failure to provide adequate treatment for involuntarily confined mental patients. Efforts to resolve the "fundamental" problems of health care delivery have not been successful. For the most part, such efforts have not had a broad enough scope to do more than repair the most obvious holes in the system. Litigation, in particular, requires a clearly defined legal theory and an objective that can be met by the courts. This means that the courts, in general, 123. Judge Frank M. Johnson, "The Expanding Role of Law in the Delivery of Social Services," speech delivered at Annual Recognition Banquet of National Association of Social Workers, West Alabama Region, University of Alabama, 1975.

394 will prefer to involve themselves with more narrow issues that can be accommodated under some established precedents and that can be resolved by judges, who do not have the depth of knowledge in other fields that is sometimes required to evaluate an issue accurately. It is likely, then, that the broader problems can best be handled by a legislature, which has access to expertise and which, while bound by constitutional constraints, can be more creative in solving problems than can the courts. On the other hand, it is also clear that a

Area Studies: Public Interest Law in Action litigation strategy, as is favored by PIL organizations, can help to resolve narrower problems. Our analysis in the second section suggested that PIL litigation in the area of mental health services may enhance the public interest in efficiency and equity. (The data are not clear, however, particularly given implementation and monitoring costs.) Thus, while PIL cannot solve the basic problems of maldistribution of health services, it does have a potential role to play in resolving more narrowly defined problems.

Chapter Fourteen

Consumerism, Consumers and Public Interest Law Arthur Snow and Burton A. Weisbrod

In this chapter we consider those public interest law activities that have sought some f o r m of enhanced consumer protection. Since consumer protection can take many f o r m s and since numerous public interest law actions have been u n d e r t a k e n in this area, a c o m p l e t e and exhaustive analysis of the impact of PIL activities on consumer protection would require a far more extended investigation than is possible here. However, some tentative conclusions can be drawn with respect to specific public interest law actions, and to the e x t e n t that these actions are representative they can f o r m the basis of an overall evaluation. In the first section we present a brief overview of public interest law and o t h e r public interest activities that have influenced the provision and distribution of consumer protection. In the second section we identify some possible sources of private market and governmental failures that would cause consumer protection to be produced in economically inefficient (suboptimal) a m o u n t s or to be distributed inequitably. In the third section we analyze the allocative efficiency and distributional equity impact of six PIL actions, b o t h in terms of the objectives and remedies sought in each action and in terms of the outcomes actually realized. Finally, in the last section we o f f e r some overall evaluation of the impact of PIL activities in the consumerism area, and its possible impact in the f u t u r e .

Consumer Protection and Public Interest Law: An Overview Public interest activities on behalf of consumers - in particular, activities aimed at the

creation of new laws designed to protect consumers - date f r o m the late 1890s. 1 V o l u n t a r y , not-for-profit, non-governmental organizations representing the interests of dispersed and unorganized consumers have aroused concern for consumer problems b y organizing b o y c o t t s , lobbying for consumer protection legislation, and working on advisory commissions studying the need for consumer protection. The earliest of these organizations were concerned with the need to protect consumers against adulterated f o o d and drug products, and relied principally on b o y c o t t s and publicity measures to dramatize the problem. Such actions helped secure the passage of the Pure F o o d and Drug Act in 1906 and the Federal Trade Commission Act in 1914. 2 During the 1930s m u c h of the e f f o r t of voluntary consumer groups was directed toward increasing the supply of i n f o r m a t i o n on consumer products. By 1939 there were more than twenty 1. For information on the historical development of consumer protection activities and the role of voluntary consumer organizations see: Kenneth Dameron, "The Consumer Movement," Harvard Business Review, XVIII (January 1939), pp. 271-89; Ralph M. Gaedeke, Consumerism in the 1960s (University of Washington Press, 1969); Ralph M. Gaedeke, "The Movement of Consumer Protection: A Century of Mixed Accomplishments," University of Washington Business Review, XXIX (Spring 1970), pp. 31-40; Lawrence E. Hicks, Coping with Packaging Laws (New York: AMACOM Division of American Management Association, Inc., 1972); E. Scott Maynes, "Consumerism: Origin and Research Implications," in Eleanor B. Sheldon, ed., Family Economic Behavior (Philadelphia: J. B. Lippincott Co., 1973); Mark V. Nadel, The Politics of Consumer Protection (New York: The Bobbs-Merrill Co., Inc., 1971); and Helen L. Sorenson, The Consumer Movement (New York: Harper and Bros., 1941). 2. Sorenson, The Consumer Movement, pp. 6-7.

396 voluntary groups organized to promote consumer interests, and at least seven of them, including Consumers Union (founded in 1935), were engaged in the testing and rating of consumer products.3 It was also during the 1930s that the idea of establishing a federal Department of the Consumer first emerged.4 Consumer groups promoted the idea by seeking continuous and explicit representation of consumer interests in public policy decisions. The idea is still being debated today, and bills to establish a Consumer Protection Agency have been introduced in the Congress annually since 1969.5

Area Studies: Public Interest Law in Action

Since the late 1950s the number of voluntary consumer organizations has increased substantially. By 1973 there were more than 80 national, state, and local non-profit consumer organizations supplying information to consumers and attempting to influence the formation of governmental and privately sponsored consumer protection programs.' While non-governmental, voluntary sector efforts on behalf of consumers were growing rapidly, one of the distinctive developments of the past twenty years has been the increasing activity of the public sector. Through 1958 the Congress had enacted only five laws relating to consumer protection, but since then it has enacted at least 28 laws, including the Fair Packaging and Labeling Act (1965), the Truth-in-Lending Act (1966), and the Consumer Product Safety Act (1972).' Since 1970 many state and local governments have also enacted consumer protection laws, and by 1973 forty-four states had laws similar to the

Federal Trade Commission Act to prevent unfair and deceptive practices in commerce.* In 1973 there were some 20 federal and 200 state and local agencies engaged in providing consumers with both information and other forms of protection.' The federal government alone spent at least $1.2 billion on consumer protection programs in 1973, and in 1975 that total could reach $1.6 billion.10 The second distinctive development of this period has been the expansion of public interest law activities on behalf of consumers, and in particular the use of public interest litigation. The most well-known, the most influential, and probably the largest of the organizations using public interest law in the consumer area is a collection of groups linked to Ralph Nader. The Nader operation extends across the entire spectrum of public interest law and non-law activities, with some groups, such as the Aviation Consumer Action Project, specializing in one particular area and others, such as the Public Citizen Litigation Group, working in many areas. By 1973, after ten years of development, the Nader organization comprised 21 groups based in Washington, D.C., with all but four fully funded from within the organization. In 1972, $500,000 of Nader's personal funds from writing and lecturing together with $300,000 in foundation funds and $800,000 in private contributions to Nader's Public Citizen, Inc. (gross contributions totalled $1.1 million) brought the operation to a $1.6 million budget. In addition, there are Naderinspired Public Interest Research Groups, or

3. Ibid., Appendix, and Dameron, "The Consumer Movement," n. 9. 4. Sorenson, The Consumer Movement, pp. 15-16. 5. See, for example, U.S. Senate, Establish a Department of Consumer Affairs, 91st Congress, 1st Session, Hearings before the Subcommittee on Executive Reorganization of the Committee on Government Operations, March 17-21, April 17, 24, and July 15, 1969; and U.S. Senate, To Establish an Independent Consumer Protection Agency, 93rd Congress, 1st Session, Joint Hearings before the Subcommittee on Reorganization, Research and International Organizations of the Committee on Government Operations and the Subcommittee on Consumers of the Committee on Commerce, March 21, 22, 27, 28, April 5, and June 28, 1973. 6. Sarah M. Thomas and Bernadine Weddington, A Guide to Sources of Consumer Information (Washington, D.C.: Information Resources Press, 1973). 7. Ralph M. Gaedeke and Warren W. Etcheson, eds., Consumerism (San Francisco: Canfleld Press, 1972), Appendix lists federal statutes.

8. CCH (Commerce Clearing House) Consumerism, II (November 21, 1973), pp. 493ff. 9. Thomas and Weddington, A Guide to Sources of Consumer Information. Also see Office of Consumer Affairs, Executive Office of the President, Guide to Federal Consumer Services, 1971, and State Consumer Action Summary, 1971. 10. The figures are in current dollars from The Budget of the United States Government, Fiscal Year 1975, Appendix, for consumer education, information, and protection programs of those agencies and departments listed in A Guide to Federal Consumer Services, 1971, and also including the Consumer Product Safety Commission. The largest amounts in millions of current dollars for 1973, with 1975 estimates in parentheses, were spent by the U.S. Department of Agriculture for meat and poultry inspection, $227 ($246), the Department of Transportation for auto and highway safety, $219 ($456), the Food and Drug Administration, $158 ($201), and the Federal Trade Commission, $26 ($38). Figures for the Consumer Product Safety Commission were $1 ($42).

397 PIRG's, in 22 states with more than 50 full-time personnel and 500,000 student members whose donations, amounting to $1.4 million in 1974, finance the PIRG's activities." Among other groups active in public interest work, including litigation, are Consumers Union and the Consumer Federation of America; their work is financed primarily by members' contributions. Another active group, known popularly as "Banzhafs Bandits," is composed of student lawyers whose work is under the direction of John Banzhaf at George Washington University Law School and is apparently financed by the donated time of the students and the lawyers assisting them. While we would like to be able to summarize in quantitative measures the various PIL activities undertaken by these and other voluntary organizations on behalf of consumers, it is difficult, if not impossible, to develop and estimate the indices that would satisfactorily measure the "amount," "kind," and "impact" of all PIL actions in the consumer area or any other area of PIL activity. We can, nonetheless, offer some perspective, albeit an imperfect one, on the "amount," "kind," and "impact" of one type of PIL activity - litigation. Before proceeding, however, some caveats are in order. Public interest litigation is only part of all PIL action intended to represent consumer interests. More than any other legal action, litigation or the threat of litigation - including participation in administrative adjudication — distinguishes contemporary public interest activities in the consumer area from earlier activities. Other legal actions such as negotiation, administrative petition, and participation in administrative rulemaking are also new to public interest activities in this area, but unlike litigation, they do not require the special skills of lawyers, and in mechanics they are more closely related to the nonlegal actions prevalent earlier, such as disseminating information, lobbying, drafting model legislation, and testifying before Congressional committees. Indeed, legal instruments other than litigation are used effectively by public interest groups that rely primarily on the use of non-legal 11. The information on the Nader organizations is from the National Journal, V (June 9, 1973), pp. 840-849, and the New York Times, November 24,1975, pp. 1 and 51.

Consumerism and Consumers instruments. (See Chapter Sixteen for a discussion of the activities of two such groups.) Yet, while litigation is qualitatively different from other legal actions, it may represent only the smallest and most visible part of PIL activity. 12 Hence, the descriptive overview of public interest litigation that follows provides an incomplete picture of PIL activity in the consumer area. But it does offer a view of one distinctive dimension of that activity. During the years 1969 through 1975, fiftyfive actions involving the use of litigation on behalf of dispersed and unorganized consumers were reported in the Commerce Clearing House law reporters. (See the Appendix to this Chapter.) This total no doubt represents only a portion of all public interest litigation on behalf of consumer interests, emphasizing actions against federal government agencies and private firms. Still, the number of actions is probably representative of the order or magnitude of all consumerrelated public interest litigation. Just under half (26 cases) involved Ralph Nader or Nader organizations as plaintiffs, including, for example, the Aviation Consumer Action Project (seven cases), the Center for Auto Safety (two cases) and various University-based PIRG's (three cases). Consumers Union was a plaintiff in seventeen cases (in two of those a Nader organization was also involved), and various of the "Banzhaf Bandits" groups were plaintiffs in five (in one case joined by Nader's Center for Auto Safety). These three groups — the Nader organizations, Consumers Union, and the organizations of student lawyers known collectively as "Banzhafs Bandits" - were involved in a disproportionate number of the fifty-five litigative actions. In all, there were twelve groups represented (when the Nader organizations are counted as one), but these three were involved in forty-five of the cases or 82 percent. 12. PIL and other public interest activities can indirectly influence the behavior of private firms and public agencies. For examples of actions apparently attributable to the prior actions and implied threat of further actions by public interest groups, see U.S. Senate, Initiatives in Corporate Responsibility, Committee Print of the Committee on Commerce, October 2, 1972; Judy Gardner, "Proposals to Help Buyers Fight Back When Wronged Get Increased Consideration," National Journal, V (July 7, 1973), pp. 981-987; and Judy Gardner, "Spread of Departmental Consumer Offices Fails to Abate Pressure for Separate Agency," National Journal, V (November 3, 1973), pp. 1627-1635.

398 On the defending side in the fifty-five cases, private firms were involved in only fourteen of the cases. Five of these came before federal regulatory agencies where consumer advocates lost each case, while nine came before the courts where consumer advocates won only two. Federal agencies were defendants in thirty-eight cases and lost just over half of these; state agencies were defendants in three cases, none of which has reached a final decision. (The won-lost record will be considered further below.) The litigation was undertaken in two general areas: enforcement or implementation of consumer protection laws (41, or 75 percent of the 55 cases listed in the Appendix), and access-toinformation (14, or 25 percent of the cases). Included in the first category are efforts to affect prosecutions under existing laws (ten cases) as well as efforts to secure the use of new remedies (six cases) and the promulgation of new product standards (nine cases) and new information disclosure regulations (four cases). Also included are attempts to change the policies and procedures of some of the federal regulatory agencies (four cases). Cases included in the second category sought to reduce the cost to consumers of certain information by first acquiring and then disseminating the information or by seeking the removal of restrictions preventing private firms from supplying the information directly to consumers (six cases). Other cases were attempts to gain access to information that could be used by consumer groups as an input to lobbying, petitioning, litigation, or publicity activities (eight cases). In all, six cases stemmed from requests for information made under the Freedom of Information Act (enacted in 1966). Looking at the issues raised in these fifty-five cases from a somewhat different perspective, the cases in both the enforcement and access-toinformation categories can be classified as relating either to product standards (imposed requirements for price or quality) or to product information (information on price or quality). Table 14.1 shows the distribution of cases according to this scheme, and also shows the distribution of cases by year for 1969 through 1975. As the figures in the totals column show, fully 45.4 percent of the cases raised issues related to product standards, 40 percent being the enforce-

Area Studies: Public Interest Law in Action ment type and 5.4 percent the access-toinformation type. Included are cases involving product safety standards, which accounted for about 25 percent of all cases — including autos (9 percent), drugs (5 percent), and toys (4 percent) — and cases involving governmentally regulated product prices, which accounted for about 10 percent of all cases. The totals column also shows that 29.1 percent of the cases were related to product information, 18.2 percent raising enforcement or implementation issues and 10.9 percent seeking to affect the terms of access to the information. Included are deceptive advertising cases (about 14 percent of all cases) and cases seeking the removal of certain restrictions on advertising (about 5 percent). Among the cases classed as "other" in Table 14.1 (25.5 percent of all cases) are six, or 10.9 percent, that related to issues concerning the enforcement of antitrust laws. The remaining eight cases concerned a variety of issues, ranging from the fines levied against members of the International Air Transport Association to the repurchase of hazardous substances banned by the Food and Drug Administration. Turning to the distribution of cases by year, the bottom row of Table 14.1 shows that 89.1 percent of the cases were brought after 1971, the peak years being 1972 and 1973. If we divide the years 1969 to 1975 into two periods, each with about half of the cases, the first period is 1969-1972 with 41.7 percent of the cases and the second is 1973-1975 with 58.2 percent. As the table shows, these two periods are quite different. In the first period over 90 percent of the cases were of the enforcement type, while in the second period that percentage fell to just over 62 percent. The enforcement cases were evenly divided between the two periods, 51 percent occurring in the first period and 49 percent in the second, but the access-to-information cases were concentrated in the second with 86 percent of these cases occurring in the years 1973-1975. Another shift in case type is shown in Table 14.1, this occurring within the groups of enforcement cases. After 1972 the proportion of enforcement cases relating to standards for product qualities and product prices tended to increase, reflecting in part the development of two consumer issues during the post-1972 period.

399

Consumerism and Consumers

Table 14.1 Percent Distribution of Litigation by Type of Case and Year, 1969-1975 Year Type of Case

1969

Enforcement Product Standards Product Information Other Total b Access to Information Product Standards Product Information 1.8 Other TÜ Total b 1.8 Total b

.a Initiated

1970

1971

1972

1 973

1974

1975

1.8

1.8

12.7

9.1

3.6

10.9

7.3 9.1 29.1

3.6 3.6 16.4

3.6

1.8 3.6

1.8

3.6

1.8

5.4 10.9 27.3

3.6 ~5~4

1.8

5.4

3.6

30.9

T3

1.8 12.7

Totals

40.0 18.2 16.4 74.5

5.4 3.6 3.6 7.3 14.5

3.6

10.9 9.1 25.4 100

~n>

16.4

^Years refer to date public interest advocates entered litigation. Columns and rows may not sum to total due to rounding. Note: The cases are those listed in the chapter Appendix. For an explanation of case types, see the text.

Table 14.2 Percentage of Judicial Successes for Consumer Advocates by Type of Case and Year, 1969-1975 Year Type of Case

1969

Enforcement Product Standards Product Information Other Total Access to Information Product Standards Product Information 100 Other Total 100 Total 100

1970

1971

0 0

0 0

.a Initiated

1972

1973

1974

1975

67

60

100

80

25 0 33

0 100 56

0 50

0 31

68 20

0 67

22 42

33

50

33 40 50

Totals

100 100 67

50 60 0 57

50 44

Years refer to date public interest advocates entered litigation Note: The cases are those listed in the Appendix. For an explanation of case types see text. Cases not yet decided are omitted in calculations.

400 The first was the government regulation of product safety undertaken on a broad scale after the establishment of the Consumer Product Safety Commission in 1972, and the second was the controlled level of fuel prices following the onset of the energy crisis late in 1972. Table 14.2 shows the percentage of cases of each type that have reached a final judicial decision favoring the consumer advocates. (Seven of the 55 cases have not yet reached a final decision.) Thus, for example, the 25 in the column for 1972 indicates that 25 percent of the 1972 enforcement-type cases relating to product information that have reached a final decision were judicial successes for the consumer advocates. As the second vertical totals column shows, the record of judicial success is rather evenly divided between the enforcement and the accessto-information cases. However, the three rows referring to totals show that the litigative success rate was generally higher in the years 1973-1975 than in the earlier period. This may be an indication of learning from experience, with the litigative failures of the early years of public interest litigation leading to changes in case selection or in litigation strategies (or both). The shift toward access-to-information cases and the shift within the enforcement-type cases toward the relatively more successful product standards cases, noted above, may partly reflect a change in case selection that is a result of such learning. As pointed out in Chapter Two, and as the discussion in the third section of this chapter will show, judicial "success" or "failure" is not necessarily a good measure of performance in litigative actions of the public interest law type, so that the information in Table 14.2 is not necessarily indicative of the overall success or failure of public interest litigation activities. There is no guarantee that success in court will ultimately secure the remedies sought or lead to changes beneficial to the individuals "represented" in the action. On the other hand, judicial losses, particularly when accompanied by publicity adverse to the defendant, can ultimately be followed by changes that at least partially accomplish the objectives of the suit. With these qualifications in mind, if we allow success in judicial proceedings to serve as a very rough guide, then perhaps half of the cases were to some degree "successful" in

Area Studies:

Public Interest Law in Action

achieving the objective intended by the "public interest" litigants. The vast majority of the cases we have been discussing concerned specific attributes of specific commodities, such as the flammability of mattresses or the "all meat" labeling of frankfurters. 1 5 Though many of the cases held the potential to create significant legal precedent, and perhaps 25 percent could be termed "test case" litigation, fewer than 10 percent of the cases involved problems that were general in the sense that they did not relate to specific commodities. Most of these challenged specific procedures or rules of government regulatory agencies, and could thus have ultimately affected many products, firms, and consumers. However, even those cases relating only to specific commodities could have repercussions that affect other commodities. By undertaking one action a consumer advocate group can sometimes, through publicity or cogent argument, gain a measure of recognition, if not credibility, that can be a factor influencing the outcome of later actions. Clearly the possibility of this type of connection between otherwise separate actions complicates any attempt to assess the impact of a given case, as the analyses in the third section will illustrate. Taken individually, most of the fifty-five cases involved the immediate interests of only certain subgroups of the population, those who use and pay for the commodities or information at issue. Taken together, however, the cases bore directly on the interests of virtually every consumer. Although each case "represented the interests of consumers," most cases were not "in the interest" of all consumers. Typically, some consumers had no stake in the outcome of a case and other consumers actually stood to lose in the sense that a "successful" outcome would force these consumers to pay for product qualities or information that they would otherwise not choose to purchase. (See the discussion in Chapter Six.) To an "average" consumer, an "average" case probably meant a relatively small gain, or loss, in terms of his willingness to pay for, or to avoid, a fully successful outcome. 13. See Consumers Union i>. Consumer Product Safety Commission, CCH Consumer Product Safety Guide, 1 CPS para. 75,024 and 75,032; and Federation of Homemakers v. Butz, 466 F.2d 462.

401

Major cases, such as the Trans-Alaska Pipeline case in the environmental area or the Serrano litigation in the school finance area, 14 do not seem to have occurred in the consumer protection area. Perhaps this is because the public sector and the private and voluntary sectors already provide a great deal of consumer protection. That is, significant private market and governmental failures may simply not exist to be corrected. Another possible explanation is that any that do exist cannot be corrected by public interest litigation because the legal foundation for a litigative approach is not available. To explore these questions, and to evaluate the impact of public interest law on the provision of consumer protection, we shall first develop some theoretic considerations that bear on the issue, and then evaluate six public interest law actions, five involving litigation and one involving the threat of litigation. The six cases we have selected are each representative of certain of the dimensions outlined above as well as other characteristics common to public interest law activities in this area.

Possible Causes of Private Market and Governmental Failures In this section we consider some reasons why the private and public sectors may fail to provide a socially efficient amount of, and a socially equitable distribution of, consumer protection. Consumer protection is usually thought of in terms of governmental intervention in private markets, intervention that is designed to "protect" consumers from "unfair" selling practices or "unsafe," "ineffective," or "unreliable" products. 15 However, consumers also protect themselves by using information on products and produce prices. Armed with the appropriate in14. The Trans-Alaska Pipeline case is Wilderness Society v. Hickel, 325 F. Supp. 422 (D.D.C. 1970) rev'd 479 F.2d 842 (D.C. Cir. 1973), cert, denied 411 U.S. 917 (1973). The Serrano litigation is a series of cases discussed in Chapter Twelve. 15. For a discussion of various consumer protection activities, see the following: David A. Aaker and George S. Day, eds., Consumerism (New York: The Free Press, 1971); Gaedeke and Etcheson, Consumerism; National Institute for Consumer Justice, Redress of Consumer Grievances (Washington, D.C.: National Institute for Consumer Justice, 1973); and U.S. Senate, Initiatives in Corporate Responsibility.

Consumerism and Consumers formation, consumers can avoid falling victim to "bait and switch" selling tactics and other "unfair" practices, and can buy those products that offer as much safety, effectiveness, or reliability as they are willing to purchase. It follows that the overall degree to which consumers are protected is determined, in the first instance, by the extent to which consumers are informed about the products they buy and the retailers they buy from. The private sector, quite apart from any governmental influences, provides consumers with a great deal of information through advertising, labeling, and sales personnel, and also by adhering to voluntary, industry-wide standards of product safety, dimension and labeling," and consumers supplement this with information gained from their own experience and from the experience of others. Thus, private markets are continuously producing consumer protection, at least to the extent that consumers are willing to acquire and to use information, and producers are willing to respond to consumer demands for information. The need for governmental consumer-protection activities therefore depends on the performances of private markets. Only when private markets fail to provide "enough" protection relative to specific criteria is governmental intervention warranted. The criteria we shall use to determine how much protection is "enough" are those of allocative efficiency and distributional equity. Private Market Failures: Allocative Efficiency There would be no need for governmental consumer protection activities, at least on allocative efficiency grounds, if the following conditions 16. For a discussion of the benefits to consumers of using product information, see E. Scott Maynes, "The Payoff for Intelligent Consumer Decision-Making," Journal of Home Economics, LX1 (February 1969), pp. 87-103. No one has ever attempted to quantify the amount of information provided by private firms. However, the following annual expenditure data have been reported: $20 billion for advertising, $0.5 billion for labeling changes, $7 billion for sales promotion, $36 billion for personal selling, and $3 billion for public relations. See Advertising Age, April 24, 1972, p. 2; Lawrence E. Hicks, Coping with Packaging Laws, p. 18; E. Scott Maynes, "Consumerism: Origin and Research Implications," p. 293, n. 14; and F. M. Scherer, Industrial Market Structure and Economic Performance (Chicago: Rand McNally and Co., 1971), pp. 326 and 406.

402 existed in private markets: (1) if consumers were fully informed about all products, meaning that they possess and readily understand any possibly relevant information about all available products; (2) if the use of goods and services by one person did not impose costs or bestow external benefits on another; (3) if firms were seeking to maximize profits; and (4) if firms possessed no monopoly power. Under these conditions consumers would be protecting themselves by making informed purchases. Of course, consumers are never fully informed, if only because the production of information is costly. Still, if conditions (2) through (4) were to hold, and if persons could readily understand or process any relevant information and were to pay for each bit of information they used, then the private market's provision of information, as well as of other goods and services, would be socially efficient. It is certain that even under these conditions everyone would be less than fully informed. Or put another way, the cost of making even one person fully informed would almost certainly exceed the benefits of doing so. But under the stated conditions, firms would have sufficient incentive to respond to consumer demands and to produce just that amount of information consumers were willing to purchase by foregoing the purchase of other goods. Even though no one would be fully informed, there would still be no need for governmental consumer protection activities to improve allocative efficiency. There might be justification for consumer protection activities to improve distributional equity, but for the moment we are concerned only with allocative efficiency. If any of the above conditions are not satisfied, however, there exists a potential private market failure, in the efficiency sense, and collective efforts to alter the provision of consumer protection may be justified; they are justified if the benefits of correcting the failure exceed the costs of doing so. Clearly, these conditions are quite restrictive, in the sense that some of them are unlikely to be fulfilled in any existing markets. The condition that firms seek to maximize profits, however, is probably satisfied, at least reasonably well, in most circumstances. Though sometimes firms are observed to pursue other objectives, in most cases these are highly corre-

Area Studies: Public Interest Law in Action lated with long-run profit performance." For this reason we shall discuss only the remaining conditions. They are the ability of consumers to process information, the requirement that all information used be paid for, the absence of "third party" or external effects in consumption, and the absence of monopoly. Processing Information. The cost of information to an individual includes both the cash payments made to others to cover production and supply costs, and the cost in time and effort required to process - that is, to interpret - the information. Because processing or using information is not a costless activity, individuals will demand less information, learn less from their market experience, and use less information when making their buying decisions than they would if there were no cost to the processing of information. While the implication is that consumer information is likely to be underproduced relative to an "ideal" world in which information can be put to use without incurring any costs, the implications for economic efficiency in the production of consumer protection depend on the ways in which consumer information contributes to consumer welfare. On the one hand, information contributes directly to consumer welfare by reducing the risk of incurring "regret" costs, the costs of learning after the fact that a better decision could have been made. The processing of information is, in effect, a way of buying insurance against such an event, and if less information is processed, less of this insurance is purchased. The implication for allocative efficiency is that, relative to an "ideal" world, too few resources are devoted to the production of insurance against regret costs. Information also contributes indirectly to consumer welfare. As an input to decisionmaking it is used to identify and compare alternative products. On the basis of this exercise, a consumer selects, given his preferences and the 17. The question whether firms actually seek to maximize profits, and the implications of alternative behavior for economic efficiency have been the subject of much debate. For an introductory review of the issues, see Joseph McGuire, Theories of Business Behavior (Englewood Cliffs, N.J.: Prentice-Hall, 1964), and also see Richard H. Day, "Profits, Learning and the Convergence of Satisfying to Marginalism," Quarterly Journal of Economics, LXXXI (May 1967), pp. 302311.

403

constraints imposed by his limited income, that set of products that appears best to suit his needs. Because information processing is not costless, an individual will devote less of his time and income to identifying and comparing alternatives, and for this reason his actual selection may not be his "best" selection, the one he would make in the absence of information-processing costs. The implication for allocative efficiency in producing consumer protection will depend on the difference between actual purchases and "best" purchases. Though underinformed relative to an "ideal" situation, consumers may nevertheless buy products that offer the same amount of safety, reliability and other attributes as they would buy if "fully" informed." Further, even if these products are different, under-informed consumers could end up buying commodities that have either more or less of some desirable attribute. Merely recognizing the existence of information processing costs does not indicate whether there is an over production or underproduction of commodity attributes such as safety, reliability, and effectiveness. It is an empirical question whether underinformed consumers tend to overestimate or underestimate product safety, reliability, and other attributes. Though no direct evidence exists to suggest one or the other, it is plausible to expect that consumers generally overestimate the degree to which products possess these attributes because they believe that government agencies are doing more to protect consumers than they are in fact doing. Many individuals may believe, for instance, that because there is a Food and Drug Administration, all drugs available on the market 18. Of course, consumers would not be buying the same "bundle" of goods and services, since they would be buying less information and more of other commodities. What we are suggesting is that consumers might demand the same mix of quality attributes, though they will purchase different amounts of some products. This does not imply that the additional information that would be produced in a "processing-costless" world is redundant. Rather, a consumer is foregoing the benefit of knowing that his decision was based on more information rather than less; that is, he is bearing a greater risk of incurring "regret" costs. The assertion that information is underproduced because information processing is costly is then an assertion that the welfare gain of consuming more in other goods and services is less than the welfare loss associated with the greater risk of "regret" costs.

Consumerism and Consumers are safe and effective, or that the Federal Trade Commission prevents all deceptive advertising. Neither is true, but individuals who know of these agencies may not know of their precise function or method of operation, and may thus be less wary, less informed, and more likely to overestimate product reliability than otherwise. In situations where a potential market failure exists because of information processing costs, consumers are providing themselves with less protection against risk of "regret" costs and product failure than would be economically efficient. However, insofar as the costs of processing information are the cause of the market failure, efforts to increase the supply of information will not be effective at increasing the supply of consumer protection, and if processing costs are sufficiently high, efforts to reduce the cost of acquiring information will not be effective either. If any consumer protection action is capable of producing net benefits for consumers and correcting the market failure in such a situation, it will involve the imposition of some type of product standard that has the effect of providing consumers with information that does not require much processing — as would, for example, a fully enforced ban on flammable pajamas. If there were no costs to organizing and no free rider problems, consumers might pool their resources and pay for the collection and processing of information each would like to use. Rather than each consumer acting alone and facing the same problem, consumers as a group need face the problem only once, and by doing so would reduce the average cost of collecting and processing information for each individual. Paying for Information. To some extent, a piece of information is a "collective" consumption good, in the sense that once it has been made available to one consumer, it has effectively been made available to many consumers. Since information circulates by word-of-mouth and through newspapers, magazines, and other media, it may not be possible for a firm trying to sell information to restrict the availability of its product in such a way that all those who use it must pay for it. The more difficult or expensive it is to prevent non-paying consumers from gaining access to a bit of information, the less likely it is that a private, for-profit firm will produce it, even if aggregate willingness to pay exceeds the

404 cost of production. Unable to capture enough of consumers' willingness to pay, for-profit firms would tend to produce too little information relative to the benchmark of economic efficiency. The collective-consumption characteristic of information may explain why much of the consumer information produced in the private sector is made available to, but is not directly sold to, its users. Through advertising, a firm can reach many potential customers with information about its product, though it may get revenue from only a few of those who actually use the information. Indeed, consumers spend no money for such information until they buy one of the firm's products. The information is essentially made available to anyone whether or not he eventually pays for it. This characteristic of information, combined with the effects of information-processing costs discussed above, may also explain, at least in part, why deceptive and misleading advertising can occur. The more costly it is for consumers, and rival firms, to detect a deceptively advertised product, and the more difficult it is to collect payment for the use of information exposing the deception, the more profitable deceptive advertising is likely to be." In general, the larger the costs of collecting, processing, and distributing information that must be borne by the supplier, and the greater the possibility that the supplier will not receive payment from most users, the smaller the probability that the private, for-profit sector will produce information. Aggregate willingness to 19. The existence of incentives that lead a manufacturer or retailer to misrepresent his product or to withhold information for which consumers would b e willing to pay is a source of potential private market failure, and hence is a source of inefficiency and inequity. If firms or individuals responsible for "third-party" effects were motivated by social responsibility or honesty, the market failure might be avoided. However, too much social responsibility or too much honesty might create problems of their own. It might be inefficient and it might b e deemed inequitable for one man to impose his version of responsibility or honesty on another. See Burton A. Weisbrod, "Comparing Utility Functions in Efficiency Terms," Institute for Research on Poverty, University of Wisconsin, Discussion Paper 306-75, and Kenneth J. Arrow, "Gifts and Exchanges," Harvard Institute of Economic Research, Harvard University, Discussion Paper No. 240 (May 1972).

Area Studies: Public Interest Law in Action pay could exceed the cost of supply and yet the private market could fail to provide consumers the information they want. Third-Party Effects. The third source of potential private market failure relevant to the production of consumer information and consumer protection is the existence of external or "thirdparty" effects in consumption. By external effects we mean specific costs and benefits occasioned by one person's use of a commodity that are imposed on others. Because these effects are external to the person using the commodity, they will not enter into his decisions and a socially inefficient use of resources may result unless those affected can organize to make their preferences known. The automobile provides an example. One person's decision to buy a car that has a high risk of performance failure may result in an accident causing damage to a "third party." Another example is smoking, which causes discomfort and creates health hazards for persons other than the smoker. To the extent that the injured parties in these examples would have been willing to pay the offending consumer enough to persuade him to make a different decision — for example, regarding the type of auto he buys or the amount he smokes — there is a potential loss in social efficiency. The use of consumer information represents another instance where externality effects can occur. " The conscientious consumer, the person who seeks out information and complains to retailers when he doesn't find what he wants, or when he finds deception, conveys information to producers on consumer demands, both for information and for other goods, and he also helps to keep producers honest. The conscientious consumer provides information to friends, at no cost to them. These activities provide benefits to other consumers, though the conscientious consumer is most likely concerned only about his own interests. If he were always paid by the beneficiaries of his action, he would be likely to do more. 20. Sarah V. Thorelli, "The Informed and the Informers: The Grants Economics of Consumer Information," paper presented at the Midwest Economics Association meetings, March 14, 1975, describes the externality effects associated with a consumer's use of information at pp. 2-3.

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Thus, in the use of information and in the use of other commodities causing external effects, the interests of those who are significantly affected by the actions of another party are unlikely to be taken into account. If there were no costs to organizing and no free rider problems, these interests would be transmitted through the private market and a more efficient allocation of resources would be possible. Monopoly Power. The final requirement for efficiency in private markets is the absence of monopoly. It is a well-known economic proposition that a firm with monopoly power will tend to produce less output and charge higher prices than would a firm faced with competition from existing rivals and potential entrants to the industry. In industries with few competing firms, each firm may enjoy some monopolistic power gained through the effect of agreements, either tacit or collusive, to restrict the kind and degree of competition. The need for collective intervention to promote the public interest in an efficient allocation of resources by regulating firms that have monopoly power has long been recognized, and this type of governmental consumer protection dates from the nineteenth century. With regard to consumer information and the need for consumer protection, the problems discussed above will exist whether or not firms have monopoly power. They may be exacerbated by monopolistic and oligopolistic market structures to the extent that firms in such markets cooperate rather than compete and can, to their advantage, restrict the supply of consumer information. 11 However, it is still the presence of processing costs, organizing costs, and the collective consumption good characteristics of information that prevent a profit-oriented firm other than the monopolist from frustrating the monopoly, by acquiring and producing the information that consumers would otherwise be willing to pay for.

Private Market Failures: Income Distributional Equity

21. See Tibor Scitovsky, "Ignorance as a Source of Oligopoly Power," American Economic Review, XL (May 1950), pp.48-53; and John R. Ferguson et al., "Consumer Ignorance as a Source of Monopoly Power: FTC Staff Report on Self-Regulation, Standardization and Product Differentiation," Antitrust Law and Economics Review, V (Winter 1971-72), pp. 79-102, and V (Spring 1972), pp. 55-74.

As noted earlier, even in the absence of private market failures of the allocative efficiency type, there may be justification for consumer protection activities to enhance social equity. Even though an allocation of resources may be efficient, some people may feel it is "unfair" that some consumers, those with lower incomes, can afford less protection than others. Then collective intervention to change the distribution of protection may be in the public interest. Private market failures of the efficiency type also have income distributional consequences that may be sufficiently adverse to justify governmental consumer protection activities on equity grounds alone. For example, since individuals differ in their ability to process information, the same bit of information is more costly for some consumers to process than for others. For the aged and for those with less education, processing costs may be so high that they actually demand and use comparatively little information, and hence provide themselves with less protection than other consumers. Though the desire to make in-kind transfers of consumer protection to these people may be shared by many, the existence of transactions costs and free rider problems may prevent individuals from making these transfers and may justify governmental or other subsidized, collective intervention. The exercise of monopoly power is another potential source of inequity that may warrant intervention in private markets. As stated above, monopolistic firms will tend to restrict output below competitive levels and charge higher prices and earn greater profits than firms faced with competition. If it is deemed unfair for consumers to pay higher than competitive prices, and for monopolistic firms to earn greater than competitive profits at the expense of their customers, then a potential private market failure in the equity sense would exist and governmental intervention may be justified. Indeed, measures that protect consumers from the inefficiency caused by the exercise of monopoly power will also have income distributional consequences favorable to consumers, though unfavorable to the regulated firms.

406 Governmental Failures Thus far we have identified a number of reasons why collective intervention to alter the private market's provision of consumer protection may be in the public interest, to improve either allocative efficiency or distributional equity. Such intervention has come from the public sector in a variety of forms, some supplementing the activities of the private sector, some regulating those activities. But there are reasons to expect that, in some instances, the public sector will fail also and that voluntary, non-profit, non-governmental action may have a role to play in promoting the public interest in both efficiency and equity. The underlying reason for private market failure, as we have noted, is the existence of organizing costs and free rider problems that prevent individuals from taking collective actions that are in their interests. These same factors may prevent individuals from fully transmitting to governments their demands for consumer protection. This applies not only to the enactment of consumer legislation but also to the enforcement of regulations, particularly when effective enforcement relies on the filing of complaints by individual consumers. (See Chapter Three.) Producers, on the other hand, are well situated and often strongly motivated to transmit their demands to the public sector. While each consumer may have some interest in many of the more than 200 government agencies whose actions affect virtually all products, firms, and types of information, a producer's interest tends to be considerably more concentrated, extending over comparatively few products and agencies. While many consumers may have some interest in a particular action, in general, a comparatively small number of producers will have a significant interest in the same action. The smaller number of producers and the larger interest of each in a relatively limited set of areas reduce the significance of organization costs and free rider problems as impediments to group action. For these reasons, producers are more likely than consumers to find it advantageous to organize and to represent their interests to the public sector. As a government agency matures, producer organizations are usually on hand to influence the development and enforcement of the agen-

Area Studies: Public Interest Law in Action cy's regulations." When an agency institutes an administrative enforcement action, a firm, as a defendant, can usually devote substantial resources to delay and defense. 13 Consumers, on the other hand, are seldom directly represented either in the formulation of an agency's rules and policies or in the prosecution of an alleged violation of an agency's regulations. Indeed, once an agency is formed, consumers, believing that their interests are now being protected, may become less cautious and conscientious in their buying, and may need even more vigilant representation in the continuing implementation activities that follow Congressional legislation." With producers present to influence the agency bureaucracies while the input of consumer interests is at a minimum, the public sector may fail to provide an amount of consumer protection that individuals would be willing to pay for, or a distribution of consumer protection that society would deem equitable.

An Analysis of Selected Public Interest Law Actions In this section we shall examine six public interest law actions, four involving litigation before the courts, one involving intervention in an enforcement proceeding before the Federal Trade Commission (FTC), and one involving the threat of litigation. The theory developed in the preceding section established an a priori case for the existence of potential private market and governmental failures in the production and distribution of consumer protection. The question investigated here is whether public interest law activities undertaken on behalf of individuals in their role as consumers are in any way confronting and dealing with problems involving market failures. The 22. See, for example, U.S. Senate, To Establish an Independent Consumer Protection Agency, p. 175, and Ralph K. Winter, Jr., The Consumer Advocate versus the Consumer (Washington, D.C.: American Enterprise Institute, Special Analysis No. 26, 1972), p. 4. 23. See, for example, Note, "Corrective Advertising Orders of the FTC," Harvard Law Review, LXXXV (1971), pp. 477-506. 24. For discussion of problems in implementing one program of the Economic Development Administration, see Aaron B. Wildavsky and Jeffrey L. Pressman, Implementation (Berkeley: University of California Press, 1973).

407 answer will provide a basis for evaluating public interest law activities, for a negative answer will imply that these activities run counter to two important components of the public interest, efficiency in the use of resources and fairness in the distribution of output (including consumer information and protection). An affirmative answer will imply the opposite and will mean that these activities are indeed representing consumers' interests. To this end we shall analyze the objectives, remedies, and outcomes of the six specific public interest law actions to determine (1) whether they raised issues that involved potential market failures, (2) whether they sought to effect changes that would correct actual market failures, and (3) whether they had any impact, favorable or unfavorable, on economic efficiency or distributional equity. The analysis of each of the six cases will be structured in the same way, with objectives, remedies, and outcomes identified and considered separately in each case. This parallel structure will provide analytic consistency and will clearly reveal points of similarity and contrast among the cases. We will summarize the similarities and differences in a concluding section. The six actions we have selected for this purpose are intended to constitute a representative sample of public interest law actions in the consumer protection area so that our findings in this section can serve as the basis for later generalizations. As a group these six actions share the general characteristics of the larger sample of 55 public interest law actions using litigation that were described earlier in the first section. Five of the actions come from that sample, but the sixth, which did not involve the use of litigation, does not. The general characteristics shared by the two samples are the following: 1. Ralph Nader, Consumers Union, and various groups of student lawyers directed by John Banzhaf were involved in five of the six actions in the small sample and in four of every five in the large sample. 2. The "defendants" in the small sample were private firms in two cases (33 percent) and governmental agencies in four (67 percent), while in the large sample the division was 25 and 75 percent. 3. The enforcement of consumer protection

Consumerism and Consumers laws was the issue in four of the six actions (67 percent) and access to information was the issue in the other two (33 percent), while in the large sample the division was 75 and 25 percent. 4. Four actions (67 percent) raised problems relating to specific consumer goods, and the other two (33 percent) raised problems relating to the procedures of governmental agencies, while in the large sample that division was 90 and 10 percent. Of course, the sample of six actions was not selected as a scientific random sample from a given universe of public interest law activities, and may for that reason constitute a biased sample. However, its similarity to a much larger sample of actions, at least in terms of some general identifying characteristics, gives us some reassurance that it is not wholly arbitrary and is probably reasonably representative of the class of actions we are interested in analyzing. We turn now to the analysis. The six actions that form our sample are the following: Nader v.

Allegheny; "The Nader Report" on the Federal Trade Commission; ASH et al. v. FTC; SOUP, Inc., intervening in the matter of Firestone Tire

and Rubber Co.; Virginia Citizens Consumer Council v. State Board of Pharmacy, and Consumers Union v. Board of Governors, Federal Reserve System. We shall consider each action in turn.

Nader v. Allegheny: Consumer Interest in Product Standards This case is an example of a modestly successful use of litigation as a method of correcting a governmental failure. The case was initially won by Nader, but that verdict was reversed and remanded on appeal by the defendant. However, the court decision played only a minor role in determining the impact of the case, for it was the litigation effort itself and especially the publicity it threatened and eventually produced that led the Civil Aeronautics Board (CAB) and the airline industry to move in the direction that Nader had advocated. The facts in Nader are these.*5 On April 28, 1972, Ralph Nader, holding a confirmed reservation, was denied boarding on an Allegheny flight 25. Administrative Law: Nader v. Allegheny Airlines, inc., "Court Usurpation of CAB Function: The Problem of the 'Bumped' Passenger," UMKC Law Review, XLIII (Fall 1974), pp. 112-114.

408 from Washington, D.C., to Hartford, Connecticut, where he was to speak at a rally sponsored by the Connecticut Citizen Action Group. Nader was denied boarding because the flight had been overbooked and was already filled to capacity when he arrived at the Allegheny terminal. He refused to accept alternate transportation arranged by Allegheny for a flight that would arrive fifty-five minutes after the scheduled arrival of the original flight, and also refused to accept denied boarding compensation from Allegheny. Joined by the Connecticut Citizen Action Group, Nader brought suit against Allegheny for compensatory and punitive damages, charging that the airline had violated the anti-discrimination provision of the Federal Aviation Act. 5 ' In October 1973 a district court found in favor of the plaintiffs, stating that overbooking, as practiced by Allegheny, was both deceptive, since the public was not told of the practice, and excessive, since Allegheny had bumped 945 customers during the same month Nader was bumped." The court awarded compensatory damages of $10 and $51 to Nader and the Connecticut group respectively, and punitive damages of $25,000 to both. Allegheny appealed the decision, and in 1975 a three-judge appeals panel sent the case back to the district court with instructions to stay further proceedings pending a decision by the CAB on whether Allegheny had engaged in an unfair and deceptive practice by not publicly disclosing its overbooking practices. Allegheny has claimed that it acted in "good faith" believing that its overbooking practices had tacit CAB approval." The appeals court panel also stated that, since the Connecticut group was not directly involved, the group could not claim damage. 26. Section 404(6) of the Federal Aviation Act of 1958 states: "No air carrier or foreign air carrier shall make, give, or cause any undue or unreasonable preference or advantage to any particular person, port, locality, or description of traffic in air transportation in any respect whatsoever or subject any particular person, port, locality, or description of traffic in air transportation to any unjust discrimination or any undue or unreasonable prejudice or disadvantage in any respect whatsoever." Cited in Notes, "Discriminatory Bumping," Journal of Air Law and Commerce, XL (Summer 1974), p. 533. 27. Nader v. Allegheny Airlines, Inc. 365 F. Supp. 128. 28. See 512 F.2d 527 (D.C. Cir. 1975); Emergency Reservations Practices Investigation, CAB Docket 26253, Order 75-7-54 (July 11, 1975); and Walt Street Journal, May 5, 1975, p. 19.

Area Studies: Public Interest Law in Action Nader appealed to the U.S. Supreme Court, which ruled in June 1976 that the case should not be stayed. 1 ' The case now awaits action at the district court level. Subsequent to the initial court ruling, Nader stated that, while the immediate objective of the case was to exact a penalty from Allegheny, the ultimate objective was to create enough pressure on the CAB and the industry to force the promulgation of a rule that would prohibit the practice of overbooking, the practice of selling more reservations for a flight than the flight can carry. 30 If this objective could not be achieved, Nader hoped that the case would at least pressure the airlines to restrict voluntarily the amount of overbooking they do. Objectives: Efficiency Dimensions. Before evaluating the efficiency impact of reducing the amount of overbooking below present levels, it will be useful to describe in a qualitative way how overbooking might actually contribute to the public interest in economic efficiency. The amount of overbooking practiced has a direct effect on the use of existing airline capacity. An efficient use of capacity would require that all individuals willing to purchase a flight reservation be able to do so as long as there are seats available. However, this cannot always be accomplished, primarily because some persons reserve seats but either fail to show up at boarding time or cancel immediately prior to departure. 31 As a result of these "no-shows," a flight booked to capacity can leave the terminal with empty seats, denying the use of available capacity to individuals otherwise willing to purchase a ticket. In this way, the no-show imposes costs on third parties by creating the possibility that other customers will be denied reservations when, in fact, there is space available. Since overbooking tends to adjust for no-shows, it tends to reduce 29. CCH, Consumerism, IV (June 9, 1976), p. 131, reporting on U.S. Supreme Court No. 73-455, June 7, 1976. 30. New York Times, October 21, 1973, Section IV, p. 12. 31. Notes, "Discriminatory Bumping," pp. 533ff. There are other factors in the no-show and overbooking problem that may contribute to "excessive" overbooking, such as "overzealous travel agents who report that reservations are confirmed when they are not"; p. 534, n. 5, and Emergency Reservations Practices Investigation, CAB Docket 26253, Initial Decision (June 10, 1974), pp. 8-10.

409 the "denied-reservation" costs and thus to benefit airline customers. At the same time, since the number of no-shows is not known in advance of departure time, overbooking creates the possibility that some passengers will have to be bumped — that is, denied boarding even though they hold confirmed reservations. Therefore, the total cost that no-shows impose on other customers is the sum of "denied-reservation" costs plus "bumped-passenger" costs, and, for a given "expected" number of no-shows, this total depends on the amount of overbooking. If the expected number of no-shows cannot be reduced, an efficient use of capacity would require that airlines engage in an amount of overbooking that minimizes this total cost, and this could call for a positive amount of overbooking and, as a result, a positive amount of bumping. In any event, the costs that no-shows impose on others, though minimized by an appropriate amount of overbooking, will not be reduced to zero. These costs will be lower, however, the lower the number of no-shows. Except for "unintentional" no-shows, that is, persons who fail to show for a flight despite making a reasonable effort to arrive on time, the number of no-shows depends on the amount that individuals benefit by making and holding reservations that they do not, in the end, use. Individuals may, for instance, hold multiple reservations to provide themselves with flexible travel plans or with some insurance against bumping. These "intentional" no-shows, while using a service for which they benefit, will not take account of the costs they impose on others unless charged a price reflecting those externality costs. The higher the price, or penalty, levied against no-shows, the lower the expected number of no-shows will be. But since some consumers may be willing to pay a price commensurate with the externality costs of a no-show, a positive number of "intentional" no-shows could be consistent with economic efficiency. Thus, an efficient use of airline capacity would be achieved by charging a price for being a no-show and using overbooking to minimize the impact of no-shows on other airline customers. It follows that some positive amount of overbooking, and bumping, may be in the public interest in economic efficiency. The question remains whether airlines actually engage in an economically efficient amount of

Consumerism and Consumers overbooking. If it were the case that individuals were fully informed about overbooking, that is, if they knew the probability of being bumped from a particular flight and could process the information, airlines operating on the same route could compete by offering lower probabilities of being bumped. At the same time, airlines would recognize that overbooking tends to compensate them for the revenue lost because of no-shows. Thus, airlines would have incentives both to reduce the number of no-shows and to minimize the impact of no-shows on other potential airline customers. Under these circumstances the private sector's practice of overbooking would be economically efficient. However, there are two reasons to expect that this is not the case, and that airlines actually engage in an excessive amount of overbooking relative to the efficiency benchmark. First, since the processing of information on bumping probabilities - which are normally very low - is likely to be more costly for consumers than the processing of other information relevant to the choice of an airline, consumers are unlikely to demand and use information on bumping probabilities, and instead are likely to consider other aspects of air travel, forcing airlines to compete on those aspects. Second, because entry into the industry and the selection of travel routes by airlines are restricted by government regulations, while alternative modes of transportation are relatively poor substitutes for air travel, the strength of market forces promoting allocative efficiency is less than it would be in a freely competitive market. Hence, airlines can compensate for no-shows and the concomitant loss in revenue by overbooking without being forced by competition either to restrict the practice to levels that minimize the external costs that noshows impose on other customers, or to attempt to reduce the number of no-shows. Apparently being more attentive to the interests of airlines than of airline passengers, the CAB has never directly regulated the overbooking practice. 55 A CAB regulation, promulgated 32. For a discussion of what the CAB has done with respect to no-shows and bumped passengers, see Administrative Law, "Court Usurpation of CAB Function," p. 113, and Emergency Reservations Practices Investigation, CAB Docket 26253, Order 73-12-95/EDR-260 (December 21, 1973), p. 5. For a discussion of the relationship between the CAB and the airline industry, see K. G. J. Pillai, "Consumer Protection in Aviation Rate

410 in 1967 and still in effect, does require that an airline offer a bumped passenger either alternative transportation to his destination at no additional expense or compensation in the form of a refund. 3 3 (By refusing to accept either form of compensation, a bumped passenger can retain his right to sue in court, as Nader did.) 34 However, the impact of this regulation is probably minimal. Since airlines probably expect to lose the fare paid by a bumped passenger in any case, the only penalty for overbooking implicit in the regulation is the (expected) additional cost of making alternative transportation arrangements. This added cost is probably so small as to have an insignificant effect on overbooking practices. (This is in addition, of course, to the loss of customer good will.) Thus, it appears likely that at the time of Nader's action there were private market and governmental failures leading to an underprotection of airline customers against the costs associated with the behavior of no-shows and the practice of overbooking. Nader can be seen as an attempt to stimulate corrective action by publicizing the problem and pressuring the CAB to respond with a regulation on overbooking. Further, the punitive damages sought, totaling $50,000 or five times the highest previous award," represented an implicit threat to the industry to curtail its overbooking and to acquiesce in any regulatory effort by the CAB. Since private market and governmental failures apparently did exist, we conclude that Nader's objective was, in principle, in the public interest in terms of allocative efficiency. That is, the general intent of reducing the amount of overbooking was in the direction of improving allocative efficiency. The total elimination of Regulation," Journal of Air Law and Commerce, XXXVIII (1972), pp. 215-227, and K. G. J. Pillai, "Government Regulation in the Private Interest," Journal of Air Law and Commerce, XL (1974), pp. 29-50. 33. The refund is limited by a $25 minimum and $200 maximum. Administrative Law, "Court Usurpation of CAB Function," p. 113, n. 11 and accompanying text. Alternate transportation must be scheduled to arrive within two hours of the original arrival time, or within four hours in the case of international flights. Notes, "Discriminatory Bumping," p. 543, n. 51. 34. Notes, "Discriminatory Bumping," pp. 541-543 and p. 543, n. 51. 35. Notes, "Discriminatory Bumping," p. 543. Nader was apparently entitled to $25 in denied boarding compensation, but was awarded only $10 in compensatory damages.

Area Studies: Public Interest Law in Action overbooking, however, would probably have been an inefficient goal. Objectives: Equity Dimensions. The objective of reducing overbooking has distributional implications for both the airlines and the airlines' passengers. To the extent that a reduction in overbooking would increase the number of flights leaving the terminal with unoccupied seats, it would reduce the average number of passengers per flight and increase the average cost of transporting a passenger, reducing average profit per passenger. If some customers who are denied reservations decide not to fly at all, then the total profit earned by air carriers would decline. Any such reduction is likely to be borne in part by airline stockholders and in part by airline passengers, as carriers try to raise fares to offset the loss in earnings. On the other hand, a reduction in overbooking is likely to reduce the number of passengers bumped. Thus air travelers in general would benefit to the extent that each would be willing to pay for a reduction in the probability of being denied boarding. Yet, some customers would probably be denied reservations on flights fully booked but underutilized because of no-shows. Hence, a reduction in overbooking could also impose costs on airline travelers, to the extent that each would be willing to pay to avoid a reduction in the probability of obtaining a desired reservation. Further, since some individuals probably make multiple reservations in order to retain some flexibility in their travel plans, a reduction in the amount of overbooking might impose additional costs on these travelers who would lose some of this flexibility. Thus, while Nader intended to represent the interests of all air travelers, it is not clear that he did, since a reduction in overbooking could impose net costs on some customers. Although the CAB has never directly regulated overbooking, it has tried to insure that bumped passengers are reasonably compensated. As described earlier, by regulation the CAB requires that some compensation be offered. Bumping is clearly unfair, imposing costs on persons not initially responsible for the overall problem and not aware of the degree to which they are subject to the risk of being bumped. 3 6 The present CAB rule does appeal to notions of fair36. See ibid.

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ness by providing the bumped passenger with at least some compensation for the unexpected disruption o f his travel plans, but that rule does nothing to discourage excessive overbooking or to see that a price is charged for the convenience of acting as a no-show.

those denied boarding accept alternate transportation arranged by the airline and scheduled to arrive within two hours of the original flight. 3 9 Virtually all of the remaining persons bumped accept denied boarding compensation from the airlines in amount ranging from $25 to $200. 4 0

These considerations suggest that the objective of reducing the amount of overbooking is not necessarily desirable on equity grounds, though it may be. While the private sector has failed to produce an equitable distribution o f the costs and benefits of overbooking, the public sector has intervened partially to correct that failure. A more equitable solution would require that a reduction in overbooking be accompanied by some effort to make individuals pay for the convenience of not showing up for a flight.

If the practice of overbooking were eliminated, the number of persons denied reservations on fully booked but not fully utilized flights could total several million or more. 4 1 There is an

Remedies. The remedy proposed by Nader was for the CAB to prohibit all overbooking. Though this remedy was not at issue in the litigation, Nader has stated that it was the remedy he intended. 3 7 From the data available on overbooking it is not clear whether a fully enforced rule banning the practice would be an efficient response to the problem. Although n o information is available on consumers' willingness to pay for the elimination of virtually all probability of being bumped, some indirect evidence suggests that consumers, in the aggregate, might be better o f f if the practice of at least some overbooking is maintained. In an average year there are 160 million passenger boardings and about 8 0 , 0 0 0 cases of passenger b u m p i n g . " Typically, close to half of 37. See New York Times, October 21, 1973, Section IV, p. 12. 38. The number of domestic boardings for fiscal year 1973 (FY 73) was 160 million, and for FY 72 was 147 million. The numbers for FY 70 and FY 71 were 139 and 137 million, respectively. Emergency Reservations Practices Investigation, CAB Docket 26253, Brief of the Bureau of Operating Rights (March 18, 1974), Appendix F. The number of international boardings was 6 million in both FY 72 and FY 73. Airline Statistics Annual (Washington, D.C.: Aviation Daily) 1973 and 1974, Table 8.2b. The amount of overbooking itself is not reported. However, during peak travel periods, eight bookings are sometimes alleged to be needed to produce one real passenger. Aviation Week, XCVIII (April 30, 1973), p. 43. The number of denied boardings was 99,005 in FY 70, 73,578 in FY 71, 80,824 in FY 72 and 75,925 in FY 73 according to data in Emergency Reservations Practices Investigation, CAB Docket 26253, Brief of the Bureau of Operating Rights (March 18, 1974), Appendix F.

39. In FY 73, 49 percent of those denied boarding apparently accepted alternate transportation. In FY 72, the same statistic was 50 percent, in FY 71 49 percent and in FY 70 61 percent. From data in Emergency Reservations Practices Investigation, CAB Docket 26253, Brief of the Bureau of Operating Rights (March 18, 1974), Appendix F. 40. The payment represents 100 percent of the value of the first remaining flight coupon, with a minimum of $25 and a maximum of $200. Administrative Law, "Court Usurpation of CAB Function," p. 113. The number of passengers denied boarding who, like Nader, have sought other relief apparently totals no more than 10 since 1956, at least to the time of Nader. Notes, "Discriminatory Bumping," p. 533, n. 1 and accompanying text. See note 42. 41. The number of denied reservations is the number of persons denied the use of an unoccupied seat because a no-show has reserved the seat but not used it. If overbooking were eliminated, the number of denied reservations would increase from present levels, but would not be equal to the number of overbookings currently made since some overbooked persons are themselves no-shows and some are denied boarding or bumped. Thus, the increase in the number of denied reservations resulting from the elimination of overbooking would equal the number of overbookings adjusted for no-shows minus the number of bumpings. The CAB does not collect and the airlines do not report data on the amount of overbooking. However, United Airlines has stated that during fiscal year 1976 the airline overbooked more than 1 million passengers (New York Times, September 8, 1976, p. 52.). Using 1 million and assuming that United is an average airline with respect to its overbooking, the estimated total number of overbookings per year for the industry is 5.37 million, since United has 18.6 percent of all passenger boardings (Aviation Week CII, February 17, 1975, p. 33, and Airline Statistics Annual, Washington, D.C.: Aviation Daily, 1973 and 1974, Tables 8.1 and 8.2b). The number of overbookings multiplied by a factor of one minus the average no-show rate provides an estimate of the number of overbooked persons who actually show up at the terminal. The average no-show rate is the number of no-shows divided by the total number of bookings, and the total number of bookings equals the number of passenger boardings plus the number of no-shows plus the number of persons bumped. In 1973 there were 19.41 million no-shows, 160.15 million passenger boardings and 0.08 million persons bumped (Emergency Reservations Practices Investigation, CAB Docket 26253, Brief of the Bureau of Operating Rights, March 18, 1974, Appendix B, p. 1, and Appendix F). This yields a no-show rate of 0.108. Multiplying the

412 extreme paucity of data on the number of persons denied reservations because of no-shows, and thus this figure is a very rough estimate. But assuming that one million reflects the right order of magnitude, it seems likely that the total cost to consumers of eliminating overbooking would exceed the total of consumer benefits. While a customer denied a reservation can attempt to make alternate travel arrangements, the cost of such an inconvenience might be comparable to the cost incurred by a bumped passenger, particularly one who accepts alternate transportation. Since nearly half of all bumped passengers accept such alternate transportation, there is some reason to doubt that aggregate consumer losses from overbooking are any greater than the aggregate consumer losses that would accompany its elimination. No firm conclusion can be drawn from the available data regarding the efficiency impact of the remedy proposed by Nader. However, the possibility of an adverse impact cannot be dismissed. In this case, as in others examined in this chapter and throughout this volume, determination of what would constitute an efficient allocation of resources depends, in part, on specific quantitative information that in general, is not known and that would be very costly to develop. In this case, for instance, information on the nature of the stochastic demand for reservations by route, and of the stochastic no-show rate by route, along with the knowledge of the aggregate schedule of willingness to pay to avoid being bumped, and of willingness to pay to hold reservations and fail to use them or cancel them well before departure time, would all be needed in order to calculate the efficient no-show and overbooking rates. In order to go further and assess the impact of any plan to deal with either noshows or overbooking, additional information would be needed on implementation costs and on the effect any such plan would actually have on no-show and overbooking rates. Sometimes, in the absence of such quantitative knowledge, a reasonable guess can nonetheless be made about the likely direction of any estimated number of overbookings by (1-0.108) and subtracting the number of persons bumped gives 4.71 million as an estimate of the number of denied reservations per year that would result if overbooking were eliminated.

Area Studies: Public Interest Law in Action changes, if not the magnitude of change. In this case, although the available information is not sufficient to permit a firm conclusion even regarding the direction of change, it is our judgment that the total elimination of overbooking would probably have an undesirable effect on economic efficiency. With respect to the distributional consequences to be expected from an elimination of overbooking, it would appear from the estimates used above that for each consumer who benefited by not being bumped many other consumers would be harmed by being denied a reservation. Further, simply eliminating overbooking would only maintain the inequity of allowing some to enjoy the convenience of being a noshow without bearing the associated costs. Table 14.3 Estimated Trips by Persons by Air Transport, Total and Per Family, by Family Income, 1972 Family (Sin

Income 1971)

Under $5,000 $5,000-7,499 $7,500-9,999 10,000-14,999 15,000 and over No Answer Median $10,285 Total

Person-Tripsa (thousands)

Person-Trips3 Per Family

2,986 3,481 4,504 14,103 26,019 2,798

0.30 0.49 0.51 0.98 1.97

53,891

1.01

a F r o m U.S. Bureau of the Census, ¡972 Census of Transportation, National Travel Survey, Travel During 1972, TC72-N3 (September 1973), Table 6. A " t r i p " is travel to a place at least 100 miles from home and returning, excluding commutation, travel as part of an operating crew, and student trips to or while in school. A "person-trip" is a trip by a person, and one "person-trip" may account for more than one "passenger boarding." ''Estimated using population data from U.S. Bureau of the Census, Statistical Abstract of the United States, 1973, Table S31.

To the extent that any change in overbooking practices yields either net benefits or net costs for air travelers, the effect will not be distributed equally across the population but will have an impact only on air travelers. Table 14.3 shows the incidence of air travel during 1972 by family income, and Table 14.4 shows the incidence of per capita trips by airplane for 1972 by race and age. Although student travel is omitted, the data are nonetheless indicative of the probable distri-

413 Table 14.4 Estimated Trips by Persons by Air Transport, Total and Per Capita, by Race and Age, 1972 Race and Age

Race White Non-white No Answer Age Under 18 18-44 45-64 65 and over No Answer Total

Person-Trips3 (thousands)

Person-Trips3 Per Capita

51,243 2,203 441

0.28 0.08

4,833 25,737 18,470 3,466 1,384 53,891

0.07 0.34 0.43 0.16 0.26

j*See Table 14.3, note a. Estimated using population data from U.S. Bureau of the Census, Statistical Abstract of the United States, 1973, Table 35, and 1974, Table 25.

bution among consumers of any effects attributable to changes in airline overbooking practices. Persons of age 45 to 64, whites, and those with higher incomes are far more likely than others to feel the effects of overbooking, or of any changes in overbooking practices. Outcomes. As noted earlier, the plaintiffs' victory in district court was reversed and remanded at the appellate level and still awaits a final ruling. But because the plantiffs won in district court and stood to receive over $50,000 in damages, the case earned a substantial amount of publicity. 42 Even before the district court ruling, the threat of such publicity and the possibility that Nader might take further action to expose the problem apparently persuaded the CAB and the airline industry that some form of action was needed. On the basis of facts revealed in Nader, the CAB initiated a separate proceeding against Alle42. The story was covered in at least two articles in the New York Times: October 19, 1973, p. 12, and October 21, 1973, Section IV, p. 12. Since Nader, similar bumping cases have been brought by other plaintiffs, and they may have been brought because of the publicity earned by Nader. Decisions in all are apparently awaiting the outcome in Nader. See, Emergency Reservations Practices Investigation, CAB Docket 26253, "Comments of Aviation Consumer Action Project (ACAP) and Certain Victims of Airline Overbooking," submitted to CAB Docket 26253 pursuant to Order 75-7-54 (July 11, 1975).

Consumerism and Consumers gheny charging that the airline had engaged in "excessive" overbooking during the years 1969 to 1972. 43 In 1974, Allegheny agreed to pay a $12,600 civil penalty. Though a great deal smaller than the amount originally awarded in Nader, the penalty should provide at least some incentive for Allegheny, and other airlines as well, to do less overbooking, and presumably less bumping. Within two months of the initial verdict in Nader, both the CAB and the industry advanced proposals to deal with the overbooking problem. The industry's proposal called for a reduced-fare schedule to apply to reservations that would be subject to the risk of bumping. 44 While this approach would enhance free choice, it suffers from two problems. First, unless the airlines can find a way to make the disclosure of their bumping rates a positive selling point, and to present the information in a form that makes it relatively easy for consumers to process, consumers are unlikely either to receive or to use a piece of information that is vital to the buying decision. Second, the proposal does not effectively deal with the primary market failure problem, the externality effects caused by the no-show, since it does not attempt to shift any of the costs incurred by bumped passengers onto the no-show customers. The CAB has rejected this approach and has advocated the adoption of its own proposed rulemaking. The CAB's proposal is to retain the existing regulation regarding the payment of denied boarding compensation and to add a regulation requiring that tickets be purchased well in advance of flight departures and allowing the airlines to deny full refunds to customers who fail to show without first cancelling their reservations. 45 By forcing the no-show to take into 43. Wall Street Journal, May 5, 1975, p. 19. 44. Aviation Week, C (January 7, 1974), pp. 20-22. These proposals were stimulated by the CAB's investigation of overbooking, Emergency Reservations Practices Investigation, CAB Docket 26253, begun December 21, 1973, according to the CAB, because of emergency fuel allocations to be instituted as a result of the energy crisis of that fall. See CAB Docket 26253, Order 73-12-93/EDR-260 (December 21, 1973), pp. 1-4. It seems likely that the publicity surrounding Nader was at least a contributing factor, on which see note 42. 45. There are, of course, exceptions to those who will be so penalized under the plan. The proposal is aimed at curtailing intentional no-shows. The amount of

414 account added costs that are representative of the losses his actions impose on others, this proposal is clearly aimed at correcting the externality problem, and also represents a reasonably fair assessment of costs. By attempting to reduce the number of no-shows, it has the potential to remove the primary incentive — and the justification - for overbooking, and at the same time recognizes the efficiency role that overbooking plays and the fairness of compensating parties injured by the practice. Although not an attempt to regulate overbooking per se, this approach could nevertheless have a positive impact. For six months during 1962 a similar rule was in effect, and during that brief period there was apparently some decline in the number of no-shows.46 At the same time, revenues from denied refunds were sufficient to cover the airlines' costs of operating the program. The 1962 program "expired automatically by its own t e r m s . . . for failure to obtain the unanimous agreement among the carriers necessary for the plan's continuation." 47 Given this experience, it seems likely that the CAB's failure to take any steps to deal with the no-show problem since 1962 can be attributed to influential pressure from the airlines. Any policy that discourages reservations clearly represents a threat to the industry, while given the small expected losses involved for an individual consumer, it is not surprising that consumer demands for action have not been effectively transmitted to the CAB. Though there is no simple solution to the problem,4* and we cannot conclude that the CAB's proposal is the best solution, or even that the CAB will eventually take any action at all, it the proposed penalty is SO percent of the ticket value with a minimum of $25 and a maximum of $100. Aviation Week C (January 7,1974), pp. 20-22. 46. Aviation Week LXXVII (October 1, 1962), p. 30. During 1957-1958 a similar program was in effect and reduced the incidence of no-shows to passengers enplaned from a high of 14 percent to a low of 5 percent. Emergency Reservations Practices Investigation, CAB Docket 26253, Order 73-12-93/EDR-260 (December 21, 1973), p. 5. 47. Emergency Reservations Practices Investigation, CAB Docket 26253, Order 73-12-93/EDR-260 (December 21, 1973), p. 5. 48. For another solution to the overbooking and bumping problem, see Harold Bierman, Jr., and L. Joseph Thomas, "Airline Overbooking Strategies and Bumping Procedures," Public Policy, XXI (Fall 1973), pp. 601-606.

Area Studies: Public Interest Law in Action does appear that Nader was, in fact, an attempt to correct an existing market failure. Without Nader, the CAB would probably still be far from even considering the need to take corrective action, and the interests of many consumers would probably still be unexpressed. By representing those interests, Nader, though possibly in pursuit of an inappropriately extreme remedy, appears to have acted as a catalyst, prompting public sector intervention to correct inefficiencies and inequities existing in the private market. Hie Nader Study Group Report on the FTC: Consumer Interest in the Enforcement of Consumer Protection Laws We now turn to a series of three public interest actions that attempted to bring about substantive changes in the procedures and regulations of the Federal Trade Commission (FTC). The first is "The Nader Report" on the Federal Trade Commission, a public interest action that relied primarily on the use of publicity as a means for accomplishing its objectives.49 The Nader Report was researched and written between June and December of 1968." It was the work of seven student lawyers, brought together in Washington, D.C., as the first group of "Nader's Raiders" and assigned the task of investigating what Nader felt was an incompetent and misguided FTC.51 Nader exercised little supervision over the students' work, his main contributions being those of organizer, financial backer, and publicity agent." Some of the information for the study came from published reports and press releases from the FTC and interviews with Commissioners and staff members. The threat of litigation, however, proved to be a useful tool for gaining access to the files and budget data of the Commission. 53 By threatening to bring suit under the Freedom of Information Act, the Raiders were able at first to persuade a reluctant FTC Chairman Paul Dixon to provide a good deal of the information that went into the report. However, clandestine 49. Edward F. Cox et al., "The Nader Report" on the Federal Trade Commission (New York: Richard W. Baron, 1969). 50. Ibid., pp. 3-10. 51. Charles McCarry, Citizen Nader (New York: Saturday Review Press, 1972), pp. 183-185. 52. Ibid. 53. Ibid., pp. 185-187.

415 meetings with unnamed "informed sources" were needed to penetrate the silence ordered by Chairman Dixon two months after the "Raiders" investigation had begun." Even before the report was published it began to make news, in part because of the novel tactics employed by the Raiders, but mostly because of Nader's association with the project. 55 During the years prior to 1968, Nader had become well-known as a consumer advocate, primarily as a result of his battle with the General Motors Corporation. 56 A great deal of publicity had engulfed an attempt by General Motors to harass Nader during his campaign to expose the alleged built-in safety hazards of the Corvair, a General Motors car. That experience brought Nader not only fame but also encouragement. He had found that large bureaucratic institutions could be challenged effectively, and that publicity could be a most valuable asset. As a result, Nader became skilled at using the press as a forum to present his case and as a source of leverage in dealing with his adversaries. When the Nader Report on the FTC was published in early January of 1969, it received a great deal of attention. 57 Numerous editorials and newspaper and magazine articles appeared, discussing the allegations contained in the study and reporting on the reactions of government officials." The Report alleged that the FTC was inefficiently managed, staffed by incompetent employees, undercommitted to important consumer protection projects, ineffective at detecting and correcting deceptive practices, and masked from public scrutiny by a veil of public relations activities that misrepresented the true FTC. In response, the Congress initiated committee hearings to investigate the charges, and in April of 1969 President Nixon asked the American Bar Association (ABA) to conduct a separate investigation." The ABA Report was published five months later and essentially repeated the findings 54. Ibid. 55. See New York Times, November 13, 1968, p. 59. 56. McCarry, Citizen Nader, pp. 3-29 and 182. 57. See New York Times, January 6, 1969, p. 28; January 10, 1969, p. 31; January 12, 1969, Section IV, p. 13. 58. See ibid, and McCarry, Citizen Nader, pp. 189-190. 59. Coxetal., "The Nader Report," pp. xii-xiv.

Consumerism and Consumers of the Nader Report. In January 1970, the reorganization of the FTC began. Objectives: Efficiency Dimensions. The FTC's primary responsibility is the "prevention of false advertising and other unfair and deceptive practices in commerce," including antitrust violations." It is probably the single most important government agency responsible for correcting private market failures of the type discussed in the previous section. It is clear from both the Nader and the ABA reports that by 1968 the FTC had lapsed into a state of decline. The ABA Report cited evidence showing a "downward trend in virtually all categories of [FTC] activities [despite] a rising budget and increased staff," and charged that when the FTC did act it tended to concentrate on "trivial matters rather than [on] matters of pressing public concern."" The reasons for this decline can be traced ultimately to the existence of organizing costs and free rider problems that left the FTC unaccountable to the interests it was empowered to protect, and left consumers underrepresented. Further shielded from public scrutiny by a facade of activity, the FTC was allowed to become a "patronage dumping ground" and a haven for industry and trade association lobbyists." As a result, the FTC was discouraged from pursuing vigorous enforcement and alternative remedies, and private market failures were allowed to persist.44 For consumers, we expect that this meant less protection against monopoly practices, fraud, deceptive marketing tactics, and misleading statements in advertising. In attempting to expose the problems at the FTC, the Nader Report was representing the interests of all consumers in correcting a governmental failure and promoting allocative efficiency. Objectives: Equity Dimensions. We also expect that, because of the FTC's laxity, firms in 60. See American Bar Association, Report of the ABA Commission to Study the Federal Trade Commission (September 15, 1969) (hereinafter, ABA Report). 61. For the functions of the FTC, see, for example, George J. Alexander, Honesty and Competition (Syracuse: Syracuse University, 1967). 62. ABA Report, p. 1. The evidence included statistics on investigations opened, complaints issued, orders issued, age of investigations and complaints pending, compliance investigations, and other FTC activities. See pp. 16-35. 63. McCarry, Gtizen Nader, p. 185. 64. Ibid., pp. 188-189.

416 some industries were allowed to exploit underinformed consumers, and to gain competitive advantage over less aggressive rivals. Thus, not only were some consumers harmed more than they would have been had the FTC been more active, but some less aggressive firms, and ultimately the stockholders and employees of those firms, were also harmed. It should be noted that not all consumers were misled by the deceptive practices that went unchecked. Most likely, only some consumers, those with less experience and less knowledge and those for whom information processing is most costly, were misled by deceptive advertising claims, "bait-and-switch" selling tactics, and other unfair practices." Those who did not change their behavior, despite attempts to deceive them, were in no way harmed. Thus, while all consumers would benefit from a more active FTC, at least to the extent that each would be willing to pay for some reduction in the risk of being deceived, those who had been harmed previously would not be compensated for any losses suffered. Remedies. The Nader Report made a number of recommendations. 6 ' Among them were calls for an increase in the effort to detect consumer fraud and deceptive practices, the creation of "task-forces" to investigate "special and pressing problems," the gathering and release of "information of interest to consumers," an effort by the FTC to "lobby vigorously for the passage of 'baby FTC Acts' by individual states," and the use of "stricter coercive measures" than the " 'voluntary' nonbinding enforcement tools" relied on heavily by the FTC. The Report was concerned only with the FTC's enforcement of prohibitions against false advertising and deceptive practices, and did not deal with the FTC's antitrust responsibilities.67 While there is little doubt that the remedies proposed in the Report held the promise of significantly improving the FTC, it seems quite likely that activities in the area of antitrust violations were equally in need of reform. Indeed, the ABA Report found the FTC's performance in the area of antitrust enforcement less than satisfactory, 65. For a discussion of this point and some examples see Alexander, Honesty and Competition, pp. 7-21. 66. Cox etal., "The Nader Report," pp. 161-174. 67. Ibid., p. xiii.

Area Studies: Public Interest Law in Action noting in particular its failure to use powers that are unique to the FTC and are not duplicated by Department of Justice enforcement through the courts." Still, the FTC's deceptive advertising and consumer fraud responsibilities are probably the most important problem areas within its jurisdiction." Thus, the remedies proposed in the Nader Report were appropriate, if perhaps in a small way inadequate, for correcting the governmental failure involved. Outcomes. As a direct result of the publicity earned by the Nader Report, reorganization and revitalization of the FTC were begun within a year of the study's release.70 The publicity was due in part to Ralph Nader's association with the study. Both his appeal as a newsmaker and his own ability to use the press contributed to the successful effort to gain public exposure. But equally important was the fact that the allegations made were substantially correct. Reporters and public officials, looking to the FTC, saw just what Nader's team of student lawyers had seen, and as a result, the publicity continued and public pressure for change gained momentum. With the release of the ABA Report, pressure for reform became insurmountable. The ABA study recommended that the FTC be either reorganized or abolished.71 The former course of action was the one chosen. Under a new chairman, the FTC's reorganization was accomplished within a year and a more activist FTC emerged. The FTC's resuscitation was evidenced in a number of actions, including many of those recommended in the Nader Report.71 Among the many new programs begun after the FTC's reorganization, one is of particular interest, the FTC's ad-substantiation program. Begun in 1971, the program was the result of an idea that came from Ralph Nader.73 During 1970, Nader had written to a number 68. ABA Report, p. 64. See ABA Report generally for a discussion of the FTC's powers in this area. 69. See Scherer, Industrial Market Structure and Economic Performance, p. 38. 70. McCarry, Citizen Nader, pp. 190-192. 71. ABA Report, Conclusions. 72. McCarry, Citizen Nader, pp. 191-194. See also, for example, National Journal, V (July 14, 1973), p. 1033; V (July 28, 1973), p. 1109; V (November 10, 1973), p. 1694; and V (December 29, 1973), pp. 1931-1939. An indication of increased enforcement activity is also shown by data reported in the Annual Report of the Federal Trade Commission for 1971. 73. McCarry, Citizen Nader, pp. 191-194.

417

Consumerism and Consumers

of firms requesting scientific data that would support certain advertising claims that Nader felt were questionable. When few of the firms would supply such information, Nader, joined by the Consumer Association of the District of Columbia and the Federation of Homemakers, filed a petition with the FTC asking that advertisers be required to disclose scientific data substantiating the claims made for their products. In response to this petition, the FTC announced that it would require "all advertisers to submit to it on demand documentation to support claims regarding the safety, performance, efficacy, quality, or comparative price of the product advertised," and that the material obtained would be "made available to the public." 74

also began requiring the submission of interpretive summaries as well as documenting data. Even if the program should become an effective tool for discouraging deceptive advertising, there is no guarantee that consumers in general would benefit. Some information that would be useful and not misleading for some consumers might be withheld by private firms lacking a scientifically acceptable standard against which to judge a specific claim. On the other hand, the program might have no effect on the amount or quality of the consumer information produced in the private sector, and instead might only make consumer information more expensive as firms expend resources to produce sufficient evidence to substantiate their claims.

The purpose of the program, as stated by the FTC, was to provide information to consumers and to encourage advertisers to have adequate substantiating evidence available before making claims.15 The program's success with respect to the second objective cannot be ascertained. However, with respect to the first objective, the program has clearly been unsuccessful. Because of the highly technical nature of much of the data submitted, and because of the massive amount of data involved, consumers were discouraged from making any use of the information made public by the FTC. 7 ' Although the program was not designed as a campaign to ferret out false advertisements, its potential to fulfill this purpose was also limited by these same factors. After two years of experience with the program, the FTC decided to de-emphasize the disclosure aspect of the program, and to give more weight to its function as a deterrent and as a method of detecting false claims.' 7 The FTC

The possibility that the FTC's ad-substantiation program may not bring net benefits to consumers is a reflection of the difficulties encountered when attempting to correct potential private market failures. At the same time, the FTC's receptiveness to Nader's petition indicates how much the FTC had changed as a result of the Nader Report. The ad-substantiation program is also an indication that, while the Nader Report may have been successful when measured in terms of the increase in FTC consumer protection activities, it may prove to be a good deal less successful when measured in terms of actually realized consumer benefits. Still, relative to its own objectives and proposed remedies, the Nader Report stands out as one of the most successful of the public interest activities undertaken on behalf of consumers.

74. Ibid. 75. U.S. Senate, Advertising 1972, 92nd Congress, 2nd Session, Hearings before the Committee on Commerce, May 16, 18, and 31, 1972, pp. 303-331, 37Iff. 76. Contributing problems may have been the timing or convenience of the final dissemination, or the lack of a significant need for the information on the part of consumers. See ibid, and New York Times, December 4, 1972, p. 15. 77. CCH, Consumerism, 11 (January 30, 1974), p. 606. Between June 1971, when the advertising substantiation program began, and the end of 1975, documentation submissions have been required of firms advertising products in 13 categories. To date, only four complaints of deceptive advertising have resulted from the program. These are reported in Trade Reg. Rep. 1970-1973, Transfer Binder para. 20,120. Three air con-

ASH et aI v. FTC: Consumer Interest in Public Interest Intervention The second case involving the FTC is essentially a continuation of Nader's effort to reform the Commission, though Nader was involved in only a peripheral way. Unlike the Nader Report, this case was not a broad assault on the FTC, but an attack aimed at changing a specific enforcement procedure used by the FTC in cases involving deceptive practices. Also unlike the Nader Report, it relied solely on the use of litigation. ditioning manufacturers and General Motors Corp. were cited in the announcement of proposed complaints. The three air conditioning manufacturers have agreed to consent orders to cease and desist. Trade Reg. Rep. 1970-1973, Transfer Binder para. 20,451; 20,570; 20,825.

418 The case grew out of an attempt by Students Opposing Unfair Practices, Inc. (SOUP), to intervene in FTC consent negotiations with the Campbell Soup Company in 1969, and a similar attempt by Students Against Volvo Exaggerations (SAVE) to intervene in negotiations with Volvo, Inc., in 1 9 7 3 . " In both the Campbell Soup and Volvo matters, the FTC had charged the firms with false and deceptive advertising, and in proposed complaints against the two firms sought cease and desist orders. Both firms agreed to the proposed orders. In the Campbell Soup matter, SOUP petitioned the FTC to withdraw its provisional acceptance of the order, and to grant SOUP permission to intervene. SOUP requested that the order include a "corrective" provision to alert the public to Campbell's deceptive practices. The FTC denied the petition, stating that such a corrective order was not warranted. 7 ' In the Volvo matter, SAVE filed a motion with the FTC for permission to intervene during the period of consent negotiation proceedings prior to Volvo's acceptance of the proposed order. SAVE wished to argue that a corrective order was warranted in this case. The motion was denied, and subsequently SOUP and SAVE, both part of "BanzhaFs Bandits," joined with Action on Safety and Health (ASH), another Banzhaf group, and Nader's Center for Auto Safety to form a coalition to bring the present action against the F T C . " The coalition in ASH et al. asked the court for (1) review of the FTC's denial of the SAVE motion to intervene in the Volvo matter; (2) a declaration that the FTC's present consent negotiation procedures were "constitutionally defective because they provided for insufficient public participation"; and (3) injunctive relief to prevent the FTC from utilizing the allegedly unconstitutional procedures until they were suitably 78. In re Campbell Soup Co., Trade Reg. Rep. 1967-1970, Transfer Binder para. 19,261, and In re Volvo, Inc., Trade Reg. Rep. 1974, Trade Cases para. 75,012 at p. 96,476. 79. See In re Firestone Tire and Rubber Co., Trade Reg. Rep. 1970-1973, Transfer Binder para. 19,373 at p. 21,501, and U.S. House of Representatives, Advertising and Small Business, 92nd Congress, 1st Session, Hearings before The Subcommittee on Activities of Regulatory Agencies Relating to Small Business, June 7 , 1 1 , 14,18 and 25,1971, pp. A302ff. 80. See ASH et al. v. FTC, Trade Reg. Rep., 1974 Trade Cases, para. 75,012 at p. 96,476.

Area Studies: Public Interest Law in Action revised." The court, finding the plaintiffs arguments unconvincing and "singularly unenlightening," denied each request.* 1 Objectives: Efficiency Dimensions. To evaluate the objectives of ASH et al. it will be useful to discuss briefly the FTC's procedures for dealing with deceptive advertising practices. To detect false or deceptive advertising, the FTC relies heavily on the submission of complaints by private individuals and businesses. About 13,000 complaints are filed with the FTC each year. *3 Usually, just over half of these lead to FTC action, the remainder being referred to other agencies or closed for a variety of reasons. $4 The vast majority of those complaints found to warrant FTC enforcement action are settled through informal procedures that involve oral or written promises of "voluntary compliance." The small remainder, about 250 annually, are settled through the FTC's consent order procedures. Under these formal procedures, a firm is notified of a proposed complaint containing a proposed order, and negotiations between the firm and the FTC are begun. If the firm rejects the proposed order, a formal complaint is issued and the matter is eventually adjudicated before the FTC. If the firm agrees to the proposed order, or a different order is negotiated with the FTC, it is placed on public record for 30 days, during which time the FTC will receive the "comments or views" of "interested" parties. The FTC then has ten days either to issue a final order or to withdraw its provisional acceptance and issue a formal complaint, an action rarely taken. At any time during the consent negotiation proceedings and continuing through the adjudication of a contested order, parties may file motions to intervene, as did SOUP and SAVE. However, the FTC has never approved a motion to intervene in an on-going consent negotiation, , s 81. Ibid. 82. Ibid., p. 96,480. 83. U.S. House of Representatives, Consumer Protection Legislation, 92nd Congress, 1st Session, Hearings before a Subcommittee of the Committee on Government Operations, April 27, 28; May 6, 24; and July 12, 1971, pp. 387ff. See also, Note, "Corrective Advertising Orders of the FTC," p. 481, n. 26. 84. Data on the FTC enforcement procedures are from Note, "Corrective Advertising Orders of the FTC," p. 481, n. 26. 85. For a discussion of this point, see In re Campbell Soup Co., Trade Reg. Rep., 1967-1970 Transfer Binder para. 19,261.

419 and only rarely approves such motions once a case reaches the adjudication stage, unless the party to intervene has a direct and pressing interest in the case. The decision to grant or deny permission to intervene is a wholly discretionary power of the F T C . " At issue in each deceptive advertising case, both during the consent negotiations and during any adjudication of a contested complaint, are the alleged deceptive acts to be covered by an order and the action to be required of an offending firm. The vast majority of final orders issued by the FTC in deceptive advertising cases contain only the negative sanction of a simple cease and desist order, a strict prohibition against making those claims found to be deceptive or misleading." Such an order seeks only to prevent repetition of the deceptive action. On occasion, the FTC includes a "conditionally affirmative" provision in a cease and desist order that prohibits an advertiser from making specified claims unless clarifying disclosures are made concurrently. Usually this consists in appending certain qualifications to the originally deceptive or misleading claim." An advertiser can avoid making the ordered disclosure by simply not making the cited claim. In 1970, the FTC began seeking a third type of order, the "corrective advertising" o r d e r . " This was the type of order sought by both SOUP and SAVE in their efforts to intervene. A corrective order not only requires that a firm cease and desist from making claims found to be deceptive, but also requires that the firm devote some portion of its future advertising to a confession of the previous deception and a restatement of the deceptive claim in a form acceptable to the FTC.' 0 Apparently the concept of the corrective advertising order originated with SOUP's 1969 petition to intervene in the Campbell Soup matt e r . " (The impact of SOUP's advocacy of the 86. ASH et al. v. FTC, Trade Reg. Rep., 1974 Trade Cases para. 75,012 at pp. 96,477-8. 87. Note, "Corrective Advertising Orders of the FTC," p. 477. 88. Ibid., pp. 488-491. 89. Ibid., p. 477. 90. William C. Whitford, "The Functions of Disclosure Regulations in Consumer Transactions," Wisconsin Law Review (1973), p. 466, n. 143. 91. See Robert F. Dyer and Philip G. Kuehl, "The Corrective Advertising Remedy of the FTC: An Experimental Evaluation," Journal of Marketing, XXXVIII (January 1974), p. 48.

Consumerism and Consumers corrective order is considered in the next section.) Since 1970, corrective advertising provisions have been contained in several agreed-to consent orders and have been sought in a number of formal complaints." The primary rationale offered by the FTC for corrective advertising is that it is needed to counteract the lingering effects of earlier deception. 9 3 In addition, however, corrective advertising can penalize offenders for their illegal and unfair acts and bolster the deterrent effect of laws prohibiting unfair and deceptive practices. The primary objective of ASH et al. was to open the FTC's consent order proceedings to non-governmental, "public interest" advocates who would argue, perhaps for more inclusive orders, but certainly for greater use of the affirmative sanctions of conditional and especially corrective orders. Failing that, the coalition could hope that the case would continue the pressures for such action applied earlier in the Campbell Soup and Volvo matters. The case thus implicitly alleged a failure of the public sector to protect adequately the interests of virtually all consumers in the prevention and correction of deceptive advertising. The plaintiffs' case implies that the consent negotiation procedures allow for an overrepresentation of the interests producers may have in protecting both their good will and any gains realized from using deceptive or false advertising. Certainly if the coalition had achieved its primary objective, resources from the voluntary sector could then have been made available both to supplement the work of the FTC staff and to keep that body alert to consumer interests as represented by the "public interest" intervenors. However, it is not obvious that the advantages of the existing consent order procedures should be abandoned in whole or in part, as the coalition's 92. FTC Decisions: Findings, Opinions and Orders, LXXXI (July 1, 1972 to December 31, 1972), p. 428. By 1973, three consent orders containing corrective provisions had been obtained and ten formal complaints seeking corrective orders were pending. See also Trade Reg. Rep., 1973-1974 FTC Complaints and Orders, para. 20,356; 20,536; 20,629. The CAB, responsible for preventing deceptive advertising by airlines, has also issued at least one corrective order. See Bernard F. Diedrich, "Protection of Consumer Interests under the Federal Aviation Act," Journal of Air Law and Commerce, XL (1974), p. 24, n. 88. 93. Whitford," The Functions of Disclosure Regulations," p. 447.

420 objective would have it. Third party intervention in consent negotiations could result in a more intensive and prolonged investigation, and this could have two adverse effects. First, it could increase the average cost of an FTC enforcement action, meaning that the FTC's operating budget would have to increase if the present case load were to be maintained. Alternatively, if the FTC's budget were not increased, investigations and prosecutions would have to be foregone in order to accommodate any extension of those cases in which third parties intervene. Second, the advantages of third-party intervention of the sought-after type appear to center on the proposition that such intervention would result in more affirmative FTC orders. However, it is probable, given the FTC's discretionary powers and its past behavior, that intervenors seeking affirmative relief either would fail to convince the FTC of the need for a form of relief that it was not already seeking or, if successful in that respect, would cause the responding firm to contest the proposed order, resulting in a need to adjudicate the complaint. Since the adjudication process takes three to five years or more,' 4 the final order, and any affirmative relief, would be significantly delayed, and the longer the delay, the less likely it is that such relief would have a positive impact: a conditionally affirmative order may have no effect, since it may apply to claims that the firm is no longer making, while corrective relief may refer to a misleading statement that nearly everyone has forgotten. This is not to deny that a corrective order may still serve to provide consumers with useful information and to penalize a malefactor, but the FTC has emphasized the "corrective" function of the order and is unlikely to order corrective advertising when it cannot be justified as necessary to counteract the lingering misconceptions created by earlier deception. While the FTC is empowered to prevent deceptive advertising, it does not have the authority to issue an order designed as a punitive measure.95 Yet it is the 94. Note, "Corrective Advertising Orders of the FTC," p. 483. 95. The FTC is not empowered to issue orders as punishment for past violations of the FTC Act, but only "to put a stop to present unlawful practices and to prevent their recurrence in the future." Coro, Inc. v. FTC, 338 F.2d 149, 153 (1st Cir. 1964) cited in Note, "Corrective Advertising Orders of the FTC," p. 500.

Area Studies: Public Interest Law in Action purely punitive aspect of a corrective order that is the primary source of its potential deterrence (preventive) impact. Apparently the FTC has chosen, at least for the present, to restrict its use of corrective advertising to cases where a need to dissipate the lingering effects of misrepresentation can be most clearly demonstrated. Indeed, it is possible that for this reason the courts would not sustain an FTC corrective order that was not specifically intended to serve this purpose." Finally, the implicit allegation of a continuing governmental failure at the FTC must be questioned. Since the restaffing of the FTC following the Nader and ABA studies, the FTC has taken a much more activist role in consumer protection. The introduction of the corrective order was itself a result of the FTC's resuscitation and its responsiveness to the demands of public interest groups, especially SOUP, to begin using the corrective remedy. (The role of SOUP in advocating use of the new, corrective remedy is discussed below.) Certainly, the type of pressure exemplified by the original Nader study and the efforts by SOUP and SAVE to intervene in the agency's proceedings are important elements in maintaining the FTC's effectiveness as a representative of consumer interests. The potential for producer interests to dominate in FTC proceedings exists, and the representation of consumer interests bythe FTC may, in some cases, be inadequate. Indeed, we will argue below that SOUP's advocacy of the corrective advertising remedy is an example of a case in which consumer interests were underrepresented by the FTC. But the scope of the interventionary power sought in ASH et al. is, we believe, inappropriate given its uncertain benefits, the implied costs, and the present policies of the FTC. Objectives: Equity Dimensions. Asjust noted, the use of affirmative relief in deceptive advertising cases, and particularly the use of corrective orders, might have significant income distributional consequences in that such relief tends to 96. See Whitford, "The Functions of Disclosure Regulations," p. 447. "The Commission's primary rationale for corrective advertising is that it is needed to counteract the lingering effect of earlier deceptive advertising. Under existing legislation, it seems inevitable that the courts, if they sustain the Commission at all, will restrict the Commission's power to compel advertising to situations indicated by the latter's rationale - that is, to where there has initially been deceptive advertising." (Notes omitted.)

421 penalize a malefactor by requiring either a confession of error or the disclosure of qualifying information that presumably detracts from the advertiser's intended purpose. Though some penalty may be desirable in certain cases, corrective and conditional orders may not be an effective way to exact such a penalty." The only evidence available on the impact of the corrective order indicates that it will not necessarily have a detrimental effect; for instance, the wording of a corrective ad, the medium of its delivery, the source of the message (the offending firm or the FTC), and the previous ad campaigns for the product will all influence consumer response. " Indeed, one corrective advertisement ordered by the FTC - in which ITT Continental Baking Co. was required to retract the weight reducing claims made in earlier advertisements for its Profile bread — elicited a favorable response from customers, apparently because they appreciated being told the t r u t h . " This does not mean that such orders cannot penalize offenders. The penalty effect of a corrective order will depend on, among other things, the wording required. In the Profile bread case, the corrective statement cast ITT as a company concerned about its customers: An actress states in a television commercial, "I'd like to clear up any misunderstandings you may have about Profile bread from its advertising or even its name." 1 0 0 In another proposed corrective order involving the Standard Oil Co. of California, the FTC would have required the following much stronger wording, potentially more detrimental to the pffenders: "The FTC has found that the company's previous advertising... contained false, misleading and deceptive statements, representations and demonstrations." 101 The 97. The FTC, of course, has the authority, through the Department of Justice, to impose criminal sanctions, an action that is apparently rarely taken. Note, "Corrective Advertising Orders of the FTC," p. 480. See also note 104. 98. An ad campaign of counterarguments preceding required corrective advertising can lessen the degree of adverse consumer reaction. On this and other variables, see Keith Hunt, "Effects of Corrective Advertising," Journal of Advertising Research, XIII (October 1973), pp. 15-24, and Dyer and Kuehl, "The 'Corrective Advertising' Remedy," pp. 48-54. 99. CCH, Consumerism, I (March 22, 1972), p. 374. 100. Note, "Corrective Advertising Orders of the FTC," p. 478, n. 12. 101. Ibid., p. 478.

Consumerism and Consumers complaint against Standard was eventually dismissed. 10 ' Whatever the wording of a corrective statement, its punitive impact is an uncertain proposition. If a penalty is the primary objective, perhaps a more direct route should be taken. At present the FTC can seek misdemeanor penalties of up to $5,000 and six months in prison for false advertising of products injurious to health or advertising intended to defraud or mislead. 103 Apparently such penalties have never been invoked, 104 and they may be too small in any event to represent either a satisfactory equity remedy or a significant deterrent. Finally, neither affirmative relief nor the assessment of a penalty will provide any redress to consumers harmed by earlier deception. The only redress possible from such relief will accrue to rival firms from patronage they might gain to compensate in part for any unfair advantage acquired earlier by the deceptive advertiser. Remedies. The principal remedies sought in ASH et al. were a court declaration that the consent negotiations were constitutionally defective, and a court injunction barring the use of those procedures until they were suitably revised. Given our tentative conclusions regarding the merits of the objectives, these remedies would appear to be inappropriate. However, even if the implicit allegation of ASH et al. charging governmental failure to represent consumer interests is accepted as an established fact, the remedies requested by the plaintiffs would hardly seem adequate, given that only about 5 percent of the 7,000 enforcement actions of the FTC ever reach the stage of consent negotiations. Though it might be that these represent the most serious violations of the law, the vast majority of enforcement actions would be unaffected by a ruling that the consent negotiations were defective. Further, if the FTC were strongly biased in favor of producer interests, this 5 percent might be reduced, thus worsening any potential governmental failure. Finally, while 102. In re Standard Oil of California, Trade Reg. Rep. 1970-1973, Transfer Binder para. 20,321, initial decision to dismiss (April 25, 1973). 103. 15 USC §54(a)(1970). 104. Alexander, Honesty and Competition, pp. 4-5, states that this and similar remedies have been "disregarded in favor of [the FTC'sj customary practice of issuing cease and desist orders."

422 the plaintiffs may have felt that an injunction was necessary to secure an adequate response from the FTC, it might have become unnecessarily costly to consumers in terms of enforcement actions foregone, if a truly recalcitrant FTC delayed in formulating new procedures. Prior to undertaking the litigation, the plaintiffs must have known that they had only a very small chance of winning the case. Rarely have the courts failed to sustain the FTC's use of discretionary powers in matters such as those raised by ASH et al. Thus the case could hardly have represented a threat to the FTC, and its only advantage over the filing of a petition with the FTC requesting changes in its consent order procedures may have been its power to demonstrate the earnest intent of the plaintiffs to represent what they felt were the interests of consumers. Outcomes. The immediate outcome of the case was a reaffirmation of the FTC's discretionary powers. However, responding at least in part to this case, the FTC has made some changes in its consent order procedures. In February 1974, a year after ASH et al. was begun, the FTC announced that, because of "increasing and legitimate public demand for a freer flow of information from the government to the people," it would institute the following changes: (1) the thirty-day period for submitting comments on proposed orders would be increased to sixty days; (2) the FTC's analysis of consent order cases would be made public; (3) a number of procedures would be instituted to expedite the handling of Freedom of Information Act requests; and (4) a record would be kept of those contacts made during the investigation of deceptive practice cases. 105 While these changes will have no direct effect on the ability of "public interest" advocates to intervene in consent negotiations, they will provide these advocates with additional information and time, two assets that might have some impact on the effectiveness of arguing for either the right to intervene or the withdrawal of a provisionally accepted order. Thus, while the litigation "failed" to achieve its own objectives, it can be credited with some degree of success in reducing 105. CCH, Consumerism, II (February 27, 1974), pp. 650ff., and II (March 20, 1974), pp. 688ff.

Area Studies: Public Interest Law in Action the number of potential governmental failures that may be present in some of the FTC's enforcement actions.

In re Firestone Tire and Rubber Co.: Consumer Interest in Corrective Advertising In 1970, SOUP, having been denied permission to intervene in Campbell Soup, filed another motion with the FTC for permission to intervene in a case involving allegedly deceptive advertisements of the Firestone Tire and Rubber Company for its automobile tires. 106 SOUP again wished to argue for corrective relief. The FTC granted SOUP permission to intervene for the purpose of presenting "relevant material and noncumulative evidence" on the issue of corrective relief, and perhaps in the interest of fairness, also allowed the Association of National Advertisers to intervene in a similar manner, on behalf of the Firestone position. The FTC stated that it was allowing intervention in this case for two reasons: first, in the Commission's opinion, a corrective order might be appropriate in Firestone, since, unlike the Campbell Soup and Volvo matters, the case involved a "public safety danger," alleging that Firestone had misrepresented the safety of its tire products; and second, the intervention would not unduly lengthen the case, since the 106. In re Firestone Tire and Rubber Co., Trade Reg. Rep. 1970-1973, Transfer Binder para. 19,373 and 20,112. The case is discussed in U.S. House of Representatives, Advertising and Small Business, pp. A302-3; U.S. Senate, To Establish a Consumer Protection Agency, 92nd Congress, 1st Session, Hearings before the Subcommittee on Executive Reorganization and Government Research of the Committee on Government Operations, November 4 and 5, 1971, p. 249; and U.S. Senate, Establish a Department of Consumer Affairs, pp. 678ff. At issue in the case was a claim alleged to be implicit in the offending ads that Firestone tires were free from any defect, and the explicit claim that Firestone's Super Sports Wide Oval tires could be stopped 25 percent quicker than regular tires. Regarding the first, 15 percent of those interviewed in a scientific survey interpreted the ad as stating that Firestone tires were absolutely safe and free from defect. The Commission felt that this 15 percent understated the deception, but added that "even if the percentage is correct, this 15 percent of the purchasing public is entitled to be told the truth regarding the safety of the tires offered to them." Regarding the claim of 25 percent quicker stopping, substantiating tests had apparently been run on a smooth ice surface, a qualification not disclosed in the ads. FTC Decisions LXXXI (July 1, 1972 to December 31, 1972), pp.415 and 418.

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Consumerism and Consumers

lingering effects of an advertisement in order to justify a corrective order. It would be enough for the Commission to find only "some fair probability" that consumers continue to be deceived. 111 The Commission determined that even this was not the case in Firestone, and therefore denied the corrective relief sought by SOUP." 2 Objectives: Efficiency Dimensions. The potential benefits of a corrective advertising order are of two sorts; the short-term effect of counteracting any lingering misconceptions, and the longterm effect of deterring advertisers from attempting future misrepresentations. Benefits of the former type would, in this case, accrue to those consumers who had been misled by the Firestone advertisements, while deterrence benefits would accrue to many other consumers since Firestone and other firms as well would take notice of the possibility of facing a corrective order. Thus, in its role as intervenor SOUP was acting on behalf of consumers in general, but particularly on behalf of those who had been misled by Firestone's deception. For reasons discussed earlier, private for-profit firms were not likely to "represent" those interests and produce the corWith regard to the second issue — the criteria rective information even if aggregate consumer to be used when deciding whether or not to benefits exceeded the cost of supply. The potenorder corrective relief — the Commissioners, suf- tial for the public sector also to fail was implicficiently impressed that the safety of certain itly recognized by the FTC Commissioners in Firestone tires had been misrepresented, deter- granting SOUP permission to intervene and argue mined that the need for corrective relief must for corrective relief where the staff of the FTC rest on three bases: (1) the extent of a con- had not proposed such a remedy. With potential sumer's recollection of the misleading statement, private market and governmental failures present, in whole or in part; (2) the process by which SOUP was at least representing interests that information in an advertisement affects both pur- would otherwise have gone unrepresented. SOUP's objectives clearly involved securing chase decisions and the manner in which a product is used (buyers, led to believe that the tire both short-term and long-term benefits. This is was safer than others, might exercise less caution evidenced by the provision for corrective notifiwhen driving); and (3) the impact of the adver- cation of Firestone's customers being sought by tisement on repeat purchases. 110 Confronted SOUP, together with SOUP's statement that a with contradictory and inadequate evidence on simple cease and desist order was not sufficient these points, one Commissioner noted that it was relief in this case because the FTC had found not necessary to "quantify with precision" the that Firestone had engaged in false advertising on two previous occasions. 113 However, as dis107. In re Firestone Tire and Rubber Co., Trade cussed above, the FTC is reluctant to issue an proposed order was already being contested by Firestone. 10 ' As the case developed, two issues came to the fore: the FTC's authority to order corrective relief, and the criteria to be used when exercising such authority. With regard to the first, the Commission's counsel along with SOUP argued that the FTC had the requisite authority. The Commissioners agreed, stating that the FTC's charge to protect the public interest could require that a corrective order be issued where substantial and "continuing injury to the public" would be avoided by corrective advertising. 108 Thus, the corrective remedies sought by SOUP were deemed reasonable in principle. Those remedies would have required that Firestone devote a portion of its future advertising to the disclosure that the FTC had found certain of its prior ads to be misleading, and also that Firestone send corrective letters to its tire purchasers making the same disclosure. 109 The argument for the latter remedy was that repurchase decisions may be influenced more by misleading statements that prompted an original purchase than by any experience with the tires' subsequent performance.

Reg. Rep., 1970-1973 Transfer Binder para. 19,373 at p. 21,502. 108. In re Firestone Tire and Rubber Co., Trade Reg. Rep., 1970-1973 Transfer Binder para. 21,112 at p. 22,085. 109. Ibid., at p. 22,082. 110. FTC Decisions, LXXXI (July 1, 1972 to December 31, 1972), p. 429.

111. Ibid., p. 435. 112. In re Firestone Tire and Rubber Co., Trade Reg. Rep., 1970-1973 Transfer Binder para. 20,112 at p. 22,087. 113. In re Firestone Tire and Rubber Co., Trade Reg. Rep., 1970-1973 Transfer Binder para. 20,112 at p. 22,082.

424 order on the basis of its punitive impact and resultant deterrent effect. Hence, the FTC's decision on the issue of corrective relief was based solely on the potential short-term benefits. The advertisements in question had appeared during 1968, and the FTC's enforcement action against Firestone began after Ralph Nader, in September of 1968, sent a letter to the Commission charging that claims made in the ads were false and deceptive. 114 Since the case was not adjudicated until 1972, it is reasonable to believe that the potential short-term impact of corrective relief had diminished significantly during the intervening years, and the evidence appears to support this position. The data submitted by SOUP showed that Firestone's advertising during 1968 was responsible for about 35 percent of Firestone's tire sales in 1969, 12 percent in 1970, 4 percent in 1971, and less than 1 percent in 1972. 115 Although Firestone apparently produced more than one advertising campaign during 1968, the effect of the single campaign in question could not be separated from the others, and no attempt was made to distinguish between customers influenced by the advertising and customers misled. Therefore, the figures must be interpreted as the maximum percent of sales attributable to the misrepresentation. Still, these data strongly suggest that the number of consumers who stood to benefit from the disclosure of corrective information had declined markedly from 1968, when the case was begun, to 1972, when the case was adjudicated. By 1972 there was a good possibility that the cost of complying with a corrective order would 114. U.S. Senate, Establish a Department of Consumer Affairs, p. 679. 115. FTC Decisions, LXXXI (July 1, 1972 to December 31, 1972), p. 433. The evidence presented by SOUP, and that presented by the Association of National Advertisers, is described at pp. 419-425 and 428-438. An econometric model was used to estimate the lagged effect of Firestone's 1967-1968 advertising on sales in subsequent years, and the conclusion was "that approximately 2 percent of the purchase of Firestone tires in 1972 can be directly attributed to the influence of Firestone's [earlier] advertising." Ibid., p. 433. Apparently this 2 percent was not attributable to any conscious recall of the advertisements, but to the brand loyalty of repeat purchasers who were "influenced" four years earlier to buy Firestone tires. The connection between being "influenced" and being "deceived" is never made explicit in the Commission's decision.

Area Studies: Public Interest Law in Action outweigh the short-term benefits of counteracting the remaining effects of the earlier deception. However, in 1970, when SOUP began its effort to intervene, the potential short-term effect of corrective relief was entirely a matter of conjecture, and the possibility of its having a net beneficial impact was at least large enough to convince the FTC that it was worth having more information on the question. Indeed, if the case had been adjudicated in 1970, the short-term benefits would have been significantly greater (judging from the estimated sales figures noted above), and perhaps large enough to justify a corrective order. Yet, more was at stake in the effort to intervene than simply the short-term corrective benefits. If corrective relief could have been justified on the basis of its corrective effects, it would have had long-term, deterrence benefits as well. Since the FTC has construed its authority in this area in a manner that precludes consideration of deterrence effects, no assessment of deterrence benefits was made in the Firestone case. We can only raise the possibility that deterrence benefits could have been large enough to warrant issuing a corrective order. With these considerations in mind, we think it reasonable to conclude that pursuit of the objectives of SOUP's intervention in Firestone was in the public interest in terms of allocative efficiency. Objectives: Equity Dimensions. Clearly, the Commissioners felt that some consumers had been misled by Firestone's advertising, implying that some consumers were harmed and that Firestone had gained at their expense. Though representing the interests of consumers misled by the false advertising, SOUP was representing their interests only to the extent that they would benefit by receiving corrective information, and not to the extent that they deserved compensation for injuries suffered. However, corrective advertising would have provided some redress to competing tire manufacturers, to the extent that they were harmed previously and would gain as consumers shifted away from Firestone. Remedies. The corrective advertising and corrective notification remedies proposed by SOUP were appropriate instruments for accomplishing the objectives of informing consumers of the earlier deception and deterring Firestone from

425 future misrepresentations. Although SOUP or some other organization might have distributed corrective information once the FTC had determined that false advertising had occurred, there are three reasons why an order requiring that Firestone do this was appropriate. First, if corrective information is to be effective it must reach those exposed to continuing harm, in this case those who had brought Firestone tires believing them to be safer than other tires and who were therefore driving with less caution or were likely to buy Firestone tires again because of brand loyalty, even when germinated by the false claims. The sending of corrective notification was particularly well-suited in this respect, but it required information on the names of buyers, which was available only to Firestone. Second, financing corrective notification and advertising might not have been feasible for organizations such as SOUP, but even if feasible it was certainly more equitably borne by Firestone. Third, the deterrent effect of a corrective order derives not only from the exposure of past deception but also from the impact of confessing culpability — something which SOUP explicitly advocated. Thus, considerations of both efficiency and equity favor the remedies proposed by SOUP as means for achieving the objectives of the intervention. Outcomes. When SOUP first proposed the use of a corrective advertising order in the Campbell Soup case in October 1969, the FTC had never sought an order with corrective advertising provisions, and this was still the case when SOUP first raised the issue in connection with the Firestone case in July 1970. It was not until September 29, 1970, that the FTC issued the first proposed complaints that would require corrective advertising. The persistence of SOUP in arguing for corrective relief represented the most visible pressure on the FTC to take such action, and was probably the most important contributing factor.

Consumerism and Consumers most important outcome may be the precedent effects of the FTC's carefully elaborated position on corrective relief, and of the FTC's allowing third party, "public interest" intervention. The value of the latter will perhaps prove to be rather small. Since Firestone, the FTC has denied a similar motion to intervene filed jointly by the Consumer Federation of America. Consumers Union, and the Federation of Homemakers in an enforcement action involving ITT Continental Baking Co. 117 This is apparently the only motion for "public interest" intervention that the FTC has acted on since the Firestone case. The precedent value of the consideration given the issue of corrective relief may also be of little value, since the FTC's authority in this area has yet to be firmly established. In November 1974 an initial decision to order corrective advertising was reached in a contested case against Warner-Lambert Pharmaceutical Co. concerning advertising for its Listerine mouthwash. Since this is the only time a corrective order has emerged from a case adjudicated before the FTC, the corrective remedy has not yet been upheld by the federal courts. In addition, the precedent value of the case is diminished by the possibility that advertisers might learn from Firestone that maneuvers to delay adjudication can be of significant value in fighting a corrective order.

Regarding the intervention in Firestone, the

Finally, although the short-term benefits of corrective relief had become so small by 1972 that the FTC could not justify a corrective order, the long-term benefits of deterrence might have justified corrective advertising on economic efficiency grounds. While we cannot state whether this was in fact the case, it was certainly plausible. Firestone had made false claims before and might be expected to consider such action again. It should also be noted that a corrective order might have been in the public interest on equity grounds alone. To the extent that Firestone would have been forced to absorb out of profits the costs of compliance and any lost sales, the penalty effect of corrective relief would have

116. In re Coca Cola Co., Trade Reg. Rep., 1970-1973 Transfer Binder para. 19,351, proposed complaint (September 29, 1970); para. 20,108, initial decision to dismiss (September 5, 1972); and In re Standard Oil of California, Trade Reg. Rep., 1970-1973 Transfer Binder para. 19,352, proposed complaint (September 29, 1970); para. 20,321, initial decision to dismiss (April 25, 1973).

117. In re ITT Continental Baking Co., Inc., et al„ Trade Reg. Rep. 1970-1973, Transfer Binder para. 20,242; Consumer Federation of America, et al. v. FTC, Trade Reg. Rep., 1975-1 Trade Cases para. 60,378. 1 1 8 . / « re Warner-Lambert Pharmaceutical Co., Trade Reg. Rep. 1970-1973, Transfer Binder para. 19,838, proposed complaint (November 3, 1971); Recent Decisions, para. 20,776, initial decision to cease and desist (November 25, 1974).

426 been a desirable outcome. Neither of these points was considered by the FTC, given its approach to corrective advertising, and this raises the possibility that an actual governmental failure did exist and was not corrected by SOUP's intervention. The intervention by SOUP illustrates points that were made earlier concerning the uncertain value to consumers of third party intervention. If the FTC should fail to seek affirmative relief when it would be in the interests of consumers to do so, "public interest" intervention may not be able to correct that failure because of the long delays typical in contested cases and the manner in which the FTC has chosen to evaluate the merits of corrective relief. Since some delay is inevitable if the right to judicial review is to be protected, a potential governmental failure of this sort may not be an actual failure, in the sense that attempts to correct it may not yield net social benefits. It seems more probable, however, that this will not be the case in every enforcement action, so that in the future "public interest" intervention may have a role to play in promoting the public interest, in particular by stressing the deterrence benefits of corrective advertising orders.

Virginia Citizens Consumer Council, Inc., v. State Board of Pharmacy. Consumer Interest in Retail Price Information The final two cases we shall consider were selected as examples of public interest law activities aimed at increasing consumers' access to information. Rather than seeking to affect the enforcement of consumer protection laws, these actions involved efforts to reduce the cost to consumers of acquiring certain information. The information in both cases was price information that was held by private firms but not usually disclosed until the time of purchase. The information in the first case involved the retail price of prescription drugs, and in the second, the interest charges on consumer loans. The two cases are discussed in turn. In 1968, the Virginia Pharmaceutical Association, the Virginia Board of Pharmacy, and individual pharmacists lobbied for and secured the passage of a state law prohibiting the advertising (including posting) of prescription drug

Area Studies: Public Interest Law in Action prices. 1 1 9 The law was clearly designed to restrict the expansion into Virginia of discount drug chains, whose low prices and price advertising posed a competitive threat to the established independent pharmacies. 1 5 0 The latter had managed, through professional codes of ethics, informal agreements, and the threat of license revocation, to secure nearly uniform adherence to a policy of not advertising prescription prices. 121 As a result, each established pharmacist could charge a price reflecting the fact that his customers were ill-informed if not ignorant of the prices being charged at other stores. The arrival of low-price chain stores, attempting to establish themselves by advertising their low prices, threatened to upset this situation and to negate those arrangements that had protected Virginia's pharmacists from price competition. In 1974, the Virginia Citizens Consumer Council, a non-profit consumer organization, sued the State Board of Pharmacy in federal court charging that the statute banning price advertising was unconstitutional and asking that the law be struck down. The court found in favor of the plaintiffs, stating that consumers in Virginia had been denied "the right to k n o w " guaranteed by the First Amendment, and declaring the statute u n c o n s t i t u t i o n a l . T h e Board of Pharmacy appealed the decision to the U.S. Supreme Court and l o s t . ' "

Objectives: Efficiency Dimensions. The economic analysis of the restrictive advertising policy of Virginia's pharmacists prior to 1968 indicates that a potential private market failure existed then, in the form of de facto advertising restrictions, and that this failure was merely institutionalized by the 1968 statute that banned price advertising. What remains unclear, however, 119. Virginia Citizens Consumer Council, Inc., v. State Board of Pharmacy, 373. F. Supp. 683, 687. 120. "Drug Pricing and the Rx Police State," Consumer Reports, XXXVII (March 1972), p. 140. 121. Ibid. 122. 373 F. Supp. 687. For an analysis of the legal implications of Virginia Citizens, see Note, "Constitutional Law: The Constitutionality of a Statute Prohibiting Advertising of Prescription Drug Prices," Oklahoma Law Review, XXVIII (Spring 1975), pp. 350-359; and Note, "Constitutional Law - State Statute Prohibiting Pharmacists from Publishing Prescription Drug Prices Violates Consumers' Right to K n o w , " Kansas Law Review, XXIII (Winter 1975), pp. 289-300. 123. 96 S . C t . 1817 (1976).

427 is whether this market failure was primarily a cause of inefficiencies or of inequities in the prescription drug m a r k e t . The existence of a potential private market failure, whether of the efficiency or equity t y p e , follows f r o m the expected e f f e c t on consumer behavior of limitations on the availability of price information. In the absence of price advertising, the cost of acquiring comparative price information is higher than it otherwise would be, since each consumer must search store b y store and specifically request a price q u o t a t i o n f r o m each pharmacist. For this reason, we expect to find that consumers would d o less comparison shopping than they otherwise w o u l d , and that pharmacists face less competitive pressure and less of a need to charge lower prices. Certainly, some stores may gain a competitive advantage over rivals by acquiring a reputation as a lowprice pharmacy, so that price competition will not necessarily be wholly absent f r o m the market. Nonetheless, some pharmacies will be able to maintain their higher prices despite this competition, when they would n o t be able to d o so if consumers did more comparison shopping. As price variations emerge, we expect that, because of the restrictions on advertising, many consumers will be unaware of the degree of price variability, and will tend to underestimate the true benefits of a search for lower prices. In this way, any m o n o p o l y power associated with locational advantages will be enhanced by the withholding of price i n f o r m a t i o n , and pharmacists will be able to charge prices higher than those that could be sustained in a competitive m a r k e t . While such a situation would tend to produce profits above the competitive level, leading to the entry of new pharmacies and a decline in prices and profits, the restricted availability of price information would tend to limit the e x t e n t of competitive e n t r y , and would allow prices, on average, to remain above the competitive level. This follows f r o m the e f f e c t of the advertising restrictions on consumer behavior, just described. If the restrictions on price advertising limit the ability of a new pharmacy to gain a clientele, then the established pharmacies will be protected f r o m competition and allowed to earn m o n o p o l y or above-normal profits. On the other h a n d , if the restrictions d o not create a barrier to success-

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ful e n t r y , then any m o n o p o l y profits will eventually be lost as entry occurs, b u t the advertising restrictions will, nevertheless, permit some highcost, inefficient pharmacies to charge higher prices than others and yet retain sufficient patronage to remain in business. In this case, n o pharmacies earn m o n o p o l y profits, b u t each has m o n o p o l y power t o the extent that consumers are u n d e r i n f o r m e d about prescription prices; excess capacity in the industry is a likely result. Theoretic analysis thus leads to the conclusion that, because of price advertising restrictions, prescription prices are higher, on the average, than they otherwise would be. The implication is that consumers of prescription drugs, in the aggregate, would be willing to pay some positive a m o u n t to have price i n f o r m a t i o n more readily available. However, even if the value of the information to consumers exceeded the cost of supplying it, n o private, for-profit firm would be likely to profit f r o m an a t t e m p t to collect and sell it, for the reasons discussed in the previous section. On the other h a n d , n o pharmacist would advertise his prices as long as he faced sufficient pressure f r o m other pharmacists through informal agreements and professional codes of ethics prohibiting advertising, and through the threat of license revocation by state pharmacy boards. Prior to the 1968 e n a c t m e n t of the ban on advertising, at least one pharmacy chain that did a t t e m p t to advertise was stopped by threats of license revocation, indicating that some real restriction on the flow of information to consumers did e x i s t . 1 5 4 Hence, on the basis of theory, we conclude that a potential private market failure did exist. The 1968 statute only solidified the pharmacists' position, and institutionalized and legalized the penalty for deviating f r o m the restrictive advertising policy. Support for the legislation b y the State Board of Pharmacy was apparently the result of pressure f r o m the Virginia Pharmaceutical Association, an association dominated by the established, independent pharmacists likely to gain f r o m the legislation. 1 2 5 Such an ability to influence the Board might also explain the government's failure to take any action to prevent the kind of 124. "Drug Pricing and the Rx Police State," p. 140. 125. Ibid.

428 informal arrangements apparently responsible for the restricted advertising prior to 1968. By enacting the legislation the public sector only endorsed and sustained both this governmental failure and the initial private market failures. The only empirical evidence available on the prescription drug market in Virginia appears to support the conclusions drawn from theory. The existence of substantial price variations among pharmacies in the same community for the same drug was documented by the results of a survey conducted by the Virginia Citizens Consumer Council in 1974. In one instance the highest price charged was six and a half times the lowest 196

price. While this finding is consistent with our analysis, it is not, of course, conclusive. However, similar surveys in many other states have produced corresponding results. 151 Restrictions on advertising, originally included in professional codes of ethics and eventually embodied in statutes or regulations in at least 39 states, are common throughout the c o u n t r y . T w o studies undertaken to determine whether these restrictions are the cause of observed price variations have come to affirmative conclusions. The studies were conducted by Professor John Cady of the University of Arizona and by the Staff of the FTC.'" Both studies considered the possibility that observed price differences might be attributable to differences in the services offered at different pharmacies. On the basis of cost estimates for those services, both studies concluded that only a small part of observed price variations could be explained by observed service variations.130 126. 373 F. Supp. 684. 127. U.S. Federal Trade Commission, Prescription Drug Price Disclosures, Staff Report to the FTC (1975) (hereinafter, FTC Staff Report), Chapter III, pp. 11-19, and Appendix 6 provides evidence of price dispersion from surveys in 21 states. 128. Prescription Drug Pricing (Washington, D.C.: Consumer Federation of America, 1972), p. ii, and FTC Staff Report, Chapter III, p. 54, n. 94, together list 39 states regulating price disclosures. For a discussion of official and unofficial restraints on price advertising throughout the U.S., see FTC Staff Report, Chapter II. 129. FTC Staff Report, and John Cady, "Structural and Competitive Effects of Retail Regulation: A Study of the Impact of Public Policy in the Retail Market for Prescription Drugs," Business Administration Ph.D. Thesis, State University of New York at Buffalo, 1975, reviewed in FTC Staff Report, Chapter III, Section B. 130. See FTC Staff Report, Chapter III, pp. 23-26, where the results of two studies on the relation between price and pharmacy services are discussed.

Area Studies: Public Interest Law in Action The FTC study also cited evidence from survey data that lends some general support to the theoretic analysis of consumer behavior presented earlier. Although there have been no studies of consumer behavior in the prescription drug market that would constitute a direct test of our analysis, the studies that have been done generally indicate (1) that consumers do not consider price an important factor in selecting a pharmacy, and (2) that consumers tend to be unaware of significant price variations that do exist. 131 Both of these findings are consistent with our expectations regarding behavior in the face of restrictions on price advertising. Finally, Professor Cady also analyzed the relation between price variations and the existence of regulations prohibiting price advertising, and found that a statistically significant relationship did exist. A multiple regression analysis using data for 1970 showed that, other things equal, prices in states without advertising restrictions were, on average, 4.15 percent lower than those in states with such restrictions. 131 On the basis of this figure, the removal of formal restrictions on price advertising would eventually save consumers in Virginia an estimated $7.7 million annually, or $1.60 per capita per year. 133 That is, net of any increases in prescription prices attributable to advertising expenditures, the average prescription price would decline 4.15 percent as a result of price competition, and consumer savings would total $7.7 million each year, assuming that unit volume of prescription sales would not change because of the price decline. (The validity of this assumption is considered below.) Proponents of the ban on price advertising have offered two principal arguments to support their position. These arguments allege that the removal of formal restrictions would cost consumers considerably more than the advertising 131. The studies are all surveys of consumers intended to isolate the determinants of pharmacy selection, and are discussed in FTC Staff Report, Chapter III, pp. 27-34. 132. FTC Staff Report, pp. 53-55 and p. 55, n. 95. The study by Cady reported that prices in regulated states were 4.33 percent higher than prices in unregulated states and that a 95 percent confidence interval for this statistic was 2.7 to 5.9 percent. The FTC staff translated Cady's result to the statistic reported here. 133. The estimate of $7.7 million is for unit sales volume and prices in 1973. The FTC Staff Report, Chapter III, pp. 55-56, assumes a 4.15 percent price reduction and estimates 1973 savings at $224 million in the 29 states classified by the Cady study as regulated,

429 expenses implicitly netted out of the estimated $7.7 million savings.134 The first argument holds that price advertising would lead consumers to shift from store to store, depriving them of record-keeping services that are performed by some pharmacists to guard against issuing antagonistic drugs. However, if consumers are willing to pay to have pharmacists perform this service rather than relying on their physicians to do it, then pharmacists offering it would profit by advertising that they do so. Apparently many consumers are presently unaware that some pharmacists provide this service, and therefore some consumers are probably buying it unwillingly. It follows that price advertising, rather than causing consumers to forego a valued service, would instead allow and encourage them to discriminate among pharmacists on the basis of both price and service. The second argument holds that any advertising would create an "artificial" demand for prescription drugs, and that this would ultimately harm consumers. It seems more likely, however, that consumer demand for prescription drugs is so strongly mediated by the judgments of a physician that the persuasive effects of advertising would be negligible — that is, there would probably be no "artificial" or undesirable increase in quantity demanded, and no outward shift of the demand schedule for prescription drugs. On the basis of theory and available empirical with a 95 percent confidence interval of $140-310 million. Then $224/29 = $7.73. The same figures for 1970 are $129 million with a confidence interval of $80-178 million, and $129/29 = $4.45, which inflated to 1973 prices yields $4.54 (using the Firestone Retail Price Index for Ethical Pharmaceuticals from The Lilly Digest, 1975, Indianapolis: Eli Lilly and Co., p. 43). Clearly, an estimate of annual savings will depend on sales volume. Hence, the estimate used in the text must be viewed as illustrative. The per capita figure is for a population of 4.8 million in 1973 from U.S. Bureau of the Census, Statistical Abstract of the United States, 1974, Table 11. 134. Other arguments in support of advertising prohibitions contend that these bans "prevent rivalry demeaning to the profession," avoid "pressures on physicians to prescribe larger quantities than are medically indicated to enable their patients to take advantage of quantity discounts," and avoid forcing small retailers to buy in large quantities to gain discounts and then to hold the drugs in inventory too long leading to their deterioration and the sale of defective drugs. See Note, "A Statute Prohibiting Advertising," Oklahoma Law Review, XXVIII (Spring 1975), p. 352; and FTC Staff Report, Chapter V, Section B.

Consumerism and Consumers evidence, we are led to the conclusion that prior to 1974, potential private market and governmental failures did exist in Virginia's prescription drug market. The plaintiffs in Virginia Citizens, representing the interests of consumers of prescription drugs in Virginia, sought to correct the governmental failure as embodied in the statute by asking the courts to strike down the state law. 1 3 5 Correcting the governmental failure was only the immediate objective of the case, since benefits would accrue to consumers only after the underlying private market failure had been corrected. There is reason to question whether the removal of the formal advertising restrictions would alone be enough to correct the private market failure and actually yield the estimated $7.7 million in consumer savings, and this point is discussed below in connection with the remedy sought in the Virginia Citizens litigation. However, elimination of the advertising prohibition was clearly a necessary first step. There remains the question whether the market failure involved was primarily the cause of inefficiencies or of inequities in the prescription drug market. The answer to this question depends first on whether there were any monopoly profits earned in the retail drug industry, and second on whether the demand for prescription drugs was sensitive to price changes. We shall consider these two in turn. If pharmacies earn monopoly or above-normal profits because there are barriers to entry associated with advertising restrictions, or with any other limitations on entry, 1 3 4 then consumer savings resulting from lower prices would represent a transfer of income from pharmacists generally, who would earn lower profits, to the consumers of prescription drugs. On the other hand, if there are no entry barriers so that pharmacists earn no monopoly profits, then consumer savings would be the result of a shift of consumer demand away from high-price pharmacies that offer services consumers do not want or that operate inefficiently. In this case, some pharmacies would be forced out of business, and consumer 135. 373 F. Supp.683. 136. Other possible sources of entry restrictions are state regulations on operating hours, inventory requirements, and a store's physical features, as well as political control of state licensing boards and pharmaceutical and retail druggist associations. On these, see F. Marion Fletcher, Market Restraints in the Retail Drug Industry (Philadelphia: University of Pennsylvania Press, 1967), pp. 296-305.

430 savings would represent the economic gains associated with a more efficient allocation of the resources being used by the high-cost and inefficient pharmacies. It is very difficult to determine which of these is the case, and there is very little evidence on which to base a determination. The FTC study mentioned earlier concluded that much of any consumer savings would be of the second sort, representing efficiency gains, but nonetheless felt that "sufficient profits exist from which some amount of expected benefits [possible consumer savings] can derive." 1 3 ' We can only conclude that if the removal of advertising restrictions results in lower prices, the consumer savings realized on a given unit volume of prescriptions would in part represent efficiency gains and in part a redistribution of income. Earlier we estimated the possible consumer savings at $7.7 million annually. However, this estimate was based on the assumption that the unit sales volume would not change even though prescription prices declined. But if the demand for prescription drugs is at all sensitive to price changes, then consumers would realize additional benefits beyond the consumer savings just considered, and these benefits would represent gains in economic efficiency. Also, if lower prices allow some consumers previously priced out of the market to buy prescriptions, then the value of these additional sales would measure the economic efficiency gains associated with a reallocation of resources to the production of more prescription drugs and prescription dispensing services. There is apparently no empirical evidence on the degree to which the demand for prescription drugs is sensitive to price changes. 13 * However, the fact that physicians must first prescribe the drugs before consumers can buy them suggests that demand is rather insensitive to price; typically the cost of a prescription represents a modest addition to the cost of visiting a physician, and his judgment on health care needs is likely to be 137. FTC Staff Report, Chapter III, p. 68. The Report considers the problem at Chapter III, pp. 61-68. 138. For example, the FTC Staff Report, Chapter III, p. 72, was "unable to conclude with confidence that prescription drug demand is anything other than completely inelastic [insensitive to price]," but could cite no evidence one way or the other. Also see the same at p. 33.

Area Studies: Public Interest Law in Action honored by the patient. Nevertheless, some consumers, particularly the poor, doubtless find that the cost of prescribed medication is so burdensome that they decide to forego the drugs, but would purchase them if prices were lower. There have been two studies whose results bear on this question. Both were undertaken to estimate the number of unfilled prescriptions. One study found that of all prescriptions issued to patients of a clinic serving a "large metropolitan area" fewer than 6 percent went unfilled, and a similar study covering prescriptions issued by physicians in four Wisconsin communities found that fewer than 2 percent went unfilled. 139 Only one of the studies made any attempt to determine why prescriptions were not filled, and, on the basis of interview data, found that the principal reason was the patient's feeling that he did not need the medication. 140 Although lacking sufficient data to conduct a statistical analysis, the study concluded that neither the patient's income nor the drug's price was a factor contributing to unfilled prescriptions. 141 Despite this finding, we can use the figures of 6 percent and 2 percent to calculate an estimate of the upper bound on efficiency gains associated with an increase in sales volume. If we assume that correction of the market failure would result in the previously estimated price decline of 4.15 percent, and that this fall in price would be sufficient to induce consumers presently not filling prescriptions to fill them, then the upper bound on annual efficiency gains would lie between $2.6 million per year and $7.8 million. 142 139. The estimate of 6 percent is from A. H. Taubman et al., "Noncompliance in Initial Prescription Filling," The Apothecary, LXXXVII (SeptemberOctober 1975), pp. 14ff., and is for a "large metropolitan area." The estimate of 2 percent is from Paul O. Williams, "An Analysis of Nondispersed Prescribed Drugs," Pharmacy Ph.D. Thesis, University of Wisconsin, 1964, at pp. 125-126, and is for four Wisconsin communities with populations of 3,000 to 35,000. Both covered prescriptions issued during single ten-day periods. 140. Williams, "An Analysts of Nondispersed Prescribed Drugs," p. 96. 141. Ibid., pp. 100 and 126. 142. The estimates are for 1973, and assume that Virginia is an average state and that prices decline by 4.15 percent. The FTC Staff Report, at Chapter III, p. 54, estimates national prescription sales for 1973 at $6,787 billion. Dividing by 50 and accounting for the price decline (by multiplying by 0.9585) puts sales in Virginia at $130 million, and 2 percent of this is $2.6 million; 6 percent is $7.8 million. If demand is

431 Since it is unlikely that all presently unfilled prescriptions would actually be filled after a 4 percent price decline, any actual gains of this sort should be a great deal less. However, even if there were n o efficiency gains of this sort — that is, even if market demand were totally insensitive t o price changes — there would remain the consumer savings described earlier. A market failure did exist and its correction would result in significant benefits to consumers of prescription drugs in Virginia. Some of those benefits would represent improvements in economic efficiency, and some would represent a redistribution of income f r o m pharmacists t o consumers. Objectives: Equity Dimensions. The income distributional consequences of correcting the market failure would, in general terms, be beneficial t o consumers and h a r m f u l t o pharmacists. Whether consumer savings are realized because of a redistribution of above-normal profits or because of efficiency gains accompanying the delinear, the associated gain in consumer surplus would total $56,000 and $170,000, respectively, using the 1973 average prescription price (prior t o the 4.15 percent decline) of $4.54 from The Lilly Digest, 1975 (Indianapolis: Eli Lilly and Co.), p. 4 1 . Another possible source of consumer benefits would derive f r o m a greater awareness of price differences that leads consumers t o substitute for brand-name drugs the lower-cost generic equivalents. On this see FTC Staff R e p o r t , Chapter III, pp. 69-70.

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mise of high-cost, inefficient pharmacies, consumers of prescription drugs as a group would be better o f f , while pharmacists and the owners and employees of pharmacies, as a group, would be worse o f f . As we n o t e d earlier, the use of consumer information can have external effects. By using information consumers can influence the behavior of the firms they d o business with, and through t h e m they can affect other consumers who shop for the same commodities. In the present case, if the availability of price information encouraged enough consumers to search for low prices, the resulting price competition among retailers would lead t o lower prices on the average, and o t h e r consumers w h o did not themselves search would also benefit. From this it is reasonable to hypothesize that correction of the m a r k e t failure will lead to a distribution of consumer benefits that is similar to the distribution of consumer spending on prescription drugs. Table 14.5 shows estimates of annual per capita spending on prescriptions, by income and age group, based on national data for 1964-1965. At that time, persons 65 years of age and over spent, on the average, more than two and a half times as much as those under 65, and whites, on the average, spent twice as much as non-whites. For those under 65, per capita spending tended t o increase with income, b u t only slightly. Thus, if the relative distribution of per capita spending by

Table 14.5 Total and Per Capita Expenditure for Prescription Drugs, Per Year, by Selected Characteristics of Purchasers, Fiscal Year 1965 Family Income and Race Income Under $2,000 2,000-3,999 4,000-6,999 7,000-9,999 10,000 and over Median: $7,436 Race White Non-White Total

Total for a » all ages (S thousand)

Per Capita all ages

that these efforts are not in the public interest, or that private market efficiency failures are not involved. The methods by which such information is currently disseminated are not necessarily the ones most likely to succeed in reaching consumers, and little effort has been made to inform consumers of the value of the information to them in making purchase decisions. Even if the net efficiency benefits from other, more intensified efforts may be small or even negative, the distributional equity implications may be quite favorable if the information reaches low-income 174. New York Times, February 26, 1975, p. 34. According to CCH, Consumerism, 111 (March 3, 1976), p. 888, the U.S. House of Representatives Domestic Monetary Policy Subcommittee has made arrangements with the Federal Reserve to obtain the survey data and publish it on a regular basis. 175. Some of these activities are described in Consumers Union v. Veterans Administration, 301 F. Supp. 796, and U.S. Senate, Establish a Department of Consumer Affairs, pp. 734ff. 176. CCH, Consumerism, II (May 8, 1974), p. 780, and U.S. Senate, Establish a Department of Consumer Affairs, pp. 734ff.

438

or other disadvantaged consumers. In any event, public interest litigation is only an indirect means of securing such a result.

Evaluation of Public Interest Law Activities on Behalf of Consumers We turn now to an overall evaluation of public interest law activities undertaken on behalf of consumers, and to a consideration of the possible future of public interest law activities in this area. Our evaluation will be based on the findings of the previous section along with some additional information to be brought to bear later. First, it will be useful to review the theoretic considerations that have provided a structure for our analysis. In the second section of this chapter we argued that private markets do produce considerable consumer protection to the extent that consumers use information on product prices and product attributes, information that is either supplied by private, for-profit firms or acquired through consumers' experience with different products. We also argued that private markets might not produce "enough" consumer protection relative to the benchmarks of allocative efficiency and distributional equity, because of market failures in the production and use of consumer goods, especially consumer information. Efficiency failures are likely to be caused by the existence of (a) information processing costs, (b) collective consumption good characteristics of information, (c) externality effects in the use of consumer goods, including information, or (d) monopoly power. With respect to distributional equity, income and educational differences among consumers will leave some better able to protect themselves than others, giving rise to the possibility that the private market's distribution of consumer protection may be deemed unfair. The existence of organizing costs and the incentive to act as a free rider suggest that individual consumers adversely affected by a market failure will not undertake the actions needed to correct the failure. Thus, from the theory there is a case for the existence of potential private market failures and a possible role for collective consumer protection activities. When the benefits, in either efficiency or equity terms, exceed the

Area Studies: Public Interest Law in Action costs of correction, an actual failure exists and corrective action, perhaps involving governmental consumer protection activities, would be in the public interest. We argued that such corrective action might not be forthcoming from government, because organizing costs and the incentive to free-ride are likely to be more significant barriers for consumers than for producers to overcome. As a result, much of the information that is available to government decision-makers, and much of the influence exerted on them, will come from producers, so that government action will reflect an imbalance favoring producer interests over consumer interests, creating the potential for governmental failure. In the recent past, there has been a substantial increase in the number of organizations in the voluntary sector attempting to represent consumers, some of which have used public interest law as an instrument for representing consumer interests and pursuing certain objectives on behalf of individuals who neither participate in nor pay for the activity. Much of this recent activity has been stimulated by the work of Ralph Nader, who, more than anyone else, gave momentum and direction to the representation of consumers, and whose influence we have had occasion to note at a number of points. Yet Ralph Nader and his activities alone are not sufficient to explain the continued expansion of public interest activities and use of public interest law in the consumer protection area. Other factors that we have identified as private market and governmental failures help to explain why Ralph Nader has not disappeared from public view, and also provide criteria by which to evaluate what he is doing. From our analysis of the types of potential private market failures, and from common experience as well, it cannot be doubted that market failures do exist and do leave many consumers underinformed, and therefore underprotected, relative to the benchmarks of allocative efficiency and distributional equity. Yet common experience also suggests that each market failure is relatively minor when seen from the perspective of an individual consumer, particularly when measured against the private market successes. This also suggests that there is reason to believe that consumer input to the public sector, and particularly to the regulatory agen-

439 cies, is likely to be very small relative to the input of organized producers. Hence, the existence of potential governmental failures can hardly be doubted, though again, they may be small relative to the governmental successes. The successes of government are in part due to the public interest activities of voluntary organizations that have worked throughout this century for the passage of consumer protection legislation. The problems of day-to-day implementation of this legislation, including the promulgation and enforcement of regulations on business behavior, have only recently been the target of public interest action, and here public interest law has been an important tool. On the basis of the theory of private market and governmental failures, these public interest law activities have the potential to benefit consumers by representing their interests and leading to the correction of private market and governmental failures, and therefore they cannot be dismissed a priori as contrary to the "public interest." To go beyond this judgment to an evaluation of public interest law activities in the consumer area, we have analyzed six specific public interest law actions. We have asked whether these actions are addressing problems that involve market failures, are advocating remedies that would correct them, or are leading to outcomes that correct market failures. The answers to these questions provide the basis for our evaluation, since they indicate whether these actions are in fact consistent with two important components of the public interest, allocative efficiency and distributional equity. In an effort to include for analysis actions that are likely to be representative of others in this area, we selected a set of actions that fits well with the findings of our descriptive overview of a sample of 55 public interest law actions. Still, such a diversity exists with respect to the 177. Some general support for these conclusions comes from the results of an opinion poll conducted during January 1975 by Opinion Poll Research Corporation, Princeton, New Jersey. Respondents were asked whether or not they were, as consumers, treated fairly by business and by government. With respect to business the responses were, in percentages: almost always fairly, 27; usually fairly, 59; usually unfairly, 11; almost always unfairly, 2; no opinion, 1. With respect to government, in percentages: almost always fairly, 21; usually fairly, 58; usually unfairly, 10; almost always unfairly, 4; no opinion, 7.

Consumerism and Consumers specific issues raised in public interest law actions that the six we selected provide an incomplete sampling of the whole field. Nevertheless, despite real differences in issues and objectives within the sample of six actions we selected, some important similarities have emerged from our analysis, suggesting that this sample is a fair representation of other actions undertaken on behalf of consumers and can meaningfully serve as the basis for an overall evaluation. It will be useful to review briefly the issues raised by the actions in our sample. They were: Nader v. Allegheny: the need for government regulation of airline overbooking. "The Nader Report" on the Federal Trade Commission: the need to redirect the FTC to improve its performance with respect to the prevention of deceptive advertising. ASH et al. v. FTC: the need for public access to FTC enforcement actions in deceptive advertising cases. SOUP, Inc., intervening in the Firestone matter before the FTC: the need for an order requiring corrective advertising. Virginia Citizens Consumer Council v. State Board of Pharmacy: the need for removing restrictions on prescription price advertising. Consumers Union v. Board of Governors, Federal Reserve System: the need for access to interest rate data held by the Board on consumer loans. As nearly all of these actions have illustrated, the selection of those actions instead of others by the public interest groups was not typically the result of extended analysis of the issues but most often the result of the consumer advocates' perception that a "problem" existed. That some "problems" rather than others are drawn to the public interest groups' attention is sometimes a matter of chance. Many of the actions involving Ralph Nader seem to be of this sort, and those involving other advocates appear to have had a similar genesis. 1 " Although the element of chance in case selection is present to a lesser degree in organizations such as Nader's Aviation Consumer Action Project, which monitor the activities of a specific government agency, it is still more likely to be a feeling that "something is wrong," rather than an analytic investigation, 178. McCarry, Citizen Nader, pp. 180-183, in discussing Nader's activities, makes a similar point.

440 that leads a group to take action and sometimes to litigate. Our first conclusion, then, is that: 1. Selection of specific actions by PIL advocates is typically based on an impression that a "problem" exists and that a "remedy" will benefit consumers, rather than on an analysis of the "problem" and the impact of alternative "remedies." The six actions we have analyzed raised a variety of issues, yet the objectives being sought had a common element. In each action, the problems addressed involved potential private market and governmental failures in the provision of consumer protection. Potential failures relating to the production and use of consumer information and to the possible effects of an imbalance in the representation of interests before the legislative or administrative branches of government were present in each of the specific problem areas addressed in this sample of PIL actions. In every case, our analysis led to the conclusion that the objectives being pursued were consistent with the public interest in the sense that potential failures were involved and costless means of correcting these failures would have a desirable impact on allocative efficiency and distributional equity. We find that PIL actions in the consumer area have generally been such as to support interests that have been underrepresented, relative to competing interests, in legislatures and regulatory agencies and in private, for-profit firms. Thus we conclude: 2. The problems addressed in public interest law actions usually do involve potential private market and governmental failures. Whether actual failures are involved depends on whether there exists a remedy that will yield net benefits. While the objectives of a public interest law action may be consistent with the public interest, the specific remedies sought need not be, and indeed there may be no remedies that are. To determine whether an actual failure exists in a specific case could require an examination of every conceivable remedy. Thus, instead of asking whether these six actions addressed problems involving actual failures, we asked whether the remedies proposed in the action would correct the potential failure involved and analyzed the proposed remedies in terms of their likely impact on the identified market failures. In this area, as in others examined in this volume, determination of what would constitute

Area Studies: Public Interest Law in Action an efficient resource allocation depends, in part, on specific, quantitative knowledge that is not presently available and could only be developed at significant cost. Sometimes we have been able to combine theoretic propositions and available information to make a reasonable guess regarding the likely direction of the impact on economic efficiency of the remedies being proposed, though not the magnitude of that impact. It is on this basis that we have evaluated the remedies sought through the public interest law actions analyzed. In Nader v. Allegheny and in ASH et al. v. FTC, we concluded that the specific remedies being advocated to correct the market failures were not in the public interest, that the remedies were either unlikely to correct the failures involved or would do so at too great a cost. We suggested that Nader's proposal to ban overbooking would have an undesirable efficiency impact and might also have an undesirable equity impact, and that the coalition of plaintiffs in ASH et al. by demanding access to FTC consent negotiations, was seeking a remedy that might have an undesirable efficiency impact. On the other hand, we suggested that Consumers Union, in only seeking access to the interest rate data held by the Federal Reserve, was seeking a lowcost remedy that might have net benefits for consumers, but nonetheless might not represent the best remedy for correcting the private market and governmental failures involved. With respect to the Nader Report, SOUP's intervention in the Firestone matter, and the Virginia Citizens case, our conclusion, albeit tentative, is that the remedies proposed would have a net beneficial impact as measured in terms of economic efficiency, and would have a distributional impact that most people would deem favorable. Thus, only in these cases did we judge that actual private market and governmental failures existed, and that the proposed remedies would correct those failures. Our third conclusion, then is: 3. The remedies sought in public interest law actions would sometimes promote allocative efficiency and distributional equity, but sometimes would not. No clear generalization emerged from our analysis. Turning to the actual outcomes, in most cases it was difficult to determine whether the action contributed to the correction of the market fail-

441 ures involved. Typically, it was difficult to determine whether the action has led or will lead to a change in anyone's behavior, or, where some change in behavior has occurred, whether that change has been, on balance, beneficial. For example, ASH et al, though unsuccessful in court, was probably a factor in the FTC's decision to institute changes making the final stages of the consent negotiation process more accessible to public interest advocates. Whether these changes will have any effect on the deceptive advertising practices that are ultimately at issue is a matter of conjecture. On the other hand, the Nader Report clearly led to a change in the behavior of the FTC, but, as our discussion of the FTC's ad-substantiation program indicated, not all of those changes have been clearly beneficial to consumers. Perhaps the most striking aspect of all the actions analyzed is that so few have been unambiguously in or not in the public interest in terms of efficiency and equity. This finding is in part a reflection of the empirical problems inherent in trying to assess causation. Nevertheless, none of the six actions seems to have produced an outcome clearly contrary to the public interest. Indeed, in most we have found at least the potential for the ultimate outcome to be an enhancement of allocative efficiency and/or distributional equity. This conclusion will certainly not be true for the outcome of all public interest law actions on behalf of consumers. Ralph Nader's advocacy of seat belt regulations is probably the most wellknown action where the opposite was in fact the case. The automobile ignition interlock system that required seat belts to be fastened before the automobile could be started was an innovation supported by Nader that consumers ultimately rejected. 17 ' However, if our sample of cases is at 179. U.S. House of Representatives, To Establish a Consumer Protection Agency, Hearings before a Subcommittee of the Committee on Government Operations, 93rd Congress, 1st Session, September 17, 18, 19, 21; October 4, 9, 10, and 11, 1973, pp. 278-279, has an exchange between Nader and Representative Erlenborn that makes this point. On a similar note one writer recently noted that while he considers "Ralph Nader. . . to be an important force for the public good . . . I do think Nader is sometimes wrong and misleading, particularly on certain technological issues. I try to exercise skepticism, and not automatically equate him and his activities with God, motherhood, and country," (Kendrick Frazer, "Science's Flawed Supreme Court," Science News, CVII (July 21, 1975), p. 406).

Consumerism and Consumers all representative, this type of wholly adverse outcome to public interest law activity is likely to be the exception. Insofar as we have been able to judge whether a PIL action has changed the course of events, we find that: 4. Most though not all behavioral changes resulting from PIL actions contribute to the public interest in efficient resource use and/or in greater equality of well-being. As illustrated by the actions in our sample, the outcomes of public interest law activities are often strongly influenced by the amount of publicity the action generates or threatens to generate. Nader's activities, the report on the FTC and the suit against Allegheny on the overbooking issue, illustrate the role publicity can play. It conveys information to a large audience about the issues being raised, the objectives of the action, and the potential private market and governmental failures involved. By calling attention to such failures, publicity creates pressures on public officials to try to find remedies at least to acquiesce in such efforts. Publicity can also inform consumers of the usefulness of certain product information, and thus create a consumer demand for information that will correct an existing market failure. Thus: 5. The effectiveness of public interest law activities at bringing about change is often influenced by the publicity (potential or actual) associated with the activity. A description of the distributional impact of the six PIL actions reveals tendencies that are likely to characterize other public interest law activities undertaken on behalf of consumers. Except for the Nader Report on the FTC and the litigation in ASH etal, each action clearly represented the interests of only some consumers. Not only are consumers of one type of product, or product information, usually involved in a specific case, but only some of those consumers would be likely to benefit if the objective sought were achieved. Even in the Nader Report and in ASH et al., where the interests of virtually all consumers were involved, only the interests of some consumers were represented in the sense that they would be likely to benefit from the changes advocated. A sixth conclusion, then, is: 6. Public interest law activities do represent the interests of consumers, but any individual action rarely, if ever, represents the interests of all consumers.

442 Our last two conclusions are more specific generalizations regarding distributional effects of PIL consumer actions. With respect to those actions seeking to reduce the costs to consumers of acquiring or using information (30 percent of the 55 cases listed in Appendix), including the Virginia Citizens and Consumers Union cases, the distribution of any benefits that might result from a fully successful action is likely to depend on the type of information and the product involved. In Virginia Citizens, where the cost of acquiring information on prescription prices was the central issue, we concluded that the distribution of any benefits would favor, both in absolute amount and relative to income, the elderly and especially the elderly poor. There are two factors responsible for this finding. First, the elderly from all income levels tend to spend more than others on prescription drugs. Second, the use of price information by some consumers is, in this instance, likely to benefit consumers who do not use the information. That is, the comparison shopping of consumers is likely to have an externality effect and, through price competition, to lead to lower prices, to the benefit of others. In other instances that are likely to be more common, where purchase of the product involved is not so closely tied to special characteristics of the consumer, and where the externality effects associated with the use of consumer information are less important, the distribution of any benefits from lowering the cost of information is likely to be concentrated on middle- and upperincome consumers. It is likely that those who value more information are those who currently seek out information, and the information seekers are typically persons with above-average income and education. A representative information seeker is probably much like the average reader of Consumer Reports magazine. The median income of subscribers to Consumer Reports was about $15,000 in 1972, and the median education attained was two years of college. 110 (Also see Chapter Six.) Readers who were not subscribers had only a slightly lower income and education experience. 1 " Another reason for expecting that middle and 180. Jack Engledow, "The Consumer Reports Subscriber: Portrait of an Intense Consumer," Indiana Business Review, XLV1I (July-August 1974), Table 1, p. 34. 181. Hugh W. Sargent, Consumer Product Rating Publications and Buying Behavior, University of Illinois

Area Studies: Public Interest Law in Action upper income consumers would benefit most from a reduction in the cost of information is that low-income consumers cannot as readily afford to use certain information by spending time and money on comparison shopping and on final purchases. And, finally, low-income, generally less-educated consumers are likely to make less effective use of additional product information, although, of course, much depends on the particular information and the products to which it applies. We see, then, that: 7. Those actions that make information more readily available to consumers are likely to benefit middle- and upper-income consumers more than others. Regarding those actions seeking the promulgation or enforcement of a product standard (45 percent of the 55 cases in the Appendix), including Nader's effort to secure a ban on overbooking, the distribution of benefits would again be likely to favor middle- and upper-income consumers. Low-income consumers, less able to afford additional product qualities, would probably be less willing to pay for them, while the opposite is true for higher-income consumers. Thus: 8. Actions that succeed in enforcing product standards are likely to benefit middle- and upper-income consumers more than others. How can these eight conclusions be summarized? It would be naive to believe that any institution would be either perfect or entirely useless. This, indeed, is what we have found of PIL. As we look to the future of PIL consumer activities we see two fundamental questions: Can PIL survive? Should it survive? The survival of PIL consumer activities, as of all other PIL activities, hinges on finance, involving both raising funds and attracting lawyers and others who will work at sub-market wages. While the future course of support from foundations will affect some PIL organizations, many of those active in the consumer protection area rely on other sources of financing. The Banzhaf groups operate, at least in part, on the donated time of student lawyers; organizations like Consumers Union, the Consumer Federation of America, and the Federation of Homemakers receive support from members; Nader's organizations receive funds from the sale of books and Bulletin, LVII, 31 (December 1959), Tables 9 and 10, pp. 44 and 46.

443 articles as well as from contributions to Nader's Public Citizen, Inc. A recent development at Consumers Union has raised some question about the viability of public interest law activities that rely heavily on this type of internally generated financial support. The main source of income for Consumers Union is its Consumer Reports magazine, which advises consumers on shopping techniques and reports on tests of competing brands of consumer products that are conducted by Consumers Union. Because of rising production costs, the organization ran a deficit in fiscal years 1974 and 1975, and as a result has faced growing pressure from its employees and some of its directors to curtail its non-income-generating public interest law activities, which currently cost the Union $ 189,000 annually. 1 " It is difficult to assess whether this pressure is a shortterm phenomenon or reflects the accumulation of experience and dissatisfaction with the effectiveness of public interest law activities. However, it does suggest that financial support will be a controlling factor determining the extent of future public interest law activities in this area. Aside from financial uncertainties, there remains the question whether public interest law should survive — that is, whether it will continue to have a role to play in representing consumers' interests if the Congress establishes a Consumer Protection Agency (CPA). The extent to which a CPA will substitute for public interest law will depend on the powers given the agency by Congress and the manner in which the agency uses those powers. The form any CPA should take if established is still a matter of debate in Congress. 1 " Some proposals would give the agency the power to intervene on behalf of consumers in both formal and informal proceedings of other agencies and to bring suits against those agencies if the CPA administrator feels such action is warranted. Other proposals would stop far short of these powers, limiting the CPA to the role of an "ombudsman" empowered only to gather and transmit information. (The ombudsman institu182. Wall Street Journal, May 9, 1975, pp. 1 and I 183. For example, see three bills that would create a CPA in U.S. House, To Establish a Consumer Protection Agency, and others in U.S. Senate, Establish a Department of Consumer Affairs, and U.S. Senate, To Establish an Independent Consumer Protection Agency. 14.

Consumerism and Consumers tion and its various forms and functions are discussed in Chapters Three and Seventeen.) Thus, it is possible that a CPA, if established, will have considerably less ability to represent consumers than independent, "public interest" advocates. Yet, even if a CPA with interventionary powers stronger than those currently exercised through public interest law is created, particularly one with the power to intervene in informal proceedings, it will not necessarily displace all public interest law activities on behalf of consumers. The role of publicity in determining the outcomes of public interest actions has been mentioned at a number of points, and there remain questions as to whether a governmental agency would be able to use the informational, publicity tools with the same effect. In addition, like other governmental agencies, a CPA would be subject to the possibility of receiving more input from producers and the agencies it is to oversee than from the consumers it is to represent, and might, as a result, fail to represent consumer interests as effectively as would be desirable. Indeed, it has been suggested that public interest groups could provide valuable input to a CPA to help identify where consumer interests lie." 4 Even if a CPA were to do a fully satisfactory job of representing the interests of consumers in the proceedings of federal regulatory agencies, a CPA would not be a perfect substitute for PIL. Public interest law actions have represented consumer interests in matters that go beyond the federal regulatory agencies and the types of problems that even the most powerful of the proposed CPA's would be likely to deal with. The Virginia Citizens and Consumers Union cases and the Nader Report on the FTC are all actions that a CPA would probably not undertake, and are cases where public interest law apparently had a useful role to play in representing consumer interests. These considerations suggest that both public interest law and a CPA, along with other governmental responses to market failures, each have the potential to make contributions toward correcting market failures in the provision of consumer protection. The attempt to deal with the complexities present in market failure problems will proceed best through a combination of various forms of activity, including public interest law. 184. U.S. House, To Establish a Consumer tion Agency, p. 409.

Protec-

444

APPENDIX The following is a list of "public interest" consumer cases reported during the period 1969 through 1975 in the Commerce Clearing House reporters, Aviation Law Reporter (Avi. Law Rep.), Consumer Credit Guide, Consumer Product Safety Guide (CPSG), Consumerism, Food Drug Cosmetic Law Reporter (FDC Law Rep.), and Trade Regulation Reports (Trade Reg. Rep.). The criterion used to determine whether a specific case fell into the area of consumer protection was that significant representation of individuals as consumers be present, as opposed to the representation of individuals principally as persons concerned about the environment, employment discrimination, or other issues. Specifically, excluded are cases that are discussed elsewhere in this volume. Further, only those cases significantly representing the interests of unorganized individuals were included. Though some cases listed have the same name, each case represents a different controversy. References to court or agency decisions are also provided. 1. Action on Safety and Health et al. [Students Opposing Unfair Practices, Inc. (SOUP), Students Against Volvo Exaggerations (SAVE), Center for Auto Safety] v. FTC. Trade Reg. Rep., 1974 Trade Cases para. 75,012. 2. American Public Health Association v. Butz. FDC Law Rep., 1974 Transfer Binder para. 41,288. 3. American Public Health Association v. Consumer Product Safety Commission. CPSG para. 41,762 and 41,820; 1 CPS para. 75,081. 4 American Public Health Association [and National Council of Senior Citizens] v. Veneman. 349 F. Supp. 1311 (D.D.C. 1972). 5. Aviation Consumer Action Project v. Butterfield. Consumerism, II, No. 63, p. 739. 6. Aviation Consumer Action Project v. CAB. 370 F. Supp. 945 (D.D.C. 1972). 7. Aviation Consumer Action Project v. Coleman. Avi. Law Rep., 13 Avi 17,814. 8. Aviation Consumer Action Project v. CAB. 485 F. 2d 1018 (D.C. Cir. 1973). 9. Aviation Consumer Action Project v. CAB. Avi. Law Rep., 12 Avi 17,754. 10. Aviation Consumer Action Project v. Shaffer. Avi. Law Rep., 12 Avi 18,006. 11. Aviation Consumer Action Project v. Trans World Airlines (CAB Dkt. No. 23628, November 24,1972). Consumerism, I, No. 72, p. 819. 12. Blitz [Consumers Union] v. American Express Co. Consumerism, II, No. 56, p. 656.

Area Studies: Public Interest Law in Action 13. Boshes [et al. with Consumers Union, Federation of Homemakers, National Legal Aid and Defenders Association, American Civil Liberties Union, Ralph Nader] v. General Motors. 59 F.R.D. 589(1973). 14. Center for Auto Safety and Berman v. Brinegar. CPSG, 1 CPS para. 75,044. 15. Consumer Federation of America v. Federal Power Commission. Consumerism, III, No. 42, p. 423. 16. Consumer Federation of America [and National Council of Senior Citizens] v. Wyeth Laboratories, Consumerism, I, No. 56, p. 623. 17. Consumer Federation of America, Consumers Union, and Federation of Homemakers, motion to intervene, In re ITT Continental Baking Co., Inc. et al., Trade Reg. Rep., 1970-1973, Transfer Binder para. 20,242. 18. Consumer Union v. Board of Governors, Federal Reserve System. Consumerism, II, No. 34, p. 395. 19. Consumers Union v. Consumer Product Safety Commission. CPSG, 1 CPS para. 75,024 and 75,032. 20. Consumers Union v. Consumer Product Safety Commission. 491 F. 2d 810 (2nd Cir. 1974). 21. Consumers Union v. Consumer Product Safety Commission. CPSG, 1 CPS para. 75,086. 22. Consumers Union v. Cost of Living Council. 491 F. 2d 1396 (Em App 1974). 23. Consumers Union v. Kissinger. 506 F.2d 136 (D.C. Cir. 1974). 24. Consumers Union v. Periodic Correspondents Association. 365 F. Supp. 18 (D.D.C. 1973). 25. Consumers Union v. Sawhill. Consumerism, III, No. 32, p. 322. 26. Consumers Union v. Sawhill. Consumerism, III, No. 38, p. 383. 27. Consumers Union v. Saxbe. Trade Reg. Rep., 1974 Trade Cases para. 75,057. 28. Consumers Union v. Simpson. CPSG 1 CPS para. 42,205. 29. Consumers Union v. Veterans Administration. 301 F. Supp. 796. (S.D. N.Y. 1969). 30. Ditlow [and Nader] v. Brinegar. 494 F.2d 1073 (D.C. Cir. 1974). 31. Eisen v. Carlisle and Jacquelin [amicus curiae: Consumers Union, Public Citizen, Inc. et al.]. Consumerism, II, No. 46, p. 545. 32. Federation of Homemakers v. Butz. 466 F.2d 462 (D.C. Cir. 1972). 33. Federation of Homemakers v. Schmidt.

445 FDC Law Rep. 1974, Transfer Binder para. 41,250. 34. Heart Disease Research Foundation v. General Motors. 463 F.2d 98 (2nd Cir. 1972). 35. LABEL [Law Students Association for Buyers' Education and Labeling], Inc. v. Edwards. FDC Law Rep. 1970-1974, Transfer Binder para. 40,872. 36. Minnesota Public Interest Research Group and Metropolitan Senior Citizens Federation, intervenors, Snyder's Drug Stores, Inc. v. Minnesota State Board of Pharmacy. 221 N.W.2d 162 (1974). 37. Nader v. Allegheny Airlines, Inc. 365 F.Supp. 128 (D.D.C. 1973). 38. Nader v. Butterfield. 373 F.Supp. 1175 (D.D.C. 1974). 39. Nader [and Public Citizen, Inc., Federation of Homemakers, and Consumers Association of the District of Columbial v. Butz. 474 F.2d 426 (D.C. Cir. 1972). 40. Nader v. Dunlop. 370 F.Supp. 177 (DC (D.D.C. 1973). 41. Nader v. Federal Aviation Administration. 440 F.2d 292 (D.C. Cir. 1971). 42. Nader v. Sawhill. Consumerism. Ill, No. 40, p. 404. 43. Nader v. Volpe. 446 F.2d 261 (D.C. Cir. 1972). 44. Nader v. Volpe. 475 F.2d 916 (D.C. Cir. 1973).

Consumerism and Consumers 45. Nash v. Brinegar. CPSG 1 CPS para. 75,031. 46. National Consumers Union v. National Tea Co. Consumerism, II, No. 40, p. 467. 4 7 . New York Public Interest Research Group v. Regents of the University of New York. Consumerism, III, No. 37, p. 378. 48. Powers and Western Massachusetts Public Interest Research Group v. Richardson. CPSG, 1 CPS para. 75,040. 49. Public Citizen, Inc. v. Sampson. Consumerism, II, No. 56, p. 615. 50. SAVE [ Students Against Volvo Exaggerations] , motion to intervene, In re Volvo, Inc. Trade Reg. Rep., 1974 Trade Cases para. 75,012 at p. 96,476. 51. Smith v. Richardson. Consumerism, II, No. 3, p. 19. 52. SOUP [Students Opposing Unfair Practices] , Inc., motion to intervene, In re Campbell Soup Co., Trade Reg. Rep., 1967-1970 Transfer Binder para. 19,261. 53. SOUP, Inc., intervenors, In re Firestone Tire and Rubber Co., Trade Reg. Rep., 19701973 Transfer Binder para. 20,112. 54. United States v. General Motors Corp. [amicus curiae: Ralph Nader et al.J CPSG, 1 CPS para. 75,085. 55. Virginia Citizens Consumer Council, Inc. v. State Board of Pharmacy. 373 F.Supp. 638 (E.D. Va. 1974), aff'd 425 U.S. 748.

Chapter Fifteen

Public Interest Law and Federal Income Taxes Thomas C. Heller

Federal income taxation would seem to provide an ideal field for the practice o f public interest law (PIL). 1 There is a widely held belief that the Internal Revenue Code is rife with inequitable rules that benefit wealthy and corporate interests. 1 Moreover, there are plausible explanations why the process by which tax policy is generated could lead to such biased results. Nevertheless, the amount o f PIL tax work has been surprisingly small (see Chapter Four). Only one PIL organization, Tax Analysts and Advocates o f Washington, D.C., has attacked inefficiencies and inequities in the tax system. When measured against the level o f activity in other sectors of the 1. The federal income tax is not the only tax that may merit the attention of public interest lawyers. The federal insurance programs - social security and unemployment compensation - might well be scrutinized. Some attention has been given to the improper administration of local property taxes but there has been no challenge, to my knowledge, of tax expenditures within the property tax system. The lack of any PIL activity in these areas may be related to the problems of constructing normative models of these taxes against which deviations could be measured. See Boris I. Bittker, "Accounting for Federal 'Tax Subsidies' in the National Budget," National Tax Journal, XXII (1969), pp. 244-261, and "The Tax Expenditure Budget - A Reply to Professors Surrey and Hellmuth," National Tax Journal, XXII (1969), p. 540. But see Stanley Surrey and William Hellmuth, "The Tax Expenditure Budget - Response to Professor Bittker," National Tax Journal, XXII (1969), pp. 534-535, and Lloyd D. Slater, "Tax Incentives of State and Local Governments," Tax Incentives (Lexington, Mass.: Heath Lexington, 1971), pp. 51-58. 2. See, for example, Phillip Stern, The Rape of the Taxpayer (New York: Random House, 1973), and Phillip Stern, The Great Treasury Raid (New York: Random House, 1964). For a more even presentation, see Stanley Surrey, Pathways to Tax Reform (Cambridge, Mass.: Harvard University Press, 1973).

PIL movement, the stillness in the tax area calls for special explanation. 3 The objective o f this chapter is to describe the work o f PIL tax lawyers up to the present and to offer a hypothesis to account for the limited past success and the future prospects of PIL firms in 3. Although suits that have produced benefits to the general tax base have occasionally been initiated by private litigants or PIL law firms that concentrate their activities in other fields, the only public interest firm that has undertaken a specialized and systematic approach to tax reform is Tax Analysts and Advocates (TAA) in Washington, D.C. The bulk of the material reviewed in this chapter is based on that firm's experience. For a statement of the firm's conception of its mission and function, see Thomas F. Field, "Who Needs the Public Interest Movement?" Southern California Tax Institute, XXVII (1975), pp. 415-421. The Tax Reform Research Group (TRRG), an arm of Ralph Nader's Public Citizen, has chosen to act principally as a lobby to Congressional tax writing and Internal Revenue Service (IRS) administrative oversight committees. Unlike TAA, TRRG is not eligible for tax deductible donations and is operated with substantial contributions of student services. The work of TRRG has focused in large part on two problems that will not be discussed in this paper. First, it has mounted a public campaign to aid community groups in testing the equality of assessment practices under the property tax. See People and Taxes, II, 6 (1974), pp. 8-10, and People and Taxes, I, 8 (1973), pp. 2-29. There has also been concern with the increased provision of legal services in individual tax matters. While some local groups have attempted to provide free filing services, TRRG has concentrated upon causing the IRS to reform internal procedures and proactively act on behalf of taxpayers who cannot afford legal counseling and representation services. See People and Taxes II, 5 (1974), pp. 3-4. These distributional problems are more akin to the justification for traditional legal aid than for PIL intervention, which seeks to resolve collective goods problems. However, the need for expansion of aid sources in the tax area does deserve further exploration. See Boris I. Bittker, "Tax Shelters for the Poor," Taxes, LI (1973), p. 68.

447 dealing with major tax problems. The central thesis is that litigation, which has been the most attractive tool for PIL attorneys, is not a useful instrument for tax reform. Legal arguments against tax rules often can only be founded upon general public finance criteria, but the courts have been unwilling to hear substantive claims in complex areas such as taxation and have deferred to the expertise of the legislature or executive agencies. As a consequence, PIL tax lawyers have been compelled to concentrate upon the tax policy formation process and on the political organization of tax reform constituencies, an area in which they are less competent and less likely to be successful. In the introductory section of the chapter we sketch the reasons why we might expect governmental failures in tax law. In the second section, we define an economic model of equitable and efficient income taxes against which we can compare the current rules of the internal revenue system. In the third section, we contrast the less successful cases with those special types of tax cases in which PIL lawyers have had courtroom victories. In the fourth section, we examine in more detail the sources of biased tax policy and analyze the relative values of alternatives to litigation, such as legislative and administrative lobbying and political organization. Finally, we present an evaluation of the costs and benefits of PIL tax work which suggests that certain non-litigational aspects of the practice ought to be continued, although innovative forms of financing will have to be developed.

Introductory

Overview

The assertion of public interest tax law is that modern tax policy exhibits a minoritarian bias in favor of well organized minority interest groups - that demands outside review. This claim of improper public behavior must be distinguished from the more customary form of distortion of public policy, which favors majority forces. Majoritarian dominance provides a separate rationale for other types of PIL activity (see Chapter Nine). The theory of minoritarian bias associates governmental failure with the existence of large groups that are unable to organize, articulate their interests, and acquire effective representation in the political process. The gen-

Federal Income Taxes eral public's interest is logically one of the most underrepresented interests that PIL could represent. Further, the value of tax reduction privileges is frequently concentrated in more limited and identifiable groups. As the use of the tax system to influence private economic behavior through special incentives has become more common, the opportunity for such narrow groups to appropriate this form of regulation to their own benefit has grown. PIL tax work is grounded in the assumption that special interests have over time unjustifiably reduced their tax liabilities, resulting in a transfer of income from underrepresented taxpayers to members of the special interest groups. Although the exact distributional consequences of successful PIL activity would not be predictable, the general direction of the effect would be toward egalitarian or progressive tax schedules. This hypothesis finds support in the notoriety that federal taxation has achieved in recent years. Loopholes allegedly abound, and the legendary millionaire who pays no tax has joined the ranks of the national villainry. Both academic and popularized study have argued that the mysteriously indecipherable tax code is the Caballah of special favor and a cement that helps hold tight the "class system of domination." Yet, in spite of the virulence of these claims, the heralded rebellion of taxpayers has stalled at the level of rhetoric. The principal purpose of the federal income tax is to raise funds to support the myriad activities of government. At the same time the tax code is complicated by numerous "tax expenditures" — reductions in tax liability that serve to subsidize a given activity - intended to alter the private levels of output of particular goods and services or to achieve socially desirable income transfers. Special interest tax rules arise when tax expenditures do not correct market inadequacies but serve mainly to shift wealth to taxpayers who would not normally be the recipients of public redistributive grants. The mass of the taxpaying citizenry, which would benefit from the termination of such special interest rules, has an extremely diffuse but aggregately large interest in seeing that the revenue laws are properly constituted and enforced. However, taxation and expenditure policy is framed in terms of a complex, abstract, and specialized theory, which seems to

448

require substantial education to comprehend. Most individuals do not understand the content or effect of the tax system, and the cost to individuals of tax specialists who can help them negotiate their way through the maze usually exceeds the private return those individuals could expect from general tax reform. Even if information about the system were more generally available, tax reform is a collective good, and benefits from changes in the tax system would be available to all taxpayers, whether or not they contribute to the reform effort. Further, because individuals would experience only a minor decrease in their tax liabilities after a comprehensive tax reform, their rational demands for tax fairness remain largely latent. There will, then, be a systematic tendency toward a private undersupply of the investment funds needed to represent the interests of diffuse taxpayers. 4 There are several models of public agency behavior that predict biased special interest tax legislation under these circumstances. Under the ideal pluralist model of representative government, the advocates of countervailing groups will provide a reasonably comprehensive sample of constituent values, information, and analytical findings. 5 Actual lobbying in regard to tax legislation in Washington, however, is inconsistent with this model. Congressional tax hearings and less formal contacts are dominated by the representatives of limited interests.' Similarly, in IRS 4. Mancur Olson, Jr., The Logic of Collective Action (Cambridge, Mass.: Harvard University Press, 1965). 5. William Connolly. "The Challenge to Pluralist Theory," in William Connolly, ed., The Bias of Pluralism (New York: Atherton Press, 1969), pp. 3-13. Tax Analysts and Advocates has described the need for a public interest presence: "In federal tax matters special interests are well represented, but the general public is n o t . . . Members of the executive branch frequently hear only one side of a tax argument: the side urged by representatives of private interests that have a special ax to grind. Fair-minded administrators . . . sometimes find ways to cope with the problems caused by one-sided representation. Too often, however, decisions are reached without a thorough exploration of possible alternatives and without comment by the general public" (Field, "Who Needs the Public Interest Movement?," p. 424). 6. See John Jacob Siegfried, The Relationship Between Economic Structure and the Effects of Political Influence, Empirical Evidence from the Federal Corporate Income Tax Program, Ph.D. Dissertation, University of Wisconsin, Madison, 1972; also see Stanley Surrey, "The Congress and the Tax Lobbyist - How Special Provisions Get Enacted," Harvard Law Review, LXX (1957), p. 1145.

Area Studies: Public Interest Law in Action rule-making procedures, it is rare that any "public interest" advocate comes forward to offset the arguments of private organizations. 7 Where there is a one-sided presentation of information to political authorities, there will be an unbalanced consideration of the interests and arguments of those who are underrepresented. Even under the electoral model of public agency behavior, intense minorities may be more effective in controlling political institutions. Legislators and bureaucrats can be "corrupted," in a non-venal sense, by the desire to be reelected or to preserve the organization.* Because special interest tax legislation is relatively invisible and spreads the cost of privilege over a wide base, the political sanction for an anti-reform voting record may be light relative to the reward for maintaining the status quo. The regular output of such imperfect legislation can be expected where competing groups have a differential capacity to contribute to the welfare of politicians who are maximizing their own interests. Some have argued for a class model of politics, suggesting that federal regulation is often a symbolic response intended to placate reformist groups with the appearance of change. 9 The demands of the public for tax equity are met by a system of what appear to be sharply progressive 7. Field, "Who Needs the Public Interest Movement?," pp. 424-425. 8. In this sense an agency might be "captured" simply because it pursues its rational self-interest. See George J. Stigler, "The Theory of Economic Regulation," Bell Journal of Economic and Management Science, II (1971), p. 1; Richard Posner, "Theories of Economic Regulation," Bell Journal of Economic and Management Science, V (1974), pp. 335, 343-350. 9. G. William Domhoff, The Higher Circles: The Governing Class in America (New York: Random House, 1969), pp. 201-250; George Hilton, "The Consistency of the Interstate Commerce Act," Journal of Law and Economics, (1966), p. 87; Gabriel M. Kolko, Railroads and Regulation 1877-1916 (Princeton: Princeton University Press, 1965); Gabriel M. Kolko, The Triumph of Conservatism: A Reinterpretation of American History 1900-1916 (New York: Free Press of Glencoe, 1963); Paul W. MacAvoy, The Economic Effects of Regulation: The Trunk-Line Railroad Cartels and the Interstate Commerce Commission Before 1900 (Cambridge: MIT Press, 1965). Even if these agencies were not created by special interest needs, it is sometimes asserted they are maintained to preserve favor. See Marver H. Bernstein, Regulating Business by Independent Commission (Princeton: Princeton University Press, 1955); Luther H. Ziegler, Interest Groups in American Society (Inglewood Cliffs: Prentice-Hall, 1972).

449 rates, though in practice the rates are far less progressive than they seem to be. Proponents of this model argue that the general failure to understand the reality of the system allows the tax program to serve as a mask for the continuance of class domination. Regardless of one's choice of a pluralist, electoral, or class model of politics, a biased set of tax rules may be predicted. In spite of a plausible case that a minoritarian bias affects tax policy, success in PIL litigation has been restricted principally to freedom of information suits. The failure to replicate these gains in substantive challenges that attack asserted tax loopholes may be explained by theoretical problems. It is possible to define a governmental failure as a tax rule that (1) is inconsistent with a specified model of uniform taxation and thus affects taxpayers disproportionately, and (2) does not improve allocative efficiency or distributional equity. However, it is much more difficult to demonstrate conclusively that particular tax provisions do or do not satisfy these conditions. Moreover, PIL tax claims, unlike many other PIL lawsuits, have demanded the review of difficult substantive policy choices, instead of the review of decision-making procedures, which courts prefer to consider. The restraint that judges have exercised in substantive matters is counter-majoritarian. Most judicial doctrine was formulated in periods of limited government, when there was little government regulatory intervention. The common form of public abuse was at that time the unequal treatment of minorities and individuals, so the policy of protecting minorities was articulated in explicit constitutional provisions. In contrast, PIL tax attorneys must call upon principles of tax policy and governmental behavior that are merely implicit in their effort to combat the alleged abuse of the public by limited interests. Courts are not very familiar with a legal claim that simply challenges the efficiency and equity of a public decision. Defining the legitimate authority of the regulatory state and evaluating the intricacies of public finance theory are not tasks the judiciary is anxious to undertake. But even should courts prove willing to entertain the substantive review of agency decisions, this would do little to reform major failures of tax policy. Tax law is distinguished by the close presence of the Con-

Federal Income Taxes gress, which has been unwilling to delegate tax policy decisions to agencies administering the policy. These agencies were charged with only the routine, detailed work that Congress had neither the time nor the stomach to perform. Thus, while the IRS may sometimes deviate from the language of the tax code and support special interests in its rule-making, the far greater part of potentially inequitable or inefficient tax rules originates in a legislature that enacts tax laws of great specificity. Despite apparent governmental failures at both the legislative and the executive levels, the judiciary traditionally has avoided confrontation with Congress over the rationality of fiscal choice. More generally, the courts have designed general principles of standing that preclude the review of legislative behavior. Since the IRS administers specific Congressional tax policies, these principles foreclose the consideration of public interest challenges to IRS decisions as well. It will not, therefore, be surprising to discover a checkered history of litigational success in the public interest tax field. (See Chapter Eight for a discussion of water resource projects, which are also tightly controlled by Congress.) With limited access to judicial review, public interest tax lawyers have turned to reform of the policy formation process. Political organization and direct lobbying are two tactics that might be successful in the policy formation process, but lobbying is more suited to legal tastes and styles. The role of the Washington private lawyer-aslobbyist provides a vivid image to be mirrored by public interest organizations. Lobbying for the consideration of diffusely held interests in tax policy choices can occur both in the Congress and in IRS hearings. The possibility of reforming policy depends upon the causes of public agency failure and the resources with which the public interest lobbyist - often but not necessarily a lawyer — counterbalances the actions of private interests. In the tax area, although the potential failures of the IRS may be less numerous, and certainly less expensive, than those of the legislature, the lobbying effort may be much more effective at the bureaucratic level. Both because of its ability to supply additional information and analysis, and because of its capacity to exert political pressure, PIL activity is likely to gain its most substantial returns in the relatively smaller

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Area Studies: Public Interest Law in Action

not disturb the proportionality of competitive market prices, which in absence of external economies determine the optimal use of resources. 11 From an allocative standpoint, such a tax would be efficient because it would impose equal charges on all receipts, and would offer no incenLooking for Loopholes tive to avoid the tax by altering productive activIn order to give legal content to the imprecise ity. Comprehensive income taxes are also prenotion of a tax loophole, we must define a con- sumptively more equitable than selective taxes, ceptual model of "correct" income taxation which fall only on particular goods or sources of against which we can measure improper devia- wealth, because each taxpayer in a like position tion. We will use the standard economic criteria with respect to total income will be similarly of allocative efficiency and distributional equity treated. Conversely, tax provisions that do not to define such a conceptual model. However, in a conform to a comprehensive tax base will, in the system of multiple imperfect markets and numer- absence of special justification, cause inefficient ous non-uniform taxes - taxes that fall dispro- substitution effects and non-neutral transfers of portionately on different taxpayers — it is expen- wealth. sive and difficult to demonstrate that any particThe thickness of the federal income tax code ular tax rule enhances neither the efficient alloca- is due less, however, to the effort to define tion of resources nor the equitable distribution income and establish distributionally fair rates of goods and services. PIL lawyers face a compli- than to the variety of tax-expenditures included cated task because they must turn to these norms therein. 11 These provisions are explained as: of public finance theory if they are to attack (1) inducements to increase private activities be"loopholes." Yet the substantive character of lieved to yield collective benefits, including sothis legal argument impedes the PIL strategy of cially preferred redistribution and (2) corrections reform through litigation, because courts have for the distortive burdens and inequities of the declined to consider technical controversies various non-comprehensive taxes in use. The about general expenditure policy. tremendous difficulty of showing that specific Government failures in the tax area may be tax rules cannot meet this dual standard presents defined as those deviations from comprehensive a principal barrier to judicial review and PIL tax income taxation that neither correct existing in- litigation. efficiencies nor move the distribution of welfare Non-uniform taxes may not be public market toward a more "desirable" position. The compre- failures if they are second-best remedies for the hensive tax base - a uniform income tax base - inefficiencies and inequities of imperfect private is classically defined as "the algebraic sum of markets and uncoordinated taxes. There are at (1) the market value of rights exercised in con- least three ways this might be true. First, the sumption and (2) the change in value of the store comprehensive income tax itself may produce a of property rights between the beginning and end bias against many forms of saving. Perhaps to of the period in question." 10 This standard base counteract this, the Internal Revenue Code infor income taxation is justified because of both cludes many provisions consistent with an exits efficiency and its equity effects. Uniform general taxes, including the comprehensive tax, will field of administrative practice. It is also probable that the benefits of even this limited effort make a continued investment in PIL tax work an economically rational choice.

10. Henry C. Simons, Personal Income Taxation (Chicago: University of Chicago Press, 1938), pp. 61-62, 206. But see Henry Aaron, "What is a Comprehensive Tax Base Anyhow?" National Tax Journal, XXII (1969), p. 543; Boris I. Bittker, "Accounting for Federal 'Tax Subsidies' "; and Boris I. Bittker, Charles O. Galvin, Richard A. Musgrave, and Joseph Pechman, A Comprehensive Tax Base? (Brandon: Federal Tax Press, 1968).

11. Richard A. Musgrave and Peggy B. Musgrave, Public Finance in Theory and Practice (New York: McGraw-Hill, 1973), pp. 443-445. 12. The establishment of progressive tax rates, uniform at each income level, may be considered either as an optimizing expenditure to improve distributional equity or a part of the code's basic structure. Assuming these rates reflect collective preferences, further changes in rate structures must be treated as normal expenditures subject to normal efficiency criteria. See Bittker, "Accounting for Federal 'Tax Subsidies,' " pp. 251-253.

451 penditure tax base - a uniform sales tax base — which appear as deviations from a comprehensive income tax definition. 1 3 Second, because it is not possible to administer a completely uniform tax o n incomes, goods, and services, the proportionality o f pre-tax prices will always be lost in part. Where the practical limits o f taxation produce substitution effects, there is pressure t o introduce off-setting deviations to restore the theoretical neutrality o f the tax. Thus, some special tax rules are responses to the exclusion from gross income o f such factors as the value o f imputed income from household labor and consumer durables, the unrealized appreciation o f assets, and the value o f leisure time. Third, exceptions to uniform income tax treatment may represent attempts to adjust for the distortive non-uniform taxes imposed by decentralized and foreign jurisdictions. 1 4 Presumably the effect o f these uneven income taxes is simply to restore taxpayers to the positions they would have occupied if all other taxes levied had been wholly neutral (uniform). Where pre-tax market prices d o not maximize welfare because o f external effects, uneven taxes that deviate from a comprehensive tax base may be properly used to correct market prices. Public subsidies to increase the private production o f collective goods may be implemented through the tax revenue system just as well as through the expenditure side o f the budget. With direct expenditure programs, taxes are collected under a 13. William D. Andrews, "A Consumption-Type or Cash Flow Personal Income Tax," Harvard Law Review, LXXXVIII (1974), p. 1113. 14. Consider as one example the treatment of capital gains. Although this provision is customarily labeled as a tax expenditure, other justifications can be offered. As an averaging device against bunched income, capital gains are simply part of the rate structure of the tax and not an exception. They may be elements of expenditure taxes. Finally, they may be second best corrections for the administrative inability to tax appreciation and help to correct for lock-in effects. Other deviations from a neutral model may be similarly explained. The single largest tax subsidy, which is offered to the owners of residential housing, may in part be an offset to the property tax while accelerated depreciation can be an adjustment to low foreign tax rates on capital formation. See James K. Kindahl, "Housing and the Federal Income Tax," National Tax Journal XIII (1960), pp. 376, 381; Joel Barlow, "The Tax Bias Against Investment in Production Facilities," National Tax Journal, XXVII (1973). pp. 415-437.

Federal Income

Taxes

comprehensive tax and subsidies are paid from these funds to appropriate recipients. The direct expenditure will have n o impact upon the effective tax rate o f those subsidized. A tax expenditure, b y contrast, extends a subsidy by simply not collecting the equivalent amount o f tax from those w h o would otherwise have received a direct expenditure. Although the economic effect o f the t w o alternatives is the same, the tax expenditure will appear as a deviation from the comprehensive tax base. 1 5 Any public expenditure can be justified if all those w h o bear its cost receive a benefit - for example, from the expanded output o f a product that is undersupplied in private markets - that exceeds their increases in tax liability. 1 4 A peris. Surrey defines tax expenditures as "deliberate departures from accepted concepts of net income and . . . various special exemptions, deductions, and credits (by which) our tax system does operate to affect the private economy in ways that are usually accomplished by expenditures - in effect to produce an expenditure described in tax language." The essence of this concept is that the treatment of taxpayers in ways at variance with "widely accepted definitions of income" and "the generally accepted structure of an income tax" is defended to achieve social and economic objectives unrelated to the tax system itself. Surrey and Hellmuth, "Response to Professor Bittker," pp. 528, 532. See also Stanley Surrey, "Tax Incentives as a Device for Implementing Government Policy: A Comparison with Direct Expenditures," Harvard Law Review, LXXXIII (1970), pp. 705, 706-707. The literature describing the economic equivalence of tax and direct expenditures is cited in "Tax Incentives as State Action," University of Pennsylvania Law Review, CXXII (1973), pp. 414, 420-424. There has in the past been substantial criticism of tax expenditures as variable in amount by tax bracket, invisible because of the technicality of the tax law, unreflected in the budget, and beyond the jurisdiction of the proper Congressional committee. These problems can be alleviated through the use of tax credits in place of deductions and by the current efforts to publish and publicize the tax-expenditure budget and open the tax writing process. For material cataloguing and analyzing tax expenditures, see "Tax Incentives as State Action," p. 414; Henry Aaron, "Inventory of Existing Tax Incentives - Federal," Tax Incentives (1971), pp. 39-50. It was estimated that if a comprehensive income tax were enacted, the increase in taxable income would amount to $166 billion or a 28 percent increase. Joseph Pechman and Benjamin Okner, "Individual Income Tax Erosion by Income Classes," in Compendium of Papers on the Economics of Federal Subsidy Programs, U.S. Joint Committee Print (1972), p. 22. 16. Erik Lindahl, "Just Taxation - A Positive Solution," in Richard A. Musgrave and Alan Peacock, eds., Classics in the Theory of Public Finance (New York: Macmillan, 1958); Charles Tiebout, "A Pure Theory of

452

fectly discriminating tax subsidy is one that would cause no undesired transfers of wealth; that is, one that would neither transfer wealth to people who are already doing what the transfer is subsidizing, nor transfer more wealth than is needed to procure the desired results. A perfectly discriminating tax subsidy, then, would result in a reduction in the tax bill to the expenditure recipient of the exact sum necessary to equalize his private return on the subsidized and all alternative economic opportunities. Theoretically, even if the tax liability should fall to zero through some combination of these subsidies, the welfare of the taxpayer need not be affected. In practice, however, tax expenditures involve windfall gains to inframarginal recipients — taxpayers whose tax liabilities fall even though they do not alter their behavior. Transfers may also be captured by the owners of resources that are components of the subsidized product. Finally, because the tax subsidy is frequently a uniform sum that affects people in different tax brackets differently, it cannot be restricted only to that amount needed to induce the desired shift in behavior. As a result, both tax expenditures and direct expenditures represent combinations of benefit changes and income transfers." Governmental failure in the use of tax expenditures can take the form of allocative efficiency failures or redistributional equity failures. To the extent that a tax subsidy induces changes in behavior, the change must be justified by the welfare gains of those who finance it. If a tax expenditure were just large enough to induce a change in behavior but gave rise to no external benefit, the result would be a benefit shortfall or deadweight loss to the economy. There would be Local Expenditures," Journal of Political Economy, LXIII (1956), p. 416. 17. The likelihood of transfers can be illustrated by considering the effect of the tax subsidy on the consumer of owner-occupied housing. First, the deduction is received by all homeowners and not simply by those who increase their consumption of housing in response to the subsidy. Second, to the extent that supply factors in the housing industry are inelastic, the increased demand will raise the price received by factor owners of land and capital. Finally, because the subsidy will induce more consumption of housing up to the point where the return from the marginal subsidized unit equals the return on alternative goods, for all non-marginal units purchased the uniform subsidy was excessive. See Henry Aaron, Shelter and Subsidies (Washington, D.C.: Brookings Institution, 1972), pp. 53-73.

Area Studies: Public Interest Law in Action no improvement in the position of either the subsidy recipient or of those who pay for the change. To the extent that a tax expenditure produces income transfers, its propriety depends on the equity of the transfers. Where the transfer was an unavoidable by-product of the production of a collective good, it can be treated simply as a cost of production. As long as the value of the good exceeded its total cost, the transfer would be efficient. Should the inclusion of the transfer as a cost make the purchase of the good uneconomic, the tax expenditure can be justified only if the portion of the transfer that is not costefficient has favorable equity effects. The same conclusion would follow if the transfer were larger then necessary for the production of the same public good." Public market failure will clearly be present only when an inefficient subsidy is associated with transfer payments that are inconsistent with distributional principles. 19 Estimates of the efficiency effects of tax expenditures provide a highly speculative foundation on which to construct legal claims of public market failure. The claimed return on many of these programs is received in forms that are not amenable to statistical measurement. Some tax subsidies, like inducements to increase savings, are long-term investments which may be fairly 18. An alternative claim of unjustified expenditure would argue that tax inducements ought not have to be made to produce the optimal behavior. Expenditure programs of any sort are only one type of regulatory control. They are consistent with the normative judgment that producers and consumers ought to be compensated to alter their private behavior. For example, tax expenditures that permit the rapid amortization of investment in pollution control equipment reduce the cost of pollution avoidance for industry at public expense. TTie greater amenity is defined as the external benefit purchased. It is also possible, however, to conceive of this supposed collective benefit as a spillover cost. If the public has a legal entitlement to be free of pollution, a program that contemplates subsidy in place of mandatory discharge reduction or excise taxes to reach a unique efficient solution negates this legal right. 19. The most common form of criticism of tax expenditures is that the transfers are unnecessary to achieve the same results. See Stanley Surrey, "Federal Income Tax Reform: The Varied Approaches Necessary to Replace Tax Expenditures with Direct Government Assistance," Harvard Law Review, LXXXIV (1970), p. 352. Some of the more blatant special interest bills, hard to justify on any account, are discussed in William L. Cary, "Pressure Groups and the Revenue Code: A Requiem in Honor of the Departing Uniformity of the Tax Laws," Harvard Law Review, LXVIII (1955), p. 745, and Surrey, "The Congress and the Tax Lobbyist," pp. 1176-1181.

453 evaluated only after many years. Even if oil depletion allowances increase national security, or pollution control incentive payments produce a more pleasant and healthful environment, or housing tax breaks reduce crime and psychological instability, the methodological difficulties of showing that the expenditure is cost-justified are nonetheless obvious. Although welfare cannot be defined by money receipts, analysis is problematic where there are only imperfect surrogates for individual well-being.10 Even where it is suspected that the external benefits produced by the tax expenditure do not merit its expense, the special tax rule could be efficient if it were a second-best correction for distortions caused by other taxes and public programs. Customary accounting techniques for the tax expenditure budget offer no indication of the costs of resource misallocation. To know, for example, that total tax revenues collected are $100 billion below what might be produced with a more comprehensive tax base is only to know that there is a potential government failure. Without a reasonable approximation of the value of the public good purchased, it is extremely difficult to know whether the pure subsidy and the transfers incident to production of the good are efficient. It may be still more difficult for the public interest lawyer to define what constitutes an inequitable transfer. Some observers have suggested that the volume of transferred income could be reduced by substituting direct expenditures for tax subsidies. The reform would be advisable, however, only if the final incidences of transfers now effected through tax subsidies are not consistent with distributional goals.11 If we construct a social welfare function by examining the distributional preferences that are expressed in legislation passed by representative institutions, the distributional effects of current tax expenditure programs would help compose that 20. Discussion of the general problem of the valuation of collective goods can be found in Henry Aaron and Martin McGuire, "Public Goods and Income Distribution," Econometrica, XXXVIII (1970), p. 907, and Irwin Gillespie, "Effect of Public Expenditures on the Distribution of Income," in Richard A. Musgrave, ed., Essays in Fiscal Federalism (Washington: Brookings Institution, 1965), pp. 122-186. 21. For discussion of the difficulties of tracing expenditure incidence, which is the relevant variable for appraisal of public market failure, see Musgrave and Musgrave, Public Finance.

Federal Income Taxes social welfare function." The use of effective, instead of formal, tax rates in the definition of the optimal distribution would logically eliminate the possibility of governmental failure. In addition, although there is no reason to expect that governmental institutions will legislate in accord with the optimal distribution, the manner in which an independent social welfare function is to be defined is speculative. 13 Even where such a proper distribution were known, it would not be correct to evaluate a particular tax expenditure by comparing its distributional impact to that of the optimal weighting. In a political system that operates through logrolling and multiple transfers, it is the cumulative impact of all coordinated expenditures that will effect the desired pattern of wealth holding. The fact that a single tax provision yields apparently undesirable distributional windfalls does not mean that the ultimate impact of the entire system will be distributionally undesirable. 14 The implication of this analysis is that courts will not remove the power to decide these difficult questions from the hands of the legislature. A reluctance to review substantively the day-today tax and expenditure decisions of the government has characterized judicial behavior for some 22. See Burton A. Weisbrod, "Income Redistribution and Cost-Benefit Analysis," in Samuel Chase, ed., Problems in Public Expenditure Analysis (Washington: Brookings Institution, 1968), pp. 177, 185-208; also James D. Rodgers, "Explaining Income Distribution," in Harold M. Hochman and George T. Peterson, eds., Redistribution Through Public Choice (New York: Columbia University Press, 1974), p. 165. 23. It is reasonable to treat income redistribution as a public good and to expect that private charity will not supply the optimal amount of redistribution. Harold M. Hochman and James D. Rodgers, "Pareto Optimal Redistribution," American Economic Review, LIX (1972), p. 971. For distributions consistent with alternative redistributional patterns, see Robert Cooter and Elhanan Helpman, "Optimal Income Taxation for Transfer Payments Under Different Social Welfare Criteria," Quarterly Journal of Economics, LXXXVIII (November 1974), pp. 656-670. 24. In connection with a tax code that has been described as a "pudding with plums for everyone," each individual may be part of a system of effective compensation. Because the costs of actually compensating those who are harmed by regulatory programs are excessive, efficient programs are undertaken even though no immediate recompense is made. However, repayment of political debts in apparently unrelated programs is to be expected. The net result of all transfers may lead to a system which is non-redistributive in its entirety. See E. J. Mishan, "The Recent Debate Over Welfare Criteria," Oxford Economic Papers, XVII (1965), p. 219.

454 decades. In particular, the courts have adopted a due process standard that will not upset fiscal choice unless that choice is made without a possible rational basis. Judicial deference to the technical expertise and political sovereignty of the Congress would restrict the usefulness of the courtroom to that limited subset of tax rules that conflict with the clear intent of the legislature or that contradict Constitutional standards other than the due process clause. These theoretical expectations are consistent with the PIL litigational experience described in the next section.

Litigation:

The Less Fertile Field

The pattern of PIL tax litigation makes clear the divergence between the conceptual framework and judicial reality. Legal actions have been concentrated around the Freedom of Information Act and those IRS rulings that infringed upon civil rights. However, hampered by problems of standing and the unwillingness of judges to presume that the IRS or Congress produces biased tax policy, PIL lawyers have found that the bulk of theoretically improper tax decisions remains beyond their reach. It is the lack of lawsuits challenging tax statutes and interpretations on substantive grounds that is significant. Freedom of Information The most successful class of PIL litigation has been conducted under the Freedom of Information Act." Prior to 1967, an extensive range of information about the process of IRS rulemaking, interpretations of tax laws, statistics, administrative directives, and private tax rulings was beyond public access. The service published only Treasury regulations, revenue procedures, and a relatively small percentage of revenue rulings that were deemed, in the discretion of the agency, to be of general importance." Although about 30,000 rulings are issued each year, the IRS considers that only a few have value as 25. 5 U.S.C. SS2. This act does not run against information relevant to Congressional decisions, 5 U.S.C. 551(l)(a), and tax returns are by law confidential and excluded from the preview of the Act. 5 U.S.C. 552 (b)(3). 26. For a description of the specifics of revenue rulings and their use by the IRS, see Tax Analysts and Advocates v. Internal Revenue Service, 505 F.2d 350, 352-353 (D.C. Cir. 1974).

Area Studies: Public Interest Law in Action precedent and merit publication in the Internal Revenue Bulletin." However, unpublished rulings sometimes support practices that entail substantial revenue losses to the tax base. " Through an informal communications network within the tax bar, this body of "private law" was accessible only to those who could buy tax counseling services. Private-letter rulings, originally covering individual cases, became the foundation for a more general tax policy, even though these interpretations of law were concealed from public disclosure." In spite of the fact that the IRS has maintained a restrictive interpretation of the Freedom of Information Act, a series of lawsuits has made available more information on the operation of the IRS than at any time in the past. 30 The initial suit, brought by private litigants, not by a PIL group, mandated access to the IRS manual (which guides the audit behavior of revenue agents) and to detailed statistical studies of income tax returns. 31 A second action, filed by the 27. In 1974 there were 28,000 rulings made in Washington, of which about half concerned changes in accounting methods and periods. About 7,000 of the remaining rulings concerned income tax matters and 4,200 concerned exempt organizations. Another 70,000 determinations were handled in IRS field offices. J. Whitaker, "Rulings, Letters and Technical Advice: The Disclosure Crossroads," Taxes LIII (1975), pp. 712, 714. About 600 rulings were published in the Internal Revenue Service Bulletin. 28. Unpublished rulings in areas such as carved-out production payments, ABC transactions, and the deductibility of treble damage payments, were sufficient to produce revenue losses of hundreds of millions of dollars. Description, Budget and Funding Request (Washington: Tax Analysts and Advocates, 1973), pp. 21-22. 29. See International Business Machines Corp. v. U.S., 343 F.2d 914 (C.C1. 1965), cert, denied, 382 U.S. 1028 (1965). 30. A Library of Congress study showed that between 1967 and 1971, the IRS turned down more information requests (306) than all but two other federal agencies. The restrictive interpretation was characterized by one Congressional staff official as "the most flagrant in violating not only the spirit but the letter of the Freedom of Information Act" People and Taxes, II, 6 , 4 (1974). 31. P. Long p. Internal Revenue Service, 29 AFTR 3d, 72-349 (W.D. Wash.), 30 AFTR 2d. 72-5423 (W.D. Wash.). The manual guides service agents in negotiating and compromising claims in audit and closing agreements, while the management information report is a detailed statistical study of the sources and results of the examination of income tax returns. Neither were held to be purely intra-agency memos and were made available both to individuals interested in contesting their own tax liabilities and to others who raise general questions about the uniformity and fairness of IRS

455 Tax Reform Research Group in 1974, made public all written testimony and comments submitted in IRS rule-making processes.31 The most wideranging set of cases, won by the PIL group Tax Analysts and Advocates (TAA), has exposed all private-letter rulings with the correspondence and documentation that accompany them. Because of the use of these rulings as precedents within the IRS, it was ruled that the public need for knowledge outweighed any risk that disclosure would impair confidentiality, disrupt agency procedures, or cause taxpayers to cease to use the advance ruling process." PIL activity has also succeeded in increasing the flow of tax information in cases that never came to trial. Tax Advocates was able to gain an out-of-court settlement that (1) disclosed all Treasury bill reports, which state the official position and revenue estimates of the Treasury with respect to pending legislation; (2) opened to public scrutiny Treasury correspondence with the Congress, trade associations, and tax attorneys; and (3) established an index of correspondence to avoid the need to make expensive blanket requests for documents. 34 Several PIL actions to secure information were threatened or filed, but made moot by subsequent agency acquiescence. 35 Finally, pending legislation and administration. The other volumes of the Internal Revenue Manual have been released subsequent to the Long suit and have been published by both Tax Analysts and Advocates and Commerce Clearing House. 32. Tax Reform Research Group v. Internal Revenue Service, 33 AFTR 2d. 74-1252 (D.D.C.). 33. Tax Analysts and Advocates i>. Internal Revenue Service, 362 F . S u p p . 1298 (D.D.C. 1973), a f f ' d in part and rev'd in part, 505 F. 2d. 350 (D.C. Cir. 1974). The IRS contended that private-letter rulings were outside the scope of the Freedom of Information Act because they were not "interpretations . . . adopted by the agency" having binding precedential value; that they were confidential material; and that they were intraagency memos. Although the appeals court in Tax Analysts deemed a part of a tax return not disclosable, this holding is in conflict with the disclosure order in Fruehauf Corp. v. Internal Revenue Service, 522 F.2d. 284 (6th Cir. 1975). 34. Tax Analysts and Advocates et al. v. Department of the Treasury et al., Civil Action No. 382-73 (D.D.C. 1975). 35. Tax Reform Research Group has sued the IRS for documents relating to the Special Services Staff that had organized politically inspired tax investigations during the Nixon administration. The IRS eventually released the names of the targeted organizations, People and Taxes, II, 11 (1974), pp. 4-5. Tax Analysts and Advocates contemplated suit to force the Securities and

Federal Income Taxes litigation will establish whether PIL representatives must continue to make requests for specific records and reimburse the agency for search time, or whether the IRS will be ordered to make entire groups of documents available for public inspection as a routine matter and publish an indexing system to facilitate their use.36 Until this question is resolved, it remains spec dative, because of the expense of obtaining and distributing the information made available by PIL activity, whether increased access will prove of more relative benefit to the unrepresented public or to the private tax bar. Litigation Against the IRS Those PIL claims that have succeeded in upsetting substantive tax rules have been directed against decisions of the IRS rather than the Congress, and constructed on statutory rather than constitutional grounds. The legal theory behind those cases is simply that the executive agency had refused to carry out the clearly expressed intent of the legislature. Tax Analysts and Advocates v. Schultz pointed to an evident inconsistency between established law and administrative decision. 37 Reportedly in response to a request by political officials seeking the reelection of the President in 1972, the IRS had ruled that "for gift tax purposes, political organizations, rather than the candidates they support, Exchange Commission to publish corporate accounting data, which they subsequently released. Tax Advocates also filed an administrative petition with the Director of the Office of Management and Budget on May 7, 1973, requesting that all meetings of Treasury Department officials with representatives of the Tax Sections of the American and New York State Bars be opened to public access and participation in accordance with the Federal Advisory Committee Act. 36. The second Tax Analysts Case, Civ. No. 75-0650 (D.D.C.) has successfully sought to require the Service to fulfill its obligations under 5 U.S.C. 552 (a)(2) to publish and index all letter rulings issued since July 4, 1967. An order under (a)(2) is far more sweeping than the (a)(3) request for identifiable records won in the first Tax Analysts case. See Wall Street Journal, December 10, 1975, page 1. However, all action has been stayed until the Supreme Court decides whether to hear the Fruehauf case. Pending IRS and legislative adjustments, as well as the potential impact of these cases on taxpayers, are explored in Whitaker, "Rulings, Letters and Technical Advice," pp. 715-718; and William L. Cary, "The Public Availability of Private Rulings, How Will it Affect Tax Practice," Journal of Taxation, XLII, No. 4 (1975), pp. 224, 225-230. 37. 376 F. Supp. 889 (D.D.C. 1974).

456 are generally considered to be the donees of political contributions." 3 * The effect of this holding was to permit a donor to split his contribution among multiple campaign committees and avoid the gift tax owed on donations above $3,000 to any "person." Committees that served no function except to channel funds to a central finance committee received large political contributions that were made without tax liability. Since a prior case had established the principle that the word "person" was intended to be used for gift tax purposes in its "ordinary and natural sense," the court had little trouble in finding that the expedient of many conduits to a single donee was inferentially excluded. 3 ' There was no need to refer to Constitutional standards of rational tax policy since the IRS had no discretion to ignore judicial precedent that interpreted legislative intent.

Area Studies: Public Interest Law in Action bership by race.42 This genre of cases may be exceptional because the weight given the policy of eliminating substantial public subsidization of segregationist institutions is so strong and unambiguous.43 It is less likely that courts will feel comfortable with the substantive evaluation of the relative costs and benefits of tax expenditures outside such constitutionally protected 44

areas. In Eastern Kentucky Welfare Rights Organization v. Simon, an action on behalf of a class of indigent persons failed to revise the statutory interpretation of a less transparent Congressional directive.45 The IRS traditionally had limited the multiple benefits of charitable status to hospitals "operated to the extent of financial resources for those not able to pay for the services rendered and not exclusively for those who are able and expected to pay." 4 6 In 1969 a new Similarly, two PIL cases overturned IRS deter- ruling recognized an expanded definition of charminations that charitable contributions to racial- ity. The change qualified as non-profit any hospily segregated institutions were deductible. The tal that operated "an emergency room open to holdings were based upon the principle that stat- all persons and [that provided] care for all those utes ought not to be interpreted in a manner persons in the community able to pay the cost contrary to public policy. In Green v. Kennedy, 42. 338 F. Supp. 448 at p. 460 (D.D.C. 1972). The the broad constitutional question raised was relationship of the lodge's racism to its charitable pracnever litigated.40 Rather, the court ruled that tices, which were the basis for its I.R.C. 1970 (c)(4) the overwhelming federal policy against segre- deduction has been questioned in Boris I. Bittker and gated education required that the Internal Rev- Kenneth L. Kaufman, "Taxes and Civil Rights: Constitutionalizing the Internal Revenue Code," Yale Law enue Code "no longer be construed so as to Journal, LXI1I (1972), pp. 51, 78-79. But see a contrary provide private schools operating on a racially argument in "Tax Incentives as State Action," supra discriminatory premise the support of the ex- note 14 at pp. 434-439. In addition to the charitable status, fraternal organizations were taxed only on "unreemptions and deductions which the Federal tax lated business taxable income" which excludes passive 41 law affords to charitable organizations." investment income. The court found these exemptions McGlotten v. Connally ruled that both the 1964 under I.R.C. 501 (c)(8) and 513 (a) "provided funds are then invested for the purposes of benefitting Civil Rights Act and "a clearly indicated Con- which contributing numbers" and were thus illegal. McGlotten gressional policy that the beneficiaries of federal v. Connally, 338 F. Supp. 488 (1972). 43. See "Tax Incentives as State Action," pp. largesse should not discriminate" would have for445-449. bidden, in the absence of Constitutional con44. Similar cases include Pitts v. Dept. of Revenue siderations, the granting of favorable tax pri- for the State of Wisconsin, 333 F. Supp. 662 (E.D. vileges to a private lodge that restricted mem- 1971) and Falkenstein v. Dept. of Revenue, 350 F. 38. Rev. Ruling 72-335, Cum. Bull. 1972-2, 532. 39. Helveringv. Hutchings, 312 U.S. 393 (1941) at pp. 396-397. For press coverage of this material, see Washington Post, June 8, 1974, page A8; New York Times, May 14, 1974, p. 21. 40. 309 F. Supp. 1127 (D.D.C. 1970), continued sub. nom. Green v. Connally, 330 F. Supp. 1150 (D.D.C. 1971); a f f d per curiam on interveners appeal sub. nom. Coit v. Green, 404 U.S. 997 (1971). 41. Green v. Connally at p. 1164.

Supp. 887 (D. Ore. 1972). 45. 34 AFTR 2d. 74-5985 (D.C. Cir. 1974). On June 1, 1976, the Supreme Court denied plaintiffs on appeal relief from the IRS interpretation of I.R.C. 170 by ruling that plaintiff welfare organizations could not show they would specifically be harmed by the IRS action. Consequently standing was denied and the substantive merits of the Appeals Court decision were not discussed. See Supreme Court Law Week, XLIV, 4724, June 1, 1976, and the upcoming section of this chapter on "Legal Standing." 46. Rev. Rul. 56-185, Cum. Bull. 1956-1,202.

457 thereof either directly or through third-party reimbursement." 47 In the absence of a clear Congressional resolution of what constitutes a charity, and lacking a public policy like racial integration that can determine the outcome of an economic analysis because of the high social cost associated with discrimination, the court of appeals was unwilling to overturn the ruling that allowed emergency care provision and the promotion of community health to be considered "charitable purposes" within the accepted legal sense.4" To have interpreted the ambiguous word "charity" narrowly would have required a showing that such hospitals did not provide a net social benefit sufficient to justify the tax expenditure dollars devoted to them. Thus, the question of the cost effectiveness of particular expenditures was reserved to the IRS.

Federal Income Taxes ingness to review on the merits, limits the scope of PIL litigation to agency rulings that are inconsistent with explicit formulations of law and legislative intent. Even though there are procedural barriers to PIL representation of taxpayer interests, it is ultimately the high cost of sustaining factually complicated litigation that is the main obstacle to successful PIL activity in the courts.12 Constitutional (Due Process) Litigation

There has been no PIL litigation that asserted that a Congressional tax expenditure was without a rational basis and therefore violated the due process clause of the Constitution. Although the failure to prosecute this class of actions may appear to be a result of doctrinal and standing restrictions imposed upon tax suits, the ultimate It is not obvious that there are many agency explanation is the judiciary's refusal to review indiscretions that can be exposed without discus- the spending policies of the federal legislature. If sion of the complicated substantive rationality — it were shown that a special tax rule were ineffiefficiency or equity — of the policy choice. Be- cient and inequitable, then there would be an cause of such complications, Tax Advocates con- argument that those forced to pay higher taxes sidered but then rejected legal action against the to support the expenditures were denied due IRS policy concerning limited partnerships, a process of law. Such a constitutional theory policy that is essential to the operation of tax shelters.4' The agency's interpretation of the tax 52. Two further cases against IRS substantive provistatute was not patently unreasonable and, as a sions have been raised that were not decided on the result, a claim of governmental failure would merits. In Common Cause v. Connally, Civ. A. 1337-71 (D.D.C. 1971), a taxpayer, a citizen, an adversely afhave been dependent on a substantive showing fected businessman, and a Congressman alleged that the that tax expenditures made through sheltering Asset Depreciation Range (ADR) regulations proposed were wasteful, inefficient, or inequitable. Such a by the Treasury went beyond the statutory depreciation rules in effect. The case was made moot by the Congrescase is certainly imaginable,50 but its presenta- sional enactment of IRC 167 (m) as part of the Revenue tion in litigable form with the degree of certainty Act of 1971 which established ADR. Tax Analysts and demanded by judicial review makes investment in Advocates v. Simon, 35 AFTR 2d 75-849 (D.D.C.) sought to enjoin IRS rulings that permitted income tax the research required for such a lawsuit unreason- credits for payments to foreign countries in connection able." The deference accorded to IRS policy with oil extraction and production payments calculated choices, reflected in Eastern Kentucky's unwill- on a fixed per barrel basis. These payments generated a 47. Rev. Rul. 69-545, Cum. Bull. 1969-2, 117. 48. 34 AFTR 2d 74 at pp. 5990-93. 49. See "Period Report No. 4," Tax Analysts and Advocates, 1973, Appendix J. Also H. Lawrence Fox, "The Maximum Scope of the Association Concept," Tax Law Review, XXV (1970), p. 311. 50. See Paul R. McDaniel, "Tax Shelters and Tax Policy," National Tax Journal, XXVI (1973), pp. 353, 367-373; but see Wayne E. Chapman, "Real Estate Tax Incentives," National Tax Journal, XXVI (1973), pp. 389, 391. 51. For another analysis of the large costs of obtaining the needed research in such complex cases, see Chapter Seven above.

revenue loss of $3 billion dollars but were, though labeled income taxes, more like royalties or severance taxes not creditable under I.R.C. 901(b). The rationale for the IRS decision was a State Department request for a tax expenditure on national security grounds. TAA seemed to argue that even if the expenditures were efficient, the tax law could not be interpreted or used in this manner. See Field, "Who Needs the Public Interest Movement?," pp. 422-423. Whether the interpretation could have been consistent with I.R.C. 903, which allows the credit of taxes paid "in lieu of income taxes," and whether the expenditure was proper, was never decided since the plaintiffs failed to win standing. The history of his IRS ruling is discussed in Anthony Sampson, The Seven Sisters (London: Hodder and Stoughton, 1975),pp. 110-112.

458 would have to include three elements. First, it must be accepted that tax expenditures are functionally equivalent to direct expenditures and ought to be subject to identical principles of constitutional limitation. Second, the tax rule at issue must be proven to be a case of special treatment or a deviation from a neutral income tax. Those provisions that simply define the concept of net income or the uniform set of rates at which net income is to be taxed could be illegitimate only if the income tax itself caused constitutional problems. Once the comprehensive tax is supplemented by departures that are justified by expenditure considerations other than general revenue collection, each such departure must be subjected to the same constitutional controls as would the direct expenditure for which it substitutes. Finally, there must be a substantive showing that the special privilege is not justified by either efficiency or equity criteria. Only the latter or substantive element of a due process theory curtails a wide-ranging PIL effort to reform the tax laws through judicial scrutiny. In the prosecution of lawsuits founded on other articles of the Constitution, courts have progressively come to accept the qualitative similarity of tax and direct expenditures and the differentiation of those tax laws that define net income and those that are incentive measures. The McGlotten court specifically recognized an obligation to review the constitutionality, under the equal protection clause, of tax rules that represented "government matching g r a n t s . . . available only for particular purposes and political organizations." The court distinguished tax expenditures from rules that "provide for an equitable measure of net income" or were "part of the structure of an income tax based on ability to pay." " The controversy about what constitutes a deviation from a uniform income tax is inevitable. 54 There are, however, a substantial number of provisions, such as the deductibility of charitable contributions, that are sufficiently re53. McGlotten K Connolly, cited in note 42, at pp. 457 and 462. 54. See Bittker and Kaufman, "Taxes and Civil Rights," pp. 64-68, arguing that the characterization of the 501(c)(8) organization exemption of passive income was not a tax expenditure but an administratively dictated exception. This interpretation may be inconsistent with the Tax Reform Act of 1969, which specifically included the passive income of social clubs, 512(a)(3)(A) and (B) but retained the exclusion of the passive income of fraternal organizations.

Area Studies: Public Interest Law in Action moved from any neutral model of income taxation so as to not pose a serious barrier to litigation. Although it is difficult t o deny the functional economic identity of tax subsidies and direct expenditures, the courts have not always acknowledged their legal equivalence. The U.S. Supreme Court refused to find the exemption of church property from property taxes an infringement of the Establishment of Religion Clause because a tax expenditure was only a "minimal and remote" or more passive form of government support. 5 5 Similarly the statutory grant of a deduction for mortgage interest paid by homeowners was not sufficient to make the federal government "a joint participant in bigotry practiced." 5 ' While these decisions might mean only that the expenditure was too small to cause constitutional problems, each was expressed as if the form of the expenditure as a tax subsidy shielded it from constitutional review. 57 More recently, a change in court policy is evident. In 1972 a carefully constructed state program that offered tuition grants to poor children and reductions in tax liabilities t o others if they attended private religious schools was declared entirely unconstitutional. 5 * The tax deduction was equated with direct reimbursement of tuition and treated in the same manner. The 55. "Tax exemptions and general subsidies, however, are qualitatively different. Though both provide economic assistance, they do so in fundamentally different ways. A subsidy involves the direct transfer of public monies to the subsidized enterprise and uses resources exacted from taxpayers as a whole. An exemption, on the other hand, involves no such transfer... . Tax exemptions constitute mere passive state involvement with religion and not the affirmative involvement characteristic of outright governmental subsidy." Walz v. Tax Cm'mn, 397 U.S. 664 at pp. 690-691 (1970). 56. Burton i>. Wilmington Parking Authority, 365 U.S. 715 at p. 725. See similar holdings of insufficient involvement in Bright v. Isenbarger, 314 F. Supp. 1382 (N.D. Ind. 1970), also Chicago Joint Board Amalgamated Clothing Workers v. Chicago Tribune Co. 435 F. 2d. 470 (7th Cir. 1970). 57. Expenditures that benefited religious institutions and discriminating private agencies have not been denied in all cases. See Board of Educ. v. Allen, 392 U.S. 236 (1968); Norwood v. Harrison, 413 U.S. 456, 465 (1972); Moose Lodge No. 107 v. Irvis, 407 U.S. 163, 173 (1972). In addition it is not clear in the Walz case that there was a tax expenditure at all. If the property tax is treated as an income tax surrogate, it ought not to fall on non-profit institutions. See also Boris I. Bittker, "Churches, Taxes and the Constitution," Yale Law Journal, LXXVIII (1968), pp. 1285-1310. 58. Committee for Public Education v. Nyquist, 413 U.S. 756, 789-794 (1972).

459

McGlotten ruling held that deductible contributions were equivalent to the direct expenditures that would have been required in the absence of private charitable activities.59 Because the government chose to act by inducing a private agency to perform public functions, the tax expenditure was held subject to the same equal protection standards as a direct grant. Since there remain no substantive interpretations of law that prevent PIL groups from litigating against the unwarranted erosion of the tax base, the lack of due process tax cases may well be the result of a judicial reluctance to become involved with the complex technical and fiscal questions they present. If the judiciary is reluctant to substitute its judgment in expenditure policy for that of the IRS, it is still less willing to review the choices of the legislature. We can distinguish successful arguments against tax expenditures under the First and Fourteenth Amendments from PIL due process claims by the nature of the alleged public abuse. Advocates of the broad public interest in tax equity and efficiency base their claims upon the contention that minority interests have been able to dominate the policy process. By contrast, the narrower claims that have resulted in constitutional restriction of tax expenditures have originated in legal rights designed to protect against the power of majority groups. In racial and religious tax cases, courts have considered substantive questions involving conflicts between the First Amendment rights of free exercise of religion and separation of Church and State, or between the rights of equal protection and freedom of association. Although these matters may require hard analysis, they lie within the traditional competence of the judiciary. Judges have consistently asserted the power to protect minority interests. On the other hand, judicial consideration of a PIL demand to review legislation is not only problematic and substantive, but it violates defined political turf. In tax law, a judicial decision to use substantive due process to check minoritarian control would require that the judiciary oversee the daily functioning of the representative process. Such a commitment would not be consistent with the long-standing judicial strategy of concentrating on more specialized tasks.40 59. McGlotten v. Connolly, at pp. 456-457. 60. "We risk a progressive impairment of the effectiveness of the federal courts if their limited resources

Federal Income Taxes Legal Standing To some extent, restrictions on PIL litigation are the result of an inability to acquire standing to sue.61 However, the exclusionary rules of standing in the tax and expenditure area are themselves the product of the complexity of fiscal issues and of judicial deference to the expertise of the Congress. At least in the tax area, denial of standing is often a procedural manifestation of the substantive doctrine of limited judicial competence." PIL representatives of taxpayer interests are unable to demand that unconstitutional Congressional appropriations be abolished unless their clients can demonstrate "a are diverted increasingly from their historic role to the resolution of public interest suits. . . . The irreplaceable value of the power articulated by Chief Justice Marshall lies in the protection it has afforded the constitutional rights and liberties of individual citizens and minority groups against oppressive or discriminatory government action. It is this role, not some amorphous general supervision of the operations of government, that has maintained public esteem for the federal courts and has permitted the peaceful coexistence of the countermajoritarian implications of judicial review and the democratic principles upon which our federal government in the final analysis rests." Richardson v. U.S., 418 U.S. 166, 192 (1974, Powell, J., concurring). 61. Other possible barriers to the justiciability of PIL tax cases are sovereign immunity, which prohibits suit against non-consenting government agencies; the Tax Injunction Act, I.R.C. 7421(a), barring injunction relief against the collection of taxes; and the Declaratory Judgment Act, which excludes controversies with respect to federal taxes, 28 U.S.C. 2201 (1970). Neither of the latter two statutes has been interpreted to prevent PIL tax suits that seek to force the collection of additional revenues. See McGlotten v. Connolly, at p. 453. In one instance a suit by Tax Analysts and Advocates to remove the 501(c)(3) restrictions on political activities by charities was barred by the Tax Injunction Act. Because taxpayers have a right to deduct payments they make to trade and business associations, chambers of commerce, labor unions, fraternal societies, and veterans groups for income tax purposes, Tax Analysts and Advocates claimed the restrictions on its activities denied its First and Fifth Amendment rights of free speech and due process. Since the ultimate effect of these orders would be to restrain the IRS from collecting taxes that would be due under current law, the court refused to issue the injunctions and afford declaratory relief. The only legitimate means of testing the merits of the issue for the groups would be to violate the political activities law, be assessed for taxes due, and sue for a refund. Tax Analysts and Advocates et al. v. Schultz, 34 AFTR 2d. 74-5682 (D.D.C. 1974), a f f m 35 AFTR 2d. 75-1352 (D.C. Cir. 1975). 62. In Frothingham v. Mellon, 262 U.S. 447, 489 (1923) the Court refused to review the propriety of the Federal Maternity Act because it "would be not to decide a judicial controversy, but to assume a position of authority over the governmental acts of another and co-equal department, an authority which clearly we do

460 danger of sustaining some direct injury" and not merely one suffered "in some indefinite way in common with people generally." 63 Although it appeared after Flast v. Cohen that an individual who sustained no harm except a minute pocketbook loss might be able to contest federal expenditures, subsequent decisions have narrowed this exception to the enforcement of First Amendment rights." In particular, the Supreme Court decision in Richardson v. U.S. reasserted that the degree of concrete personal harm necessary to acquire standing to raise a constitutional argument was more than the damage sustained by ordinary taxpayers or the public in general.'5 Unless some special subgroup of the tax base is specifically injured by tax legislation, the broad increase in tax liability caused by inefficient or inequitable tax expenditures cannot be presented for judicial review. Those PIL lawsuits that were successful in reaching the merits on trial were all distinguished by plaintiffs who asserted a personalized injury other than that of a taxpayer. In Green and McGlotten, the specific harm was caused by racial discrimination against black plaintiffs." In the political contribution case, the special injury was asserted because the litigant suffered "a diminution of his vote and the dilution of his ability not possess." Similarly Schlesinger v. Reservists Committee to Stop the War, 418 U.S. 208, 222 (1974) reiterated a reluctance to become involved with litigation in which the "relief sought produces a confrontation with one of the coordinate branches of the government." See also Harlan, J., dissent in Flast v. Cohen, 392 U.S. 83, 130-133 (1968). 63. Frothingham v. Mellon, p. 488. 64. Flast v. Cohen, 392 U.S. 83, 102-103 (1967). Discussion of this case may be found in Kenneth Culp Davis, "Standing: Taxpayers and Others" University of Chicago Law Review, XXXV (1968), pp. 601, 603. The only basis for standing under the test outlined in Doremus v. Board of Education, 342 U.S. 429 (1952), was an economic loss that amounted to approximately twelve cents per average taxpayer. 65. Richardson v. U.S., p. 195. Although the majority opinion did not overrule Flast v. Cohen directly, Powell in concurrence noted: "All standing cases, even the most recent ones, include references to the need for particularized injury or similar language. None of them has equated the interest of a taxpayer or citizen, suing in that status alone, with the particularized interest that standing doctrine has traditionally demanded. To take that step, it appears to me, would render the requirement of direct and immediate injury meaningless." 66. McGlotten v. Connolly, p. 452; Green v. Kennedy, p. 1132.

Area Studies: Public Interest Law in Action to affect the electoral process." 61 In Eastern Kentucky, both the district court and court of appeals ruled that the loss of health care constituted an injury to a class of indigents; the courts thus found a protected interest in the long-standing interpretation of the tax law that free care was an essential part of charitable services.68 The Freedom of Information Act specifically grants standing to "any person" who has been denied access to non-exempt information. 69 However, in the single PIL action where the plaintiffs alleged standing solely as taxpayers, the Court denied access by incorporating the Richardson definition of specialized personal injury into the requirements for standing under the Administrative Procedure Act. Tax Analysts and Advocates v. Simon sought to overturn IRS rulings related to the creditability of foreign royalty payments made by American oil companies. Although the PIL firm raised no constitutional issue, the court held that the generalized losses to the tax base were insufficient to constitute an "injury in fact" and that the PIL assertion of rights derived from the principles underlying the fair administration of the tax law did not create a protected interest for the individual taxpayers. ,0 In effect, the standing doctrine that has been developed in constitutional litigation precludes the judiciary from considering government failures (especially by the IRS) on either allocative efficiency or equity grounds. At present, IRS rulings are immune from review in the absence of

67. Tax Analysts and Advocates p. Schultz, pp. 896-899. 68. Eastern Kentucky Welfare Rights Organization v. Schultz, 33 AFTR 2d. 74-483 (1974). Even this minority group standing was denied on appeal by the Supreme Court for lack of causal connection between speculative injuries to be suffered by plaintiff groups and the economic effect of the IRS ruling on hospital behavior. See note 45. 69. 5. U.S.C. 552 (a)(3). 70. Tax Analysts and Advocates v. Simon, pp. 853-854. Taxpayer plaintiffs were denied standing under both the "injury in fact" and "zone of interests" tests articulated in Association of Data Processing Service Organizations v. Camp, 397 U.S. 150, 153 (1970) and Barlow v. Collins, 397 U.S. 159, 167-168 (1970). TAA also purchased an oil well in order to sue as a competitor of multinational corporations under the Data Processing case, but was overruled on this ground as well. Tax Analysts and Advocates v. Schultz, p. 857. This, unfortunately, left TAA as the only PIL firm in the oil business.

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special discrimination, even when they clearly deviate from statutory language. A restrictive standing doctrine in tax law is significant because standing requirements have been liberalized in other areas. In challenges to environmental, communication, and health and safety decisions, the courts ruled that personally minute injuries produced by "attenuated lines of causation" were sufficient to allow access to the courts. 11 The fact that many persons shared the same harm was even more reason to hear the complaint, because the aggregate loss would be greater. Since these same characteristics describe the injury felt by taxpayers who oppose the erosion of the revenue base, it would seem that the distinction that permits courts to review only certain forms of governmental intervention is without substance. Nevertheless, courts argue, but cannot prove, that relaxed standing rules will clog the courts, and that only those with concrete injuries can ensure that a controversy will be presented with specificity.' 5 In addition, they argue that taxpayer suits may lack the necessary adversarial form because one cannot be certain that the defendant agency will vigorously defend the interests of those who would be harmed if the contested tax rule were changed. Finally, there is an unwillingness to entertain cases that pose a temptation to use injunctions as substitutes for more representative procedures. These claims, however, do not distinguish PILtax suits from other PIL actions. If there is to be substantive review of governmental intervention, decision-makers need a cost-benefit analysis to appraise its merit, just as they do in other PIL 71. U.S. v. Students Challenging Regulatory Agency Procedures, 412 U.S. 669, 688 (1973); Office oj Communication of United Church of Christ v. FC C 359 F.2d. 994 (1966); Reade v. Ewing, 209 F.2d. 630 (2nd. Cir. 1953); Environmental Defense Fund v. HEW, 428 F.2d. 1083 (D.C. Cir. 1970). For other cases with liberalized standing rules based on theories of a private attorney-general, see Louis L. Jaffe, "The Citizen as Litigant in Public Actions: The Non-Hohfeldian or Ideological Plaintiff," University of Pennsylvania Law Review, CXVI (1968), p. 1033. ' 72. See Randolph W. Thrower, "Public Interest Litigation to Affect Substantive Decisions," National Tax Journal, XXVII (1974), pp. 389, 390-393. A somewhat fanciful discussion of the problems of taxpayer standing is found in Boris I. Bittker, "The Case of the Fictitious Taxpayer: The Federal Taxpayer's Suit Twenty Years after Flast v. Cohen," University of Chicago Law Review, XXXVI (1968), p. 364.

Federal Income Taxes areas. Judicial restraint in substantive review may be advisable, but the form of the regulation under attack offers no basis for either opening or closing the doors of the court. The differences in the rules of standing between tax and other cases are a result of the liberalization of access outside the tax area. Judicial review of administrative actions in other fields helps to assure the representation of a complete range of interests in regulatory decisions. An expanded law of standing was necessary in order to obtain judicial remedies for procedural defects in the administrative process. Such defects include the failure to provide hearings or the failure to file the legally required environmental impact statements. In contrast, there were no comparable procedural irregularities in the Congressional or IRS practices in the tax area. Since taxpayer access to the tax policy process is formally available, the law of standing for tax and expenditure challenges developed in conjunction with requests not for the right to participate in a process, but for the substantive review of Congressional action. The courts, reluctant to be used for the airing "of generalized grievances about the conduct of government," evolved restrictive standing rules to avoid this form of dispute." PIL tax suits have presented no reason to alter the traditional rules that limit taxpayer standing in any forum to persons who can show a special injury, defined as harm done to minority or individual interests. Standing is not an independent barrier but a part of the judicial philosophy of specialized expertise. It may be that as the formal deficiencies in other regulated areas are cured, the restrictive standing doctrines of tax law will return to plague PIL actions in other areas.74 Minority Rights and Litigational Success Both restrictive standing laws and a deference to the substantive determinations of other branches of government suggest that courts will 73. Richardson v. U.S., p. 196. 74. The odd result of the present disjunction of standing law is that Congress can insulate regulatory programs from judicial review by enacting tax expenditures or delegating power to the Internal Revenue Service. In light of the critical appraisal an invisible policy control through the tax code has received, judicial doctrines which may tend to steer public control this way seem incongruous.

462 limit their review of tax expenditures to cases of alleged majoritarian basis. Although the judiciary has been the traditional check upon abuse by public agencies, it is unreasonable to expect that courts will reverse a rational and historic custom and take on the supervisory roles that public interest tax litigation demands. Substantive due process has been limited precisely because the courts are not representative institutions and tend to become refuges for minority positions. In these circumstances responsiblity for the general interest is a power judges deny themselves. The competence of the courts to weigh close technical or economic argument without expert training is questionable, and it is not clear that public interest representatives would have the funds or the time to bring such complex cases before adversary institutions. Restrictive standing and the limitations of substantive due process do not mean that there is no need for review of legislative and executive decisions. They only hold that courts ought not do i t . " Litigation does not seem to be a productive central strategy for PIL tax law. Lawyers who prefer the tension and fame of the courtroom will devote their talents to other areas, and the devaluation of litigation may have lessened the financial support that PIL tax law has received. Successful lawsuits can bring publicity and a public following that helps to stabilize a membership base. The NAACP made its name first in court; PIL tax groups have not and will not. Thus, PIL tax organizations must concentrate on participating in policy formation and on organizing political constituencies. In denying standing to sue, the Richardson court specifically referred PIL claims in this direction: "The absence of any particular individual to litigate these claims gives support to the argument that the subject matter is committed to the surveillance of the Congress and ultimately the political process." 76 However, it is uncertain relief to refer the aggrieved to the institutions that are the source of the problem. If courts limit their jurisdiction to protect75. "Any other conclusion would mean that the Founding Fathers intended to set up something in the nature of an Athenian democracy or a New England town meeting to oversee the conduct of the national government by means of lawsuits in the federal courts." Richardson v. U.S., p. 179. 76. Ibid., p. 179.

Area Studies: Public Interest Law in Action ing minority interests, it is not clear what institution will look after other forms of public agency failure — such as the minoritarian bias posited here. William Randolph's constitutional proposal that all legislative action be reviewed by a Council of Revision seemed anti-democratic at a time when government was small, inactive, and visible." It may be less clearly so now.

Alternatives to Litigation: Lobbies and Grassroots Organizing Among the principal alternatives to litigation in the tax area are legislative lobbying, administrative intervening, and political organizing. While PIL attorneys are not generally proficient at grassroots organizing, tax policy decisionmaking — at both the legislative and administrative levels — is ideally suited to their training and experience. Lobbying on behalf of special interests is an important part of private tax practice. However, PIL groups can accomplish more for their money in an administrative law practice rather than in Congressional lobbying. In spite of the much larger dollar volume at stake at the legislative level, theory and initial empirical results suggest a comparative advantage in concentrating PIL efforts upon the rulings issued by the IRS. The corrective potential of PIL activities other than litigation will depend upon the reason for the governmental failure. If decision-makers produce inefficient and inequitable tax rules because of mistaken or incomplete information about constituent demands or about the economic consequences of alternative tax proposals, a sufficient remedial action would be to supply the data or analytic skill that the decision agency lacks. Whether lawyers are particularly suited for such activities is by no means clear. On the other hand, if the failure to represent the public interest stemmed not from incomplete and biased information but from an exaggeration of the weighting given to the interests of special groups, some method of achieving a countervailing influence or designing structural reform is essential to corrective action. Given legal restrictions, limited 77. Max Farrand, The Records of the Federal Convention of 1787 (New Haven: Yale University Press, 1911), p. 21.

463 support, and the specialized skills of attorneys, PIL tax lawyers are now better equipped to operate before the IRS than before the legislature. PIL lobbying action before the Congress, for example, is restricted by Section 501(c)(3) of the Internal Revenue Code. This provision terminates tax exempt charitable status if "a substantial part of the activities" of a PIL firm would be "carrying on propaganda or otherwise attempting to influence legislation." Termination would mean that the firm would lose foundation grants or that individuals could no longer deduct their donations to the firm from their income taxes." Since so much of current PIL financing comes from charitable sources, legislative lobbying must therefore be carried on through separate organizations, which have been able to sustain even most lobbying programs only with difficulty. " There is no similar restriction on administrative lobbying. Information Failures The pluralist theory of information failure asserts that neutral administrators reach unsatisfactory decisions because they face imperfect information. Adequate representation of the public interest would require: (1) knowledge of the specific efficiency and equity impact of the expenditures; (2) knowledge of constituents' demand for collective goods; and (3) knowledge of political debts owed to groups of constituents who had previously compromised their own interests in a legislative bargaining process. In78. Tax Analysts and Advocates is a non-profit organization serving charitable and education purposes so as to qualify for 501(c)(3) status. Under this provision, the law firm is exempt from federal and District of Columbia taxes and receives lower postal rates. Although under I.R.C. 170(c)(2) donors are permitted to deduct gifts to TAA from their income tax, loss of this deduction because of lobbying would require tax-exempt foundations to seek to recover grants made to TAA or face a liability for penalty taxes, IRS 4945(d). 79. Taxation with Representation, a companion non-profit organization to TAA which is devoted to procuring tax reform, is exempt from income taxes under I.R.C. 501(c)(4), but cannot entitle donors to any charitable contribution. The same characteristics are shared by other national tax reform organizations, including the Tax Reform Research Group and the Movement for Economic Justice. These groups have joined with twelve regional organizations to form the National Committee for Tax Justice. Donations to business and other lobbies, on the other hand, are deductible under I.R.C. 162(e); 170(c)(3) and 170(c)(4).

Federal Income Taxes formation about these variables may be acquired through either a reactive, adversarial process or a planning process that seeks out information about all interests that might be affected by a legal change. Although there is an increasing reliance on the planning process among those who formulate tax policy, there remain a politically based reluctance to abandon adversarial techniques and a lingering uncertainty about the capacity of planning procedures to produce optimal decisions. The argument that information will reduce failures assumes two conditions. First, participation in the reactive process of policy formation must be systematically unbalanced. Second, the adversarial component must be an important influence on the decision. If the public interest can be protected through internal legislative or bureaucratic planning there is no need to counterbalance the special interest claims. The data and analysis that PIL firms can provide at low cost is more important to agency than legislative decision-making. In Congressional consideration of tax expenditures, estimates of revenue costs are provided by the computerized projections of the Joint Committee on Internal Revenue Taxation and the Treasury Department's office of tax analysis, and not in adversary proceedings, which are the special competence of PIL groups." For an analysis of the economic impact of programs, Congress has relied on reactive hearings that feature the contributions of private lobbyists, Treasury officials and academics. Still, the predominance of private testimony has been cited as a cause of biased legislation," and the legacy of information failures is seen in the tax code. We might expect some improvement, however, in the internal planning capacity of the legislature because of the foundation in 1974 of the Congressional Budget Office, specifically funded to do costbenefit analysis of expenditure proposals." Under these changed circumstances, economic 80. See I.R.C. 6405, 8001-05, 8021-23, and Surrey, "The Congress and the Tax Lobbyist," pp. 1169-1170, on the work and limitations of the Joint Committee. 81. See Surrey, "The Congress and the Tax Lobbyist," pp. 1158-1168. Also Robert H. Haveman, "Policy Analysis and the Congress: An Economist's View," pp. 7-15 (unpublished manuscript on Tile with author). 82. Haveman, "Policy Analysis and the Congress," pp. 1-4, 23-25.

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studies by PIL groups may have little added value. Even if the legal restrictions on lobbying were removed, PIL law firms acting as lobbyists can be little more than clearinghouses for independently prepared comment, unless funding is increased." It is also uncertain whether PIL firms could provide answers to the policy questions that legislatures face. Even if tax expenditures benefit limited sectors, subsidies are not necessarily needed to equalize the logrolling process. PIL groups cannot claim any relative advantage in articulating the public demand for collective goods, particularly in comparison with the data that representatives can presumably seek out by themselves in their home districts. In contrast, PIL groups may affect IRS proceedings, which are more restricted in scope and less protracted than legislative operations. The agency must often decide among various legally acceptable interpretations of tax statutes, and the cost of expert planning becomes onerous. The IRS does not have the Congress's access to careful revenue estimates, tax data, or economic analysis of the effects of different rulings. Because the economic staff of the Office of Tax Analysis is small, the agency is often forced to rely solely upon the analysis submitted by private consultants in a public hearing procedure. 84 These consultants almost exclusively represent 83. A wide variety of submissions of independently prepared testimony of different levels of sophistication can be obtained from Taxation with Representation. Relatively less detailed and more politicized analysis has been prepared by TRRG, especially in connection with the oil depletion controversy. See People and Taxes, II, 3,4 (1974), pp. 1-3. 84. The IRS is able to devote only a small part of its national staff of 80,000 and its $1.2 billion budget to tax policy analysis. It has varied functions beyond income tax administration, and further investment of its resources in auditing returns would still be productive. Policy decisions relating to the interpretation of the tax laws are made in a process of complex interplay between the IRS and the other tax policy offices of the Treasury. Regulations, for example, originate with the Chief Counsel of the IRS and are reviewed by the Office of Tax Legislative Counsel. The economic impact of the more important rulings may be considered by the Treasury Office of Tax Analysis. The Tax Legislative Counsel has a staff of only twenty lawyers and the Office of Tax Analysis retains fifteen economists and five statisticians. The quality of the data provided in revenue projections by the Treasury has also been questioned. See Field, "Who Needs the Public Interest Movement?," pp. 433-434.

Area Studies: Public Interest Law in Action organized limited interest groups.*5 Without direct contact with taxpayer constituents, IRS officials are also dependent on outside information about the relative value of alternative rulings. Correction of Political Bias PIL activity will be more effective in correcting political bias in the IRS than in the Congress. A theory of governmental failure postulates that self-interested decision-makers will not weigh equally the interests expressed by all constituents. Rather, political entrepreneurs will respond to that demand that is compensated by tenure in office, power and esteem, or economic benefits." Organizable groups with intensely felt interests may be more capable of providing these personal rewards than are the diffuse, unintense taxpayer constituents whom PIL firms represent. The latter cannot afford or deliver patronage or perquisites in return for support of tax reform. Particularly with regard to elected officials, the political compensation offered by special interest groups may outweigh the political losses imposed by taxpayers in general. Individuals and businesses that derive substantial benefit from preventing tax reform are identifiable, aware, and concerned. They can often be organized easily to provide blocs of votes, campaign services, and financial contributions crucial to a media-oriented politics. On the other hand, the public interest in reform is largely latent because of the technical nature of the law and the low visibility of the tax legislative process." Taxpayers cannot be certain that the gains, demonstrable in theory, of eliminating inefficient programs will be felt in their own tax liabilities. Even where a pecuniary return is expected from 85. Field, "Who Needs the Public Interest Movement?," pp. 424-427. 86. Roland N. McKean, "The Unseen Hand in Government," American Economic Review, LV, 3 (1965), pp. 496-505; Robert H. Haveman, "Policy Analysis and the Congress," pp. 10-12; Norman Frohlich, Joe A. Oppenheimer, Oran R. Young, Political Leadership and Collective Goods (Princeton: Princeton University Press, 1971), pp. 26-44. 87. A brief description of the traditional closed nature of the tax writing process may be found in J. Stanton, "Jousting with Wilbur Mills and Company," ADA World, XXVIII, 2 (1973), pp. 3-6. The reform of the process that has occurred recently is described in People and Taxes, II, 12 (1974), pp. 1-2.

465 reform, its marginal value when spread across the tax base has delayed the occurrence of the oftproclaimed taxpayers' revolt. If the benefits of tax reform are invisible and diffuse, opposition to special tax legislation will be an important source of neither votes nor money. Because political responsibility for tax policy is low and the public interest in expenditure policy is difficult to define, legislators have strong incentives to introduce and preserve special interest legislation." Each representative will try to satisfy the organized and intense groups in his district that request special regulatory legislation, and bargaining with similarly motivated colleagues leads to the passage of many special laws. In each instance there are some legislators who gain from the enactment and none who seriously lose. Commitment to the abstract principles of tax efficiency and equity is a high-risk political strategy that is most attractive to those who challenge incumbents. The appropriate response to such bias is to raise the political cost of anti-tax-reform behavior. Lobbying by PIL groups will only offer information of a type that legislators are generally not interested in acquiring. However, lawyers in the capital have neither the personal taste nor the community experience for the grassroots organization necessary to offset special interest political compensation. Litigation and lobbying carry the prestige and power, if not the salary, of the profession; political organizing does not. Governmental failure may originate in the structural defects of the legislative process, but the cure lies beyond the expertise and budget of the public interest bar. Low-cost lobbying can be more effective in the administrative than the legislative arena. Unlike legislators, who can receive a direct return in job tenure and personal power from supporting the proposals of limited, organized interest groups, IRS officials do not have a careerist motive that helps them to profit from interpretations of tax law that afford special privilege. The agency seeks to preserve an image of a profes88. See Stanley Surrey, "The Congress and the Tax Lobbyist," pp. 1155-1159. For the most comprehensive study of legislative behavior, see John F. Manley, The Politics of Finance (Boston: Little, Brown, 1970), pp. 151-380.

Federal Income Taxes sionalized, technically specialized bureaucracy that will, subject to considerations of fairness, protect tax revenues against erosion. Nor do the more common hypotheses that could explain why limited interests dominate the administrative policy process fit the IRS well. Although other bureaus may insulate industry interests, the IRS did not originate in order to preserve inefficient or inequitable advantages. Finally, the IRS does not compete for scarce revenues in the legislature, and the survival of its programs is not threatened. It need not engage in inefficient practices to secure a larger appropriation." The opportunity for procuring personal advancement by according lenient tax treatment is far more likely in the recesses of local enforcement and audit operations than in the more centralized proceedings that formulate reviewable tax rulings.90 To the extent that other governmental agencies and elected officials do seek inefficient or inequitable policy results, however, the IRS may be subject to outside pressure because its interpretive powers allow it to direct public funds to a variety of different expenditure programs. A hypothesis of "derivative capture" would argue that although the IRS has no direct interest in reducing the tax base, it may be willing to adopt other agencies' biases toward special interest programs. Unlike the IRS, other departments may manufacture inefficient programs to expand their output and justify higher budgets. Since the direct cost of these measures can be imposed on the general tax base, the losses are external to agency calculations. There are few interagency bargaining mechanisms to force the internalization of such costs, and checks upon wasteful 89. See McKean, "The Unseen Hand in Government," pp. 501-502. 90. TTie potential for agency failure in the rulings process is limited by both the elaboration of a tax code that restricts agency discretion and by the explicit provision of authorities with the responsibility to investigate and review the operation, administration, and effects of the federal internal revenue system. Rulings are reviewed by external Treasury offices and, in theory, monitored by several Congressional oversight committees and the Joint Committee on Internal Revenue Taxation. The adequacy of this oversight has been challenged - People and Taxes, II, 7 (1974), p. 1 - but has also been strongly defended as sufficient protection against tax loss to obviate the need for PIL activity. See Thrower, "Public Interest Litigation," pp. 390-391.

466 proposals through either the vote or the entry of new competitive agencies are time-consuming and uncertain." Finally, IRS interpretations may be responsive to the demands of legislators and to the influence of the President. If other agents can induce the IRS to cooperate with their expenditure proposals, the tax rules may come to reflect these external biases.95 The theory of derivative capture would imply a weaker IRS attachment to its policy choices than there would be if the choices resulted from an internal bureaucratic commitment. Faced with requests that it interpret the tax law consistently with outside policy objectives, the IRS may find that some accommodation is the easier path. Especially if the ruling can be buried in the technical recesses of the tax law, there is no direct political cost to the Service in acceding to outside demands. PIL Non-Litigation Activities Tax Analysts and Advocates has been involved in a number of actions at the administrative level. We will identify seven such actions, six of which have been resolved, and one of which is still pending. 1. TAA testified in support of a proposed IRS regulation that would have curtailed the use of captive insurance companies — companies that are subsidiaries of the insured company — that operate in foreign tax havens. This would have ended a $200 million revenue reduction associated with such companies, but the IRS chose to maintain the tax haven rules." 2. The PIL firms contested IRS behavior in connection with rules that permitted domestic international sales corporations (DISCs), which are export subsidiaries of domestic corporations, to defer up to one-half of their income from 91. McKean, "'The Unseen Hand in Government," pp. 502-503. 92. The derivative capture hypothesis may be illustrated by the political use of IRS investigatory and audit powers under the Nixon administration. See People and Taxes, III, 2 (1975), p. 6, and III, 4 (1975), pp. 7-10, for detailed accounts of these activities. In a like manner, the Treasury ruling that allowed split gifts to campaign committees was a response to administrative pressure. See Field, "Who Needs the Public Interest Movement?," p. 421. The failure to audit the Nixon returns speaks for itself. The oil tax credit rule was issued in response to a State Department request. 93. Tax Analysts and Advocates, Periodic Report No. 9 (1975), p. 4.

Area Studies: Public Interest Law in Action exports of scarce domestic products and exports subsidized by agricultural commodity payments, as well as those associated with tied foreign aid and military assistance. 94 The IRS revoked the DISC rules on subsidized and tied aid exports. 3. TAA also challenged IRS on the continued use of a 5 percent rate of imputed interest on installment and intracompany sales contracts although market interest rates had doubled. 95 The IRS increased the imputed interest rates. 4. The firm objected to the failure of IRS to audit the Nixon income tax return after the gift of his vice-presidential papers, and IRS ultimately did audit the return. 9 ' 5. The firm contested the failure of IRS to tax political parties and campaign finance committees on their investment income and appreciation in the value of donated property. 9 1 The IRS changed its policy and began to tax political parties. 6. TAA testified in support of a proposed IRS regulation that would have caused a reallocation of the deductible expenses of multi-national corporations. This reallocation would have limited the value of the foreign tax credit by some $3 billion annually. Final regulations under section 861(b) were issued on January 3, 1977. The results, from TAA's point of view, were mixed." 7. TAA contested IRS behavior in connection with a regulation permitting the use of the completed contract method of tax accounting which allows a firm to defer costs longer than normal - regardless of the financial accounting treatment of the long-term contracts involved. 99 At this writing, the issue has not been resolved. PIL activities designed to influence IRS practice rely upon a dual strategy of participating in administrative hearings and publicizing agency decisions in press campaigns. The theory of this 94. I.R.C. 993(a)(2)(B) and Regs. 1.993-1 (j)(3)(i). 95. "Petition to amend I.R.C. Sections 482 and 483 Regulations." Letter from TAA to Commissioner of Internal Revenue, April 26, 1973. 96. The President's Papers Deduction (Washington: Taxation with Representation, 1974). 97. TAA letter to Commission of Internal Revenue on the Taxation of Political Campaign Committees and Political Parties, December 15, 1972. 98. I.R.C. Regs. 1. 861-8. See also T.D. 7456 reported in Prentice-Hall Federal Taxes Report Bulletin, Vol. LVIII, January 13, 1977, p. 60,095. 99. I.R.C. Regs. 1.451-3(a).

467 program is that additional information can shore up the IRS's determination to protect the revenue base against special interest requests, and can threaten political repercussions by making visible the unjustifiable accessions to these requests. We have already looked at some of TAA's administrative activity; we now examine in more detail an action that combined administrative work with a press campaign. This action relates to DISCs, discussed above. The concurrent use of legal and publicity tactics is illustrated by the reversal of a tax opinion that would have produced a revenue loss of $300 million in connection with the export of grain to the Soviet Union. 100 Grain exporters had requested a ruling that they qualified for the tax deferrals designed to encourage American exports. The IRS was, however, entitled to deny DISC benefits if it found that the sale "is accomplished by a subsidy granted by the United States or any instrumentality thereof." 1 0 1 Sales of wheat were subsidized under the Commodity Credit Corporation Charter Act of 1948 to the extent of the difference between the high domestic and lower world market price.10* The grain companies contended that such export payments were simply part of a general price support program and did not disqualify their sales. Although the legal language was ambiguous, it was clear that the cash export payments that equalized domestic and international returns already provided a complete incentive to producers to shift from local to export markets. The additional tax expenditure would induce no further exporting and could be considered a windfall for the grain exporters. DISC treatment might be necessary for manufactured products that could not be directly subsidized under the General Agreement on Tariffs and Trade, but was duplicative for agricultural commodities. Although the IRS had apparently decided to interpret the statute in a manner favorable to the grain exporters — a result lobbied for both by Congressmen and by the Department of Agriculture — the position was reversed after receipt of a protest from TAA stating legal and economic objections. The PIL firm had released its objections through a multi100. ment?," 101. 102.

Field, "Who Needs the Public Interest Movepp. 425-426. I.R.C. 993(a)(1) and 993(a)(2)(B). 15 U.S.C. 714(c), (d) and (0-

Federal Income Taxes tiered press network it had established to provide leading newspapers and magazines with analysis of actual and proposed governmental action in the tax area. 103 The publication of these stories also preceded the shift in the IRS position. 104 Even when it might have been impossible to demonstrate conclusively that the effects of a tax ruling would constitute a governmental failure, the PIL firm's burden of proof before the agency may be lower than it would be in court. Where the IRS has engaged in questionable tax treatment, the mere raising of the flag of favoritism can present an excuse sufficient for the IRS to alter its policies. The most outstanding reversals of tax decisions featured extensive media coverage of PIL charges that the IRS had yielded to external political demands. 105 If the marginal gain to the IRS from special legislation that other agencies desire is small, the marginal cost that will induce it to abandon such decisions is also low. Visibility threatens the public's perception of agency neutrality and makes acquiescence to special interest pressure a more expensive path for the agency to follow. The technical complexity of cases such as the Nixon papers, split gifts to political committees, and the Soviet grain deal presented no barrier to publicity because the tax issues rode piggyback upon widely diffused political controversies. The major limitation to this inexpensive joint lobbying and press strategy is the minimal ability of the public to understand the obscure and unglamorous challenges that are the usual stuff of an administrative tax practice. Nevertheless, the presence of a PIL expert lobby with regular media contacts and complete access to agency decisions should have a prophylactic effect on IRS behavior. Preventing special interest rulings is the ultimate success of PIL tax representation. Though it is probable that similarly low-cost political activity would not be as effective in the legislative arena, this hypothesis cannot be tested 103. See Field, "Who Needs the Public Interest Movement?," pp. 432-433. 104. See, for example, "Wheat Exporters Seeking Tax Benefit for Soviet Deal," New York Times, September 24, 1972, p. 1. 105. A substantial number of the press articles devoted to the activities of TAA are reproduced as appendices to the periodic reports issued by the firm and available from that source. The press materials related to the Nixon papers deduction are separately collected in a special report, The President's Papers Deduction.

468 because of the tax restrictions on Congressional lobbying. PIL tax reform groups that are 501(c)(4) social action organizations (and that thus have no restrictions on lobbying) have not been able to attract sufficient resources to afford a professionalized, informal, and permanent contact with legislators and staffs that mirrors private lobbying practices. They concentrate their efforts on preparing draft legislation and submitting analyses critical of important tax expenditures. 106 Except in the case of blatant special interest favoritism, it is not likely that the more economic strategy of press exposure will correct legislative failure. Although the gain to the IRS from issuing special interest rulings was small and indirect, Congressional career patterns may depend directly on such demonstrations of power. The final alternative reform program looks to the longer term task of political organizing and providing information to the public about the general nature of the tax system and its economic effects. Both the Nader Tax Reform Research Group and Tax Analysts and Advocates have attempted to develop informative periodicals that oversee legislative behavior and analyze social consequences. The Nader publication, People and Taxes, which maintains the tone of a crusade for reform, has not achieved a large circulation. TAA's Tax Notes, a more scholarly and comprehensive publication, was unable to achieve necessary levels of general circulation and has become increasingly designed for the tax profession. It has never been able to cover its costs in spite of high quality reporting. 107 In the absence of an articulate constituency formed around issues broader than tax reform alone, the more significant contribution of PIL legal talent will be in direct representation rather than political education. 10 * 106. See, for example, the reform programs contained in the "Tax Justice Act of 1975" and the Taxation with Representation Legislative Program, both available from the National Committee for Tax Justice. 107. Tax Notes is a weekly periodical which has made generally available a weekly summary of changes in Internal Revenue Service manuals, weekly Congressional Record tax items, weekly Federal Register tax items, weekly tax legislation introduced with revenue estimates and economic analyses of important provisions, Securities and Exchange Commission data summaries on the tax position of major corporations, and a service summarizing major unpublished rulings of the Internal Revenue Service. 108. Tax reform consistent with views upon a wider issue has followed where events beyond the darker

Area Studies: Public Interest Law in Action

Evaluation and Prospects Although we may conclude from the foregoing analysis that the prospects for PIL tax work are not uniformly good, an administrative practice at least is economically justifiable. However, private financial support for even this lowcost service has not been forthcoming. PIL intervention produces an invisible reform of the administrative process, and it will be difficult to identify the sectors of the population that benefit. Consequently, if PIL tax activities are to continue, they require a commitment — not yet evident — of permanent funding from either the public or the voluntary sector. Costs of PIL Tax Activity and Financing The three possible sources of financial support for PIL tax work are the sale of legal and other services on the private market, government funding, and contributions from the charitable or non-profit sector. Tax Analysts and Advocates, the only PIL group built on an adversarial firm model, operated from 1972 through 1975 on a combination of grants, donations of services, and income from publication. 10 ' For much of that time the firm had a staff of six professionals including a lawyer-administrator, two full time tax lawyers, a part time economist, a part time statistician and a full time financial journalist. It has not relied substantially upon student or volunteer help on the theory that tax law and tax economics are too complex and delicate for those without both specialized training and experience. Professionalization also was preferred to facilitate informal contact with government officials. Salaries paid to all but the director were comparable to the wages of government personnel but no raises, cost of living adjustments, pensions, fringes, perquisites or appointments were available. Although these salaries did not involve the hardship undergone by most PIL lawworld of taxes have created a knowledgeable and articulate public constituency. The partial repeal of the oil depletion allowance was a consequence of both a widespread public consciousness of the need for the reform of energy policy and a diminished interest in depletion given the numerous exportations of foreign production subsidiaries. 109. All analysis of the financial conditions of TAA are taken from the firm's accounting statements issued in connection with its periodic reports. The figures cannot be exact since there was a shift in accounting methods during the firm's three-year history.

469

Federal Income Taxes

yers (see Chapter 5, above) they did represent for the legal staff substantial opportunity losses relative to private tax practice. There was, in addition, some paid outside litigation counsel and uncompensated contribution from the tax lawyers and professors on the firm's board of directors. The litigation side of the firm ceased operation in early 1975 when both tax attorneys left the firm. The firm dropped or transferred pending litigation and discontinued its administrative practice. They still publish Tax Notes weekly, but with relatively more reliance on volunteer submissions than on in-house reporting and analysis. Lack of funding has reduced the total staff to an unpaid executive director, a part time secretary, a journalist and a reporter. TAA's total three year expenditure, excluding the value of time contributed, was around $600,000. About $250,000 of this went to the publication and press activities of the firm, including the cost of both informational and analytical journalism. About $100,000 was spent, mostly on salaries and legal fees, for the administrative and litigational side of the firm, and the remaining $150,000 went for unattributed administrative expenses. The income to support these services included about $365,000 in foundation grants, $185,000 from sales of publications and news services, $17,500 in individual donations, $1,000 earned by Tax Advocates, and the remainder in loans and miscellaneous receipts. Twelve foundations contributed the $365,000 sum over three years, with $300,000 coming from two organizations. The annual costs of the firm averaged about $200,000 and its privately generated income came to less than $75,000 annually. Thus, a net subsidy of some $125,000 was needed for the firm to operate. These expenses do not include any of the expenditures for Congressional lobbying carried on by the companion group, Taxation With Representation. If such work is considered an essential aspect of PIL tax representation, a full accounting should include the additional net subsidy needed to provide such a comprehensive program.

of about $42,000 per year. Almost no income comes from the sale of news columns and a press service. The firm earned about $12,000 in profits from the publication of IRS manual handbooks, but lost over $39,000 in attempting to provide a publication service updating changes in the IRS manual. This loss was due to competition with a commercial publishing house that offered the same service. Even if Tax Notes and other publishing activities were to break even, they would provide no revenue to supplement the legal practice of the firm, which can generate no meaningful income. Since the result of any court victory is an injunction against lenient tax treatment, there are no damage settlements to be shared. Legal fees are available by statute only for suits under the Freedom of Information Act. Even if this restriction were overturned by proposed legislation, awards of litigation fees are no salvation for PIL tax work. Under present judicial doctrine, the courtroom will remain a limited part of the practice. Administrative lobbying and other more effective activities could not be financed in this manner. TAA has not been able to solicit private contributions and to form a stable membership base. Foundations are generally interested only in short-term grants, providing initial capital as seed money, but intending that the PIL firms become self-supporting. Tax Analysts solicited funds from over 125 organizations in 1973-1974, but received only about $165,000 in one-time grants from nine organizations. The seed money philosophy is inconsistent with both actual experience and the predictions of economic theory. The latter suggest that no private market for PIL (collective-type) services will develop. The tax bar could defray the cost of tax-related legal practice with more extensive contributions of services. Although observers have predicted for many years that the private bar was about to realize its public mission, the constant potential for conflict with important clients who benefit from the special-interest tax expenditures will continue to cause the bar to refrain from a close association with tax reform. 110

The prospects for freeing PIL tax operations from dependence on foundation support are not good. Although subscriptions to the professional periodical Tax Notes have increased now that the journal caters more to the needs of tax practitioners, the publication still generates a net loss

Unless we come to understand the role of the non-profit sector differently, neither a comprehensive nor a restricted practice of PIL tax law 110. Surrey, "The Congress and the Tax Lobbyist," pp. 1170-1175.

470 has any future in the absence of public support. Public financing in the form of a retainer from the IRS could provide a solution to this problem. However, to rely on the government to monitor its failings is a risky venture. 1 " Permanent foundation support is the major viable alternative to government self-monitoring. Although the subsidy needed for a comprehensive PIL tax firm might be beyond the capacities of the non-profit sector, the cost of an administrative practice alone would be considerably lower than the $125,000 TAA required for a wider range of operations. In 1975, TAA's administrative interventions directly cost about $8,000 and administrative lawsuits absorbed $20,000. While there are economies of scale in a firm with a broader practice, an IRS lobby with press access might be affordable. Although there is no prospect for profit in even this limited operation, a relatively small charitable program could continue what appears to be a most productive part of PIL work.

Area Studies: Public Interest Law in Action on national wealth would be small. The social loss would have to be measured by the costs of an inequitable or inefficient appropriation of wealth. If, on the other hand, the measure of the social value from tax reform is the gain to taxpayers who otherwise would have suffered an income loss, the return on investment from PIL tax work seems to be extremely high. The amount saved on the Soviet grain transaction alone far outweighs the probable total cost of the practice for many years. While it is difficult to know which part of the population would eventually benefit from reduced tax liabilities or increased public services, the economic case for the continued PIL tax work is reasonable.

In an important sense, however, it is misleading to attempt to quantify the achievements of PIL activity. The special contribution of PIL tax work is that it has made apparent the need to respond to governmental failures in the legislature as well as in the executive agencies. If the product of the representative process is flawed, the problem of controlling an increasingly interventionist state is more complicated. Although Return on Investment executive agencies are subject to review by the It is difficult to accurately value the services courts and Congress, the biases in the legislature, provided by PIL tax work. Much of the litigation which often favor organized minority interests, has sought access to information for taxpayers in are subject only to uncertain elective sanctions. general, and we can appraise the effects of this The broader rationale for PIL practice may be effort only in the long run. Where PIL positions that all public agents and decision processes agree with the final products of governmental should be bound by some explicit externally decisions, the marginal value of the PIL participa- defined standards. PIL tax suits also suggest that the needed tion is always speculative, since the government may have come to the same decisions without review of fiscal decision cannot take place in the customary judicial forum. Courts have shied intervention. Even where PIL activities have corrected gov- away from substantive control of expenditure ernmental failure — that is, even if the correction activity. In this regard, PIL tax work may simply would not have occurred without the PIL inter- outline the shape of future judicial attitudes tovention - the social gain was probably relatively ward all regulation and quicken the search for small. If the result of improper tax treatment structural reform in all governmental bodies. In were principally a series of transfers within the the absence of structural reform, responsive to national economy, the net effect of the shifts the procedural difficulties PIL work has explored, it is both politically important and eco111. Mauro Cappelletti, "Governmental and Private nomically efficient that non-market financing Advocates for the Public Interest in Civil Litigation: A mechanisms for selected PIL tax activities be Comparative Study," Michigan Law Review, LXXIII developed. (April 1975), pp. 800-816, 858-868.

Part III Other Studies

Part Three contains, in addition to a conclusions chapter, three studies that broaden the perspective on public interest law. Chapter Sixteen examines "public interest" organizations' efforts to change governmental regulatory behavior using non-law instruments. It helps to point up the relative strengths and weaknesses of law as compared to non-law instruments such as information dissemination and lobbying. Chapter Seventeen broadens the perspective geographically. Whereas the area studies in Part Two all concen-

trated on PIL activities within the United States, this chapter surveys PIL-like activities and institutions throughout the world. Finally, Chapter Eighteen, underscoring the fundamental importance of the financial difficulties facing PIL, describes and assesses a variety of measures that are being used, or that have been proposed, to provide resources for sustained PIL activities. B.A.W.

Chapter Sixteen

Non-Law Public Interest Advocacy: Advertising on Children's Television Gerald J. Thain with Arthur Snow

As we saw in Chapters Two and Four, public interest activities are not limited to the use of litigation and allied legal instruments. In this chapter we will study two groups that use mostly non-litigation tools: Action for Children's Television (ACT) and the Council on Children, Merchandising, and the Media (CCMM). As described in Chapter Two, non-litigation activities, which we have called public interest non-law (PINL) activities, are substitutes (though not necessarily perfect ones) for public interest law (PIL) activities in the sense that some changes effected by using PIL instruments might also be brought about by using PINL instruments. The two sets of instruments are also complements for one another, since they can be utilized together in efforts to accomplish a single objective. In this chapter we will explore the substitutability and complementarity of PIL and PINL instruments by reviewing and evaluating some of the activities of ACT and CCMM. This exploration will provide a basis for comparing and contrasting the role of PINL activities with that of PIL activities and for predicting how PINL and PIL groups are likely to interact in the future. ACT and CCMM were selected for study in this chapter because these groups had more clearly defined goals than many other PINL groups, and because the author of this chapter is a former employee of the Federal Trade Commission who, in that capacity, observed these groups and

gained some familiarity with their operations. Moreover, the two groups differ in organization and operation to an extent that allows us to illustrate two different approaches to PINL activity. The goals of ACT and CCMM, while not entirely overlapping, are basically consistent. Each has attempted to persuade the Federal Trade Commission (FTC) and the Federal Communications Commission (FCC) to take action that would bring about drastic changes in the number and content of advertisements, particularly television advertisements, viewed by children. The Federal Trade Commission is the federal regulatory agency responsible for regulating the substance of advertising messages in or affecting commerce in order to eliminate deception and unfairness. 1 The Federal Communications Commission is charged with insuring that those who have been granted licenses to operate radio and television stations operate them for "the public interest, convenience, and necessity." Regulation is considered necessary because the limitations of the airwaves require that some monopoly power be granted to broadcasters. 1 Licensees must establish to the satisfaction of the FCC that they

1. Sec. 5, Federal Trade Commission Act, 15 U.S.C. §46. 2. Sec. 303, 1934 Communications Act, 47 U.S.C. §303.

474 have fulfilled their "public interest" obligation in order to have their licenses renewed. 3 ACT and CCMM have undertaken a variety of actions intended to move the FTC and the FCC in the direction of reducing if not eliminating advertising on children's television. ("Children's television" means programs addressed to children or programs watched by an audience that contains a majority of children; "children" are defined by the rating services that measure broadcasting audiences as those persons under 12 years of age).4 In the first section, some of the actions undertaken by ACT and CCMM will be described and some aspects of the operating methods of the two PINL organizations will be discussed. In the second section we will evaluate from a theoretic point of view the objective of reducing the amount of children's television advertising. In the third section we will evaluate the activities and accomplishments of ACT and CCMM and the use of PINL instruments in this area. In the last section, we will consider the future of ACT and CCMM activities and offer some generalizations concerning the role of PINL activities, based on the experience of ACT and CCMM.

The Activities of ACT and CCMM ACT: The Grassroots Group as Advocate Action for Children's Television was formed in January 1968 in Newtonville, Massachusetts, "to communicate feelings on children and television to advertisers, parents, broadcasters, and the Federal Communications Commission." 5 Its for3. 47 U.S.C. §307(a): See NBC v. United States, 319 U.S. 190 (1943), per Frankfurter, J. 4. See, for example, John A. Howard and James Hulbert, Advertising and the Public Interest, A Staff Report to the Federal Trade Commission (Chicago: Crain Communications, 1974), p. 60. The FCC defines children's television as including only those programs designed to appeal primarily to an audience of children, while the FTC usually defines children's television to include all programs watched by an audience of persons twelve years of age and under. The latter definition includes all Saturday morning television programs and virtually no other programs; the former definition excludes programs whose audience is mostly children as long as such programs were not originally designed to attract such an audience. An example of the FCC definition is found in FCC Form 303, REV. §IV-B, question 6, 40 Fed. Reg. 24003 (1975). An example of the FTC definition is found in FTC Proposed Guide for Advertising to Children, 39 Fed. Reg. 25505 (1974). 5. Evelyn Sarson, "Growing Grass Roots in Videoland," Television Quarterly, IX (1970), p. 20. Sarson was the first president of ACT.

Other Studies mation resulted from an informal meeting of parents, teachers, physicians, and local television professionals at which "excessive violence" on children's television and ways of changing the nature of children's programming were discussed.' ACT was incorporated as a nonprofit charity organization in 1970.' Group activities began when a committee of four women volunteers began to monitor children's programming, to discuss issues with local station executives and to undertake research into the nature of the television industry." The organization first gained attention when it circulated a petition protesting the use of host-selling on "Romper Room," a local children's program broadcast under a nationally used title and format. Host-selling is the practice of having the host or chief character in a children's program, while playing a parent-like role (such as cautioning children to be careful crossing the street) also deliver the commercial message. ACT's petitioning was successful and host-selling on the program was eventually discontinued. 9 In September 1969 the organization picketed the Boston station carrying CBS's "Captain Kangaroo," a children's program of which it approves, protesting the fact that the station only carried the first 30 minutes of the hour program. After a threemonth period, the station restored Captain Kangaroo to the full hour. 10 In January 1970 ACT went outside New England for the first time, to meet with CBS executives in New York. In response to the concerns voiced by ACT, the executives indicated that changes in children's programming practices would have to come about on an industry-wide basis and with the support and perhaps the direction of the FCC." In February 1970 ACT met with six of the seven members of the FCC and discussed, among other things, its concern about the FCC's failure to do more in the area of children's programming. At that time, ACT presented a formal petition asking the FCC to eliminate advertising from children's programs. 11 This petition was drawn by ACT members and was 6. Ibid. 7. Ibid. 8. Interview with Peggy Charren, June 18, 1975. Charren is the second and present ACT president. 9. Ibid. 10. Ibid. 11. Ibid. 12. Ibid.

475 not phrased in legal or technical terms. Despite this, the substance of ACT's petition was clear, and the FCC responded to it. On February 12, 1970, one week after presentation of the petition, the FCC issued a public notice of rulemaking on ACT's proposals. 13 Specifically, ACT's proposed rules were: (a) There shall be no sponsorship and no commercials on children's programs. (b) No performer shall be permitted to use or mention products, services or stores by brand names during children's programs nor shall such names be included in any way during children's programs. (c) Each station shall provide daily programming for children, in no case less than 14 hours a week, as a part of its public service requirement. Provisions shall be made for programming in each of the age groups specified below, and during the time periods specified. Pre-School (ages 2-5)

7 A.M. - 6 P.M. daily

Primary (ages 6-9)

4 P.M. - 6 P.M. daily 8 A.M. - 8 P.M. weekend

Elementary (ages 10-12)

5 P.M. - 9 P.M. daily 9 A.M. - 9 P.M. weekend

7 A.M. - 6 P.M. w e e k e n d

ACT did not know that the FCC had issued the notice of proposed rulemaking until a Washington attorney specializing in public interest communications law, A1 Kramer, telephoned them from Washington advising them that the FCC had done so. Upon learning of their lack of expertise in FCC administrative matters, Kramer suggested various courses of action which ACT might consider taking. 1S Following Kramer's advice, ACT filed more formal briefs with the FCC supporting its February 1970 petition and, in addition, sought support from various public and 13. FCC Public notice of February 12, 1970 (FCC memo 44628); "FCC Official Notice of Inquiry and Notice of Proposed Rule Making for Consideration of the Petition of Action for Children's Television (Docket 19142) for Rule-Making Which Looks Toward the Elimination of Sponsorship and Commercial Content in Children's Programming, and the Establishment of a Weekly 14-hour quota of Children's Television Programs," 28 F.C.C. 2d 368, P and F Radio Reg., para. 53.391 (1971). 14. ACT "Petition for Rule-Making Which Looks Toward the Elimination of Sponsorship, ctc.," filed with the FCC, Dockct No. 19142 (1970), P and l ; Radio Reg., para. 53.391 (1971) p. 392. 15. Interview with Charren, June 19, 1975.

Non-Law Public Interest Advocacy national organizations such as the Parent Teachers Association, the American Pediatrics Association, and similar groups." The FCC eventually received over 100,000 comments on the ACT petition - a record number. The official public file in the FCC offices consists of 63 volumes of comments and letters filed pursuant to the notice of inquiry." It became necessary for the FCC to assign staff to children's television questions on a full-time basis. Finally, on October 24, 1974 - four and one-half years after the filing of ACT's original petition - the FCC officially responded to ACT's proposals by issuing a policy statement published in the Federal Register." The policy statement generally endorsed the provisions of the Code of the National Association of Broadcasters (NAB) concerning broadcasting to children. The NAB is a trade association of broadcasters formed tp respond to public concerns and thereby avoid governmental action. It has promulgated a code of operations (the NAB Code), suggesting, among other things, limitations on the number of commercial minutes to be carried by stations during each broadcast hour.' 9 Although not official, broadcasters 16. Ibid. 17. In the Matter of Action for Children's Television, FCC public file, Docket 19142, available for inspection at the FCC in Washington, D.C. The FCC invited comments on the following general questions: (1) What types of children's programs not now available do parties believe commercial TV stations should present? (2) To what extent, generally and with respect to particular programs and types of programs, does "children's programming" have benefits to children beyond the fact that it holds their interest and attention and thus removes the need for other activity or parental attention? (3) What, generally speaking, is a definition of "children's programming" that could serve for the Commissioner's use in this connection? To what extent do children, particularly in the higher age groups mentioned by ACT, view and benefit from general TV programming? (4) What restriction on commercials short of prohibition - for example, on types of products or services, content, number, separation from program content, etc. - would be desirable? Comments should take into account in this connection the provisions of the NAB code and its guidelines. (5) To what extent should any restriction on commercial messages in children's programs also apply to such messages adjacent to children's programs? 18. "Children's Television Programs Report and Policy Statement," Federal Register, XXXIX (1974), p. 39396, 31 P and F Radio Reg. 2d 1228 (November 6, 1974). 19. Erik Barnouw, The Golden Web (New York: Oxford Univ. Press, 1968), p. 137; Letter from Stockton Helfrich, NAB Code authority director to FTC

476 generally believe that those suggestions are used by the FCC as a rough guideline in determining whether a broadcaster is failing to operate "in the public interest" by broadcasting too many commercials." The NAB Code, as a self-regulatory mechanism, does not carry sanctions other than the rather inconsequential loss of association membership for broadcasters who fail to follow Code provisions." In 1969, prior to ACT's advocacy before the FCC, the NAB Code had suggested a maximum of eight commercial minutes ("non-program" minutes) per hour for "prime time" television, the early evening hours where viewing is at its peak; the suggested maximum for daytime television, including children's television, was 16 minutes per hour, or twice the number for prime time." The Code has been changed significantly since the filing of the ACT petition but has not adopted the positions advocated by ACT." Specifically, insofar as advertising is concerned, the Code provisions to which the FCC gave its implicit blessing were: 1. A reduction in advertising on Saturday and Sunday children's programs to not more than 10 minutes an hour, as of January 1, 1975, and not more than 9l/z minutes per hour as of January 1, 1976; 2. Allowance for no more than 14 minutes of advertising per hour on children's programs on times other than Saturday or Sunday morning, as of January 1, 1975, and not more than 12 minutes of advertising per hour at those times as of January 1, 1976; and 3. A clear separation of program and advertising content by an "appropriate device."" Attorneys Lynne McCoy and Marvin Lange, September 17, 1973, on file at the FTC under Children's Advertising Code Project. 20. See Erik Barnouw, The Image Empire (New York: Oxford Univ. Press, 1970), pp. 250-251. 21. See H. Himmelweit, "The Social Cost of Advertising," report prepared for December 18 and 19, 1973, Ford Foundation Conference on Children and Television, pp. 2-4, on file at the Federal Trade Commission and the University of Wisconsin Law School. 22. See, for example, Wall Street Journal, November 22, 1970, p. 1. 23. See, for example, "NAB Caving Under Pressure to Restrict Children's Advertising," Broadcasting, July 1, 1974, p. 25; "NAB Code Changes Major Breakthrough in Kiddie TV Hassle," Advertising Age, July 1, 1974, p. 1; " 'Family Time' is chiseled in NAB Code," Broadcasting, April 14, 1975, p. 24. 24. Federal Register, XXXIX (1974), pp. 39400-01.

Other Studies In the period between ACT's filing of its petition to eliminate children's television advertisements and the FCC's response to the petition, ACT commissioned studies concerning programming and advertising practices on children's television" and parents' attitudes toward those practices." The studies were submitted as supplements to ACT's petition to the FCC. Funded by ACT, William H. Melody, a professor of Communications Economics, completed two studies: "Children's Television: Economics and Public Policy" and "Children's Television: the Economics of Exploitation."" These studies concluded, among other things, that children's programming on commercial television could be aired with no advertisements without imposing financial hardship on broadcasters, if, over a fiveto seven-year period, the number of minutes of commercials was gradually reduced and if a variety of alternate funding mechanisms were utilized, such as underwriting by major companies and institutions and federal, state, and local government grants." In mid-1970, some months after filing the petition at the FCC, ACT initiated contact with Commissioners and staff members of the Federal Trade Commission." In November 1971, ACT filed a formal petition seeking FTC action to prohibit the selling of vitamin pills to children on television as an unfair trade practice. 30 In December 1971, ACT filed a petition seeking prohibition of toy advertising on children's television. 3 ' In March 1972, ACT's third petition 25. Ralph Jennings and Carol Jennings, "Programming and Advertising Practices in Television Directed to Children," prepared for ACT, 1970 (unpublished manuscript); and Ralph Jennings and Carol Jennings, "Programming and Advertising Practices in Television Directed to Children - Another Look," prepared for ACT, 1971 (unpublished manuscript), on file at ACT headquarters. 26. Daniel Yankelovitch, "Mothers' Attitudes Toward Children's Television Programs and Commercials," prepared for ACT, 1970 (unpublished manuscript), on file at ACT headquarters. 27. Published in book form: William Melody, Children's Television: The Economics o) Exploitation (New Haven: Yale University Press, 1973). 28. Ibid., pp. 126-139. 29. Interview with Charren, June 18, 1975. 30. "Petition to Prohibit Advertisements for Children's Vitamins on Children and Family Television Shows," November 10, 1971, on file at the Federal Trade Commission and at ACT headquarters. 31. "Petition to Prohibit Advertisements for Toys on Children's Television," November 15, 1971, on file

477 sought prohibition of advertising for edibles on children's television." The FTC finally responded to the three petitions in 1975, stating that the issues they raised were being considered in other pending matters before the Commission and that the FTC would not take up ACT's specific proposals at that time." However, ACT's expression of concern about children's television advertising did cause increased FTC activity in certain areas, as will be shown later. Among other activities, ACT has sponsored an annual series of symposia on children and television that began in October 1970. Representatives of ACT have appeared before various congressional hearings, 34 participated in formal FCC "panel discussions" concerning children's television, 35 and joined in discussions held by the FCC "as background to ACT's formal petition to eliminate children's advertising." 36 ACT appeared at special FTC hearings concerning modern advertising practices. The organization has also joined other citizen groups in such actions as filing a petition to deny the renewal of a station's license on grounds that its children's programming practices were not in the "public interest." As ACT's membership has grown, the organization has established chapters around the country and has asked its chapters not only to support ACT's general activities and national projects, but also to act on local matters, much as the parent organization had done with the truncated Captain Kangaroo showings in New England. 37

at the Federal Trade Commission and at ACT headquarters. 32. "Petition to Prohibit Advertisements for Edibles on Children's Television Programs," March 22, 1973, on file at the Federal Trade Commission and at ACT headquarters. 33. Letter to ACT from FTC, Anti-Trust and Trade Regulation Reporter (ATTR), No. 709 (April 15, 1975), p. A-l. 34. See, for example, Hearing on S-1461 to Require the Furnishing of Documentation of Claims Concerning Safety, Performance, Efficiency, Characteristics, and Comparative Prices of Advertised Products and Services, before the Senate Commerce Committee, 92nd Congress, 2nd Session, Sec. 70. ACT Facts, pp. 17-19, lists some of the more significant appearances of ACT at such hearings. 35. FCC, "Children's Television Programs Report and Policy Statement," describes these panels and their functions in Federal Register, XXXIX (1974), p. 39396. 36. Ibid. 37. Interview with Charren, June 18, 1975. The local chapters spent the great majority of their time

Non-Law Public Interest Advocacy Since 1970 ACT has advocated the elimination of children's television advertising. While ACT has been involved occasionally in proceedings that would permit the continuation of such advertising in a reduced or altered form, ACT has made it clear that it has taken such action to gain partial relief merely for the moment. Its longterm goal has remained the complete elimination of advertising from children's television.

CCMM: The Entrepreneur Turned Advocate The Council on Children, Merchandising, and the Media (CCMM) is virtually the alter ego of its founder and principal member, Robert Choate. Choate has been involved in public interest advocacy activities since 1958. The son of a New England family whose father published the Boston Herald-Traveler, Choate was educated at Exeter, Harvard, and the University of California at Berkeley. He received a degree in civil engineering from Berkeley in 1949. He was in the construction engineering business and served as an engineering consultant in the 1950s for road building, mining, and housing development operations. Eventually he devoted virtually full-time to real estate speculation in the Southwest and became financially successful as a result of shrewd investments in Arizona land, although he states he never reached "millionaire" status.3* Choate entered public interest, or at least notfor-profit, activity when he started Careers for Youth, an opportunity club for disadvantaged minority youth in the Phoenix area, which attempted to provide its members with accurate information about careers in the adult world. 3 9 He came to Washington in 1966 "at the request of Walter Reuther" under grants from the Ford Foundation to work for two groups, the National Institute of Public Affairs and the Citizens Crusade Against Poverty. 40 He then began to develop an interest in questions relating to food and nutrition and served as a consultant to the Department of Health, Education, and Welfare. 41 Working with Daniel P. Moynihan and Harvard carrying ACT's message to individuals and associations at the local level. 38. Interview with Robert Choate, June 25, 1975. 39. Ibid. 40. Ibid. 41. Ibid.

478 nutritionist Dr. Jean Mayer he gathered statistics on malnutrition in the United States and was associated with the CBS television production, "Hunger in America." 42 He also worked with Ruether in convincing Congress in 1968 to establish a special investigative committee on hunger, officially known as the Senate Select Subcommittee on Nutrition and Human Needs, chaired by Senator George McGovern. 43 Choate recommended to the committee that the White House sponsor a Conference on Hunger and he subsequently became the senior staff member of the White House Conference on Nutrition and Health, held in December 1969 in Washington with a follow-up meeting in February 1971 at Williamsburg, Virginia. 44 Choate asserts that in connection with his work at the White House conference, responsible individuals in the food industry made specific promises to upgrade the nutritional quality of their products and to assist in educating the public about nutrition, but failed to carry them out. Choate, therefore, resolved to find a means to present this issue to the public in a manner which would gain attention and pressure the food industry to fulfill its promises. While searching for a "food issue" that could obtain the spotlight, he learned that the foods that were most heavily advertised on children's television programs were the presweetened, highly sugared, and least nutritious breakfast cereals. After studying the nutritional value of breakfast cereals (with the assistance of nutritionists at the Academy of Food Marketing in Philadelphia), Choate devised a rating scheme to provide a rough indication of the nutritional value of breakfast cereals on the market at that time, and stated his results in June 1970 at public hearings of the Senate Commerce Committee Consumer Sub-Committee. 45 Choate testified that the nu42. Ibid. 43. Ibid. 44. The proceedings and recommendations are reported in The White House Conference on Food, Nutrition, and Health (1970) and The White House Conference on Food, Nutrition, and Health: Follow-up Conference (1971). 45. See testimony of Robert Choate, Hearings on Dry Cereals, Consumer Subcommittee of the Senate Commerce Committee, 91st Congress, 2d Session, series 72 (July 23 and August 5, 1970), pp. 2-129 and 270-271; and in Hearings on Nutritional Content and Advertising for Dry Breakfast Cereals, Consumer Subcommittee of the Senate Commerce Committee, 92nd

Other Studies tritional content of 40 of the 60 breakfast cereals he had analyzed was so low as to have virtually no nutritional value, 44 and that more than 50 of the 60 cereals had been pre-sweetened or sugarcoated in some manner at the factory. He further stated that television advertising to children emphasized the products that were at the bottom of his rating list. 47 The cereal companies attacked Choate's ratings. 4 ' Some of their criticism was directed not to the substance of his testimony but to the fact that his background and education were those of a civil engineer rather than a nutritionist. 4 9 Choate's testimony and rating list received wide publicity. The list was shown on national television news programs, published in national news magazines, and later included in a number of books used as texts for high school, college, and law school courses in consumer protection. 5 0 Nonetheless, as a result of Choate's testimony, he was identified, and has remained identified in the minds of many Washington lawyers and officials, as "the cereal man" or the "cereal critic." 51 Shortly after presenting his testimony, Choate established CCMM, operating out of modest offices in the District of Columbia. After organizing CCMM, Choate appeared before various Congressional Committees and special hearings of the FTC, and filed various petitions with the FTC and the FCC. He questioned the practice of advertising toys, breakfast cereals and other foods, and various other products to children on television. He has asserted that food companies have a duty to present purely educational messages to the public regarding nutrition, and that their failure to do so means that broadcasters must donate time to critics of the nutritional value of advertised foods to counter the companies' advertisements." He has stated that Congress 2nd Session, Series 44 (March 2, 1972), pp. 2-63. 46. Ibid., pp. 3, 6. 47. Ibid., p. 6. 48. See testimony of Frederick Stare at the Hearings on Dry Cereals, p. 132. 49. Ibid., passim. 50. For example, Ralph Nader and Jean Carper, eds., The Consumer and Corporate Accountability (New York: Harcourt, Brace and Jovanovich, 1973), pp. 108-24; David Rice, Consumer Transactions (Boston: Little, Brown, 1975). 51. See, for example, "Shaker Choate," Washington Post, "Potomac" section, October 28, 1973, p. 8. 52. Interview with Choate, June 25, 1975.

479 the failure of broadcasters to donate such time violates the Fairness Doctrine, which says that if one side of a controversial issue of public importance is presented the station must also allow the other side to be presented. However, the FCC's present position on the Fairness Doctrine, which has been upheld by the courts, is that, in general, it does not apply to product commercials. 53 Choate has also been active in matters before the Food and Drug Administration (FDA). He was permitted by the FDA to serve as "an interpreter of the use of drug labels in advertising" for the FDA Review panels that have attempted to define the limits of statements of safety and efficacy which can be made on the labels of various categories of drug products, such as laxatives, analgesic products, and mouthwashes." Of the seventeen such panels of medical and pharmaceutical experts that the FDA has convened to make recommendations on these matters, Choate's analysis may have influenced the statements of six or seven.55 The final action of the FDA in response to the panels' recommendations will also influence the FTC's decisions regarding the representations it will allow in advertising for those drug products covered. 54 In addition to these activities involving governmental operations, Choate, unlike ACT, has also spent time lobbying private firms to establish greater private-sector control over advertising directed to children. Choate advocated, after es53. 47 U.S.C. §315(a) provides both for the provision of "equal (non-purchased) time" by political candidates and for coverage of varying views of controversial issues of public importance. See Henry Geller, The Fairness Doctrine in Broadcasting: Problems and Suggested Courses of Action (Santa Monica: RAND, 1973), p. 2. Regarding the applicability of the Fairness Doctrine to product commercials, see Commerce Clearing House (CCH), Consumerism, II (July 11, 1974), p. 873; and Public Interest Research Group v. FCC, 1st Circ. No. 74-1434 (August 18, 1974). On appeal to the Supreme Court, Dkt. No. 75-724. 54. See Code of Federal Regulations (CFR), XXI, §130.301 (1973); See also Federal Register, XXXVII (1972), p. 9473. For a general and thorough explanation of the review apparatus see Daniel O'Keefe, Jr., "The Over-the-Counter Drug Review - Helping the Client Make Decisions," Food, Drug, Cosmetic Law Journal, XXIX (May 1974), p. 262. 55. Interview with Choate, June 26, 1975. 56. In November 1975 the FTC issued a proposed rule that would prohibit the making of any product claims in advertising that the FDA had prohibited in labeling under its drug review program. FTC Press Release titled "Rule for Advertising Over-the-Counter Drugs Proposed by FTC," issued November 9, 1975.

Non-Law Public Interest Advocacy tablishing CCMM, that the advertising and broadcasting communities demonstrate their commitment to meaningful self-regulation by establishing a structure through which complaints about deceptive or unfair advertisements could be presented and resolved quickly, without the need to be bound by the formalities of administrative procedure or the priority schedule of a regulatory agency. He urged that representatives of the public join with representatives of business to deal with questions of advertising propriety, with public representatives constituting not less than one-half of the membership of any review board that was formed. Industry favored the general idea of a self-regulatory board handling the bulk of advertising complaints, particularly in the climate of the early 1970s, when the FTC, under the leadership of Miles Kirkpatrick, was causing grave concern in the advertising and broadcasting communities over its vigorous enforcement of the laws against deceptive advertising.57 A body somewhat like that proposed by Choate — the National Advertising Review Board (NARB) - was established in the fall of 1971 with an initial annual budget of approximately $1.5 million contributed by advertisers and advertising agencies.5* The board, in cooperation with the National Advertising Division of the Council of Better Business Bureaus, was to perform the following functions: handle specific complaints about advertising referred to it by consumers, its own staff, or a company appealing an adverse finding of the National Advertising Division (NAD); recommend new standards of advertising trends and problems; and establish continuing communications with the FTC and the public regarding advertising issues. 5 ' NARB is composed of 50 members plus a chairman, all elected by the Board of Directors of the National Advertising Review Council Board, Inc. (NARC). Thirty of the members are affiliated with advertisers, and ten with advertising agencies; ten, or one-fifth of the board, are 57. Thomas Whiteside, "Annals of Television: Shaking the Tree," New Yorker March 17, 1975, pp. 68-69. 58. See Thomas Hauser, "Respective Roles of Government v. Industry Self-Regulation in Advertising," in The New FTC Approach to Advertising Regulation (New York: Practising Law Institute, 1972), report of a program held in New York, November 1971, and in San Francisco, January 1972. 59. Ibid., pp. 172-174.

480 members of the public, a circumstance that the industry thinks minimizes charges of collusion in violation of the anti-trust laws.40 If NAD receives a complaint concerning advertising, whether from a competitor of the advertiser, a consumer, or internal sources, NAD and the advertiser attempt to resolve it. If this is not achieved, an appeal may be taken to NARB by either party. A five-member panel composed of three "advertiser" members, one "advertising agency" member, and one "public" member then determines if the advertisement is misleading or otherwise inappropriate. If the advertisement is "found guilty" the advertiser is requested to modify or withdraw it. If the advertiser refuses, the NARB refers the matter to the FTC for resolution." No advertiser has yet forced NARB to refer a matter to the FTC." NARB makes its decisions public and has formally stated that children's advertising questions must be treated with consideration of the special nature of a child's judgment." Choate considers himself the "father" of the National Advertising Review Board, even though he is not totally pleased with the present structure of that body.' 4 Whatever deficiencies the organization may have, NARB is clearly a force for greater control over advertising, including broadcast advertising. Choate's advocacy helped bring about the NARB, and his more recent efforts have caused NARB to give special attention to questions involving advertising to children. The interests and activities of CCMM remain those of Choate. CCMM has expressed concern 60. Steve Tanner, "Advertising Self-Regulation: The National Advertising Review Board Clips the King of Beards," Publishing, Entertainment, Advertising, and Allied Fields Law Quarterly, XIII (1974), pp. 204-205; "Note: The Regulation of Advertising," Columbia Law Review, LVI (November 1956), pp. 1078-1096. 61. Hearings on S. 1461 Before the Senate Committee on Commerce, 92nd Congress, 2nd Session, Series 92-70 (1972), p. 56. 62. See generally Tanner, "Advertising Self-Regulation." 63. See Advertising Age, February 9, 1976, p. 46, for a record of NARB proceedings, including the special attention given to advertising addressed to children. 64. Interview with Choate, June 26, 1975. Choate's displeasure reached the stage of filing a petition with the FTC requesting the agency to issue a Trade Regulation Rule Governing Children's Advertising because the NARB self-regulatory efforts constituted a fraud on consumers. Petition on file at the University of Wisconsin Law School.

Other Studies about "misleading" or "insufficiently informative" advertisements directed to children," and the absence in such advertising of information concerning specific objective product features, such as the nutritional value of foods. Choate was originally opposed to a total prohibition of television advertising to children, but today he supports such action and, like ACT, sees "lesser steps" as providing only interim relief. ACT and CCMM: Comparison and Contrast The activities of ACT and CCMM described in the preceding discursive and necessarily incomplete compilation indicate the range of actions and concerns peculiar to each. Yet the activities of ACT and CCMM share a number of common features. Neither organization utilizes litigation or threats of litigation. Rather, they utilize the non-litigational PINL instruments to advance their concerns: lobbying, petitioning governmental agencies and private firms, providing information to private and public sector decisionmakers, producing and publicizing information, and organizing like-minded individuals to express and draw attention to their interests. While both organizations use PINL instruments, they use them in sometimes different ways. Although both ACT and Choate urge action by governmental agencies, Choate, in contrast to ACT spends much more time urging business to create its own responses to the problems he poses — responses such as the NARB. Also in contrast to ACT, Choate attempts to prod appropriate Congressional committees and subcommittees to look into matters that concern him, by holding hearings that will call public attention to the issues in which he is interested or by questioning members of the relevant regulatory agencies on those issues during committee budget hearings. The goals of ACT and CCMM do not entirely overlap. ACT, for instance, has expressed more concern than has CCMM about the content and quality of children's television programs. On the other hand, CCMM has expressed a concern about the nutritional value of advertised food products, an issue that ACT has not emphasized so strongly. The organizations, however, have many similar concerns. In particular, both have 65. Choate testimony, Hearings on Nutritional Content.

481 advocated the complete prohibition of advertising on children's television and, as an interim measure, both have espoused the objective of reducing the amount of such advertising. For some time, representatives of broadcasters and advertisers have challenged the positions of ACT and CCMM as unrepresentative of the concerns of the "typical" child or parent. In response, ACT president Peggy Charren asserts that the concerns of ACT would be the concerns of most parents if they had the time and resources of ACT." In support of its position that it does speak for parents generally, ACT cites the response to its petition to the FCC.67 Choate asserts that consumer advocates, especially nonlawyers, should not involve themselves with issues where the majority view is well defined, because he believes that the political or judicial process will work to resolve such issues satisfactorily. The role of consumer advocates, he believes, should be to draw public attention to issues about which information is not readily available, such as issues involving the nutritional value of foods." In the next section we will attempt to answer the question whether ACT and CCMM in some sense actually do represent the interests of a majority or a significant number of parents. To do so we shall rely on the theory of private market and governmental failures developed in Chapters Two and Three; that theoretic framework will also provide a basis for evaluating the objectives, remedies, and accomplishments of ACT and CCMM regarding children's television advertising.

Private Market and Governmental Failures Children have historically been considered entitled to special protection under the law. They are incapable of comprehending their own longterm interests or of organizing to petition for redress of grievances. Children, as such, must rely on their parents to represent their interests. The 66. Interview with Charren, June 18, 1975. 67. Ibid. For an opposing view, see testimony of Madeline Large, Families Against Censored Television, Hearings of FTC Oversight Before the Senate Commerce Committee, 93rd Congress, 2nd Session, Series 78 (1974), pp. 231-232. 68. Interview with Choate, June 25, 1975.

Non-Law Public Interest Advocacy issue is whether the operation of private markets or of decision-making mechanisms in the public sector take into account the special needs or interests of children. Two important senses in which the private and public sectors may fail to give sufficient consideration to the interests and needs of children are those relating to inefficiencies in the allocation of resources that go toward meeting the needs of children and those relating to inequities in the treatment of children. The possible causes of efficiency or equity failures in the private and public sectors that are of particular concern to us in this chapter are those that might affect the production and distribution of children's programming, and they are essentially the same as those present in the overthe-air broadcasting area generally. Certain aspects of the failure problems, however, have special dimensions because of the special characteristics of the child audience involved. In this section we will briefly summarize the general economic analysis of market failure problems in the production of television programming, with attention focused on the special problems that relate to children's television programming. Private Market Failures: Allocative Efficiency The causes of private market efficiency failures in over-the-air broadcasting fall into three categories: (1) the collective consumption characteristics of programs broadcast over the air; (2) the collective consumption characteristics of information and the existence of information processing costs; and (3) the oligopolistic structure of the broadcast industry. We shall discuss each in turn. Programming as a Collective Good. Television programs are consumed collectively. They are received and viewed simultaneously by many households, and this collective consumption characteristic creates the possibility of a private market failure. In particular, any method of program financing that is not based on the willingness to pay, or the economic demands of program viewers, is likely to provide broadcasters with incentives that are not entirely consistent with the requirements for allocative efficiency. The method of financing currently used in commercial broadcasting relies on advertising revenues, and, to the extent that this method rewards firms for broadcasting to larger audiences, it is

482

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likely to result in an inefficiently small amount of programming designed for minority interests. The implications for children's television are twofold. First, if households willing to pay for a children's program make up a minority of the potential audience for a given time slot, their demands may go unsatisfied even if it would be economically efficient to meet their demands. Second, within the children's television audience, those households willing to pay for a particular type of program or one aimed at a particular age group are unlikely to have their demands satisfied, no matter how strong their demands are, as long as they constitute a distinct minority of the relevant audience. Hence, there may exist at least a potential market failure with respect to both the number and variety of children's programs.

households, in the aggregate, would be willing to pay enough to warrant a reduction in advertising on efficiency grounds, the private market is unlikely to take into account this willingness to pay and is therefore likely to fail. Thus, the collective good characteristics of television broadcasting may be the cause of private market failures of the efficiency type that have three consequences for children's television: (1) there may be too little programming designed for child audiences; (2) there may be too little variety in children's programming; and (3) there may be too much advertising on children's television. The possibility that the private sector may fail by broadcasting too much advertising to child audiences has direct implications for the other two possible types of collective goods failThe possibility of private market failures in ures. An attempt to increase either the amount the broadcast industry goes beyond program con- or variety of children's programming may lead to tent and variety to the broadcasting of advertise- an increase in the amount of advertising on chilments as well. Whatever else advertisements may dren's television, and conversely, an attempt to do, it cannot be doubted that they convey some reduce the amount of advertising may lead to a information to viewers on available consumer reduction in the number, quality, or variety of products. To the extent that consumers would be programs. It is also possible that if broadcasters willing to pay for advertising messages - for their were forced to increase the variety of children's information content or for any other reasons — programs, that is, to offer greater programming the broadcasting of advertisements is desirable in diversity, broadcasters might choose to finance an economic efficiency sense. Because advertising this change by dropping some of the programs is a source of revenue for broadcasters, viewer with repeated themes, thereby reducing the total demands for advertising messages are represented number of children's programs. in the private sector, if not fully, at least to some Clearly, the three types of collective goods significant degree. failures are interrelated, and of crucial imporAny willingness to pay for programming with- tance to each is the issue of program financing. 69 out advertising, however — or with less advertis- As long as broadcasters are guided by advertising ing than is presently offered - is distinctly un- revenue rather than by viewer willingness to pay, derrepresented in the private sector because over- potential market failures are likely to exist. the-air broadcasting is consumed collectively but Moreover, a remedy capable of correcting an is financed by the sale of advertising time. Any advertising failure without itself exacerbating a reduction in broadcast advertising would be con- related market failure problem may require the sumed collectively by all viewers, so that transac- establishment of an alternative method of protions costs and free-rider problems are likely to gram financing that does not rely on advertising inhibit the full expression of viewers' economic sponsors. Without a much more intensive investidemands for less advertising. At the same time gation than is possible here, however, we cannot broadcasters have an incentive to disregard ex- dismiss the possibility that the sale of advertising pressed viewer preferences for less advertising, time is the most efficient way to finance the since they must sell advertising time to finance provision of the collectively consumed commodity, children's television. their operations. With respect to children's television, this means that demands for less advertising on children's programs are likely to go unsatisfied in private markets. Even if there is too much advertising on children's television, in the sense that

Independent of its role as a source of revenue 69. Alan Pearce, The Economics of Network Children 's Television Programming, report for consideration under FCC Docket 19142 (unpublished), p. 33,, on file at the FCC and at the ACT offices in Newtonville, Mass.

483 for program broadcasters, advertising on children's television m a y have n o justification o n efficiency grounds. While advertising may convey i n f o r m a t i o n t o adults, it is questionable whether it does so t o children, at least in the same sense. It is generally recognized that children, because they are children, are not fully capable either of making j u d g m e n t s about what is in their own interests or of interpreting and using information the way an adult would. This means that the efficiency role of advertising as a source of information about consumer products is of m u c h smaller significance in children's programs than it is in adults' programs. Although the question of children's ability to obtain information f r o m commercials is n o t fully resolved, there is considerable evidence indicating that children under the age of six d o not comprehend the nature of advertising in the sense that they make no distinction between advertising and other material seen on television, and that m a n y children in the years between six and eight are unable to discriminate fully between the authority of advertising messages and other more formal authority, such as that of school, church, or parents. 7 0 If children, as an audience, are incapable of comprehending the concept of a commercial message, then they are incapable of receiving information concerning an advertised p r o d u c t in the fashion that adults receive such i n f o r m a t i o n . No advertising addressed to such an audience is informative, and therefore, unlike advertising directed to adult audiences, its economic value does not lie in its information content. It has been argued that television advertising — including its propensity to exaggerate — provides children with another sort of information n o t directly related to information a b o u t products. The argument is that through their 70. See, for example, Howard and Hulbert, Advertising and the Public interest, chapters 3, 4, and 6; Robert Pitofsky, "Changing Focus in the Regulation of Advertising," in Yale Brozen, ed., Advertising and Society (New York: New York University Press, 1974), pp. 126-128; Willard Mueller, "Advertising, Monopoly, and the FTC's Cereal Case; An 'Attack on Advertising'?" Antitrust Law and Economics Review, VI, No. 4 (1973), p. 59; Scott Ward, "Effects of TV Ads on Children and Adolescents," in Surgeon General's Report on Television and Violence, IV (1972), p. 432; Joan Blatt, Lyle Spencer, and Scott Ward, "A Cognitive Development Study of Children's Reactions to TV Advertising," in Surgeon General's Report, p. 452.

Non-Law Public Interest

Advocacy

experience with advertising children learn a b o u t marketing and retailing practices and acquire knowledge and skills that will be useful later when the children have b e c o m e active b u y e r s . 7 1 Presumably, these lessons would eventually be learned in any case, so that the value of learning them through television advertising must lie in their being learned earlier than they would without television advertising. While this m a y be of some b e n e f i t , it is n o t w i t h o u t its costs. T h e interest of advertisers on children's television is not so m u c h served by educating children as b y maximizing the impact of their advertisement on the child audience. Advertisers are more likely to try to exploit the inability of children to interpret i n f o r m a t i o n and recognize where their interests lie than they are to construct advertising messages with valuable lessons for children. As a result, advertisers m a y encourage children, either explicitly or implicitly, to lobby and nag their parents for the purchase of an advertised product. T h e strain this places on the parent-child relationship and the cost in psychological harm to b o t h parent and child may together outweigh any of the educational benefits of advertising t o children. There are examples of the exploitation of the child audience by television advertisers. Mel Helitzer, an advertising and public relations consultant to companies marketing products to children, wrote in 1970: "Children can be very successful naggers. By and large, parents quite readily purchase products urged on t h e m by their youngsters. In Helitzer Advertising Research, it was f o u n d that a parent will pay 2 0 percent more for an advertised product with child appeal — even when a less expensive, non-advertised product is n o d i f f e r e n t . " 7 ' Similarly, a vice-president of a m a j o r advertising agency wrote in 1969, " w e can shape our f u t u r e marketing programs on what appeals directly to the child, not to the parent, because if the parent initiates interest, then the appeal t o the child is lessened and the j o b of selling is made more d i f f i c u l t . " 7 3 A n o t h e r practice frequently used prior t o the e f f o r t s of 71. See Howard and Hulbert, Advertising and the Public Interest, p. 65. 72. Melvin Helitzer and Howard Heyel, The Youth Market: Its Dimensions, Influence and Opportunities for You (New York: Media Books, 1970), p. 32. 73. Eugene S. Mahany, "Monday Memo: Partners for Profit: Children, Tarp, and TV," Broadcasting, June 30, 1969, p. 18.

484 ACT and CCMM was that of host-selling on such children's programs as "Captain Kangaroo" (in that case, to sell Wonder Bread), which was thought by advertisers to influence children more easily than the use of announcers not associated with the program or identified as models for child behavior.74 Recognition of a need to "protect" child audiences from exploitation of their special vulnerability is widespread. Virtually all countries with privately sponsored broadcasting systems have explicit rules or Codes that restrict what may be advertised to children on the following grounds: that children are a particularly vulnerable class; that children are not the actual purchasers of products advertised to them, and should not be urged to lobby their parents for the advertised products; and that "peer group pressures" should not be used in advertising to children." Given that advertising to children as currently practiced may do more harm than good, and that its role as a source of information for children on consumer products is itself of questionable value, it is not implausible that parents, in the aggregate, if willing to pay enough to justify children's programming at all, would prefer programming without advertising. Thus, in terms of allocative efficiency, the chief justification for advertising on children's programs probably lies in its use as a financing mechanism, and even here it may not be the most efficient method available. While we cannot state a firm conclusion, we can at least raise the possibility that the efficient amount of advertising on children's television is no advertising at all. Information as a Collective Good. The second possible cause of market efficiency failures in the 74. ACT Facts, p. 16 (1975). The FCC officially denounced the practice of host-selling in its "Children's Television Programs Report and Policy Statement," Federal Register, XXXIX (November 6, 1974), p. 39401, where it noted that the practice took "unfair advantage of the trust which children place in program characters," as well as "exacerbated the difficulty children have distinguishing" between program and commercial. It concluded, "The Commission does not belieye the use of the program host, or other program personality, to promote products in the program in which he appears is a practice which is consistent with licensees' obligation to operate in the public interest." 75. See Jon T. Powell, "Protection of Children in Broadcast Advertising: the Regulatory Guidelines of Nine Nations," Federal Communications Bar Journal, XXVI, No. 1 (1973), p. 61.

Other Studies broadcast industry relates to the collective nature of information and the existence of information processing costs. Because information circulates from person to person and through newspapers and other media, it is to some significant degree a collective consumption good and is likely therefore to be produced in suboptimal or inefficient amounts in private markets. Further, because the processing of information - that is, the interpreting and utilizing of information — is a costly activity in terms of time and effort, people will use less information than they otherwise would when making decisions that affect their welfare.76 If there were no transactions costs or free-rider problems, people might find it advantageous to pool their resources and to produce and process collectively information that they presently do not use in making decisions. The result would be a more efficient allocation of the economy's resources. Of particular relevance to the broadcast industry is information on program "tone," or the "social consequences of television," and with respect to children's television this means information on the effect of televised violence and sex on child behavior.77 Because of information processing costs and the collective good characteristics of information, parents' economic demands with respect to children's programs are formed without using as much information on program "tone" as would be desirable from an efficiency point of view. Hence, even in the absence of other possible causes of market failure, inefficiencies may exist in the production of children's television because parents are inefficiently informed. There are two other market failure problems closely related to informational failures and the issue of program tone. First, although tone emphasizes the social consequences of programming, the private effects are probably of greater importance to parents; that is, the child's welfare is probably of greater importance than the welfare of others who might be affected by the child's behavior. Because of informational market failure problems, parents may form demands 76. An economic analysis of processing costs is presented in Chapter Fourteen. 77. Roger G. Noll, Merton J. Peck, and John J. MacGowan, Economic Aspects of Television Regulation (Washington: Brookings Institution, 1973), p. 13.

485 for children's programming that are not actually consistent with the best interests of the parents and their child. Parental decisions regarding the number and content of children's programs and the amount of advertising may not reflect their true interests because of informational market failures. The second problem follows from the observation that parents are likely to place greater weight on the private effects of programming than on the social effects. It is generally recognized that society itself has an interest in a child's well-being. Compulsory education and publicly financed vaccination programs are expressions of this social interest. To the extent that parental interests diverge from any social interest in children's television, there is a possibility for a private market failure. One dimension of a social interest in children's programming is related to the issue of program tone, but society may also have an interest that goes beyond this to more specific issues of program content and to broadcast advertising as well. The Effect of Oligopoly. The final category of market failure problems is the effect of oligopoly, or the existence of only a small number of firms in the broadcast industry. Of particular relevance is the possibility that the oligopolistic structure of the industry will cause excessive imitation and too little program variety relative to the economic efficiency benchmark. In the present context we only note that this possibility is independent of, but works in the same direction as, the other market failure problems we have been discussing. Private Market Failures: Equity Thus far we have identified a number of reasons for expecting the private broadcast industry to fail from an economic efficiency perspective. From an equity perspective, the private sector is likely to fail for quite similar reasons. The incentives that guide broadcasters in selecting programs are likely to differ from those that would lead to programming that is desirable on equity grounds, except in instances of fortuitous coincidence. Beyond this, however, is the possibility that society may have a special interest in the wellbeing of children that is not linked to people's willingness to pay. In particular, a consensus may

Non-Law Public Interest

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judge that advertising to children is simply improper because children are unable to use the same sophistication expected of adults in responding to advertising messages. Just as there is a public equity interest in the welfare of children, as expressed in child labor laws and compulsory education laws, so may there be an equity interest in protecting children — and parents — from the possible harm in advertising to children. Governmental Failures There are a number of reasons to expect that the private sector will fail in the market for children's television, and that it will fail in the direction of broadcasting too few children's programs, of offering too little variety and of broadcasting too many advertisements on children's television relative to the requirements of either allocative efficiency or distributional equity. If any failures exist, however, they may be only potential failures, in the sense that the implementation costs for any corrective action may be so high as to offset the desired efficiency or equity benefits. But when there is a cost-efficient remedy, an actual failure exists and collective action to implement the remedy would be consistent with the public interest. As we will show later, the public sector, at the federal level, is already involved in regulating broadcast programming, to some degree, through the FCC, and in regulating the content of broadcast advertising to some degree through the FTC. But because of transactions costs, informational problems, and incentives for free-rider behavior, households' preferences are not fully expressed to decision-makers in the legislature and administrative agencies. Broadcasters, current and potential advertisers, and advertising agencies, however, are likely to find the barriers of transactions costs and free-rider problems less inhibiting to the transmission of their interests to public sector decision-makers than are households, and their interests are likely to be in conflict with parental interests. Broadcasters are likely to fear that governmental intervention in the children's television market will mean either lower profits or the establishment of precedent for further regulatory action detrimental to broadcasters' interests in other television submarkets. The Congressional prohibition of cigarette advertising from the

486 broadcast media, for example, has increased the fear of broadcasters and advertisers that proposals for additional prohibitions will be favorably considered by the government. The interests of current advertisers may or may n o t be served by any governmental action restricting the a m o u n t or c o n t e n t of advertising on children's television; f r o m the advertisers' point of view, one firm's advertising may only offset that of its rivals, so all m a y welcome restrictions that are imposed on t h e m equally. Potential advertisers on children's programs, however, are likely to find a governmental action restricting advertising contrary to their interests if it is a barrier to the successful marketing of a new p r o d u c t . " Finally, advertising agencies, the firms that produce advertisements, have interests that generally conflict with any move in the direction of advertising regulation. T h u s the relatively more organized interests on the producer side of the market are likely t o be more fully represented t o the public sector than are the relatively more dispersed interests on the consumer or viewer side of the market. In 78. Sponsors who find Saturday morning television programs for children advantageous are those selling products for which children may influence purchasing patterns. In recent years, three broad categories of products accounted for virtually 100 percent of the advertisements on programs addressed to children: food, toys, and children's vitamins. (Vitamin advertisements are no longer found on children's programs, a result of pressure applied.) More specifically, the advertisements for foods largely fall into two general categories: advertisements for breakfast cereals and advertisements for "snack foods" such as candy or soft drinks. The advertisements for breakfast cereals have been heavily concentrated on the pre-sweetened cereals such as Sugar Smacks, Count Chocula, Baron Von Redberry, Frankenberry, Pink Panther Flakes, and the like, rather than "traditional" dry cereals such as Corn Flakes or Post Toasties. The advertisers of breakfast cereals believe that they are more likely to achieve the desired result of children successfully lobbying their parents to purchase a food product when it is a heavily sweetened "snacktype" product rather than a more traditional food item. Saturday morning network television is dominated not only by a few product categories but also by a limited number of advertisers selling products. The major advertisers on children's television - Kellogg, Mattel, and General Mills - according to an FCC report, account for 20 percent of the total revenue, the top eight advertisers accounting for 55 percent and the top 23 advertisers for 80 percent of the gross revenue derived from network weekend children's programs. Pearce, Economics, p. 9; Television Advertising of Food to Children, Select Committee on Nutrition and Human Needs of the U.S. Senate, 93rd Congress, 1st Session, series 73, parts 3, 4, and 5 (1973).

Other Studies this sense, parental and societal interests in identifying and correcting any market failures in children's television are likely to be underrepresented in the public sector. For this reason alone the possibility of a governmental failure exists. Another possible source of governmental failure might also be present; it is one that does not involve an informational failure or problems in the transmission of information on preferences, b u t rather one that involves a failure in the incentives facing public officials. T o the extent that an administrative official can favorably influence his f u t u r e e m p l o y m e n t opportunities by making decisions consistent with producer interests w i t h o u t at the same time risking h a r m to his current position, he m a y , regardless of any informational failures, make decisions that run counter to the public interest in allocative efficiency or distributional e q u i t y . If this source of governmental failure exists, the informational activities of public interest groups such as ACT and CCMM are likely t o be unsuccessful unless they also involve activities that tend to increase the penalties for ignoring the interests of a dispersed constituency. The dissemination of information will n o t , per se, solve market failure problems, b u t it may create a more widespread appreciation for these problems. ACT and Choate assume that parents, in general, will endeavor to obtain that which is most beneficial for their children; if parents are convinced that present children's television advertising practices are harmful to their children, they will endeavor to change those practices. By disseminating information concerning the alleged h a r m caused to children by children's television advertising, ACT and Choate seek to raise the level of public awareness and interest with respect to these issues. At present, the question of the harmfulness of television advertising t o children is still being researched. Even with adequate information (satisfactory proof of the harmfulness of children's television advertising), parents would find it difficult t o obtain a private market solution for the reasons discussed earlier. E f f o r t s by parents to litigate would be fruitless, for, as a general rule, 'no private right of action exists b y which members of the general public m a y ask the judiciary, either because of injury to a specific child or because of action inimical t o a more general "public

487 interest," to bring about changes in television advertising practices. Control o f such practices — to the extent any public control exists — is under the authority o f the FCC and the FTC. 7 9 The role o f the FTC traditionally has been to prohibit deception and misrepresentation in specific advertising.* 0 More recently, the Supreme Court has ruled that the FTC also has broad authority to outlaw any trade practice, including an advertisement, which is "unfair" to consumers even though the practice may not be anticompetitive, deceptive, or misleading." Although 79. See Holloway v. Bristol-Myers Corp., 327 F. Supp. 17 (D.D.C. 1973), no private rights of action under FTC Act; Consumer Federation of America v. FTC, 515 F. 2d 367 (D.C. Circ. 1975). See also Davies v. Arthur Murray, Inc., 260 N.E. 2nd 240 (111. 1970), private party seeking contract rescission may not rely on FTC order. 80. FTC v. Algoma Lumber Co. 291 U.S. 67 (1934); FTC v. Colgate-Palmolive Co., 380 U.S. 374 (1965). See also. "Note: Developments in the Law - Deceptive Advertising," Harvard Law Review, LXXX (1967), p. 1005; Ira M. Millstein, "The Federal Trade Commission and False Advertising," Columbia Law Review, LXIV (1964), p. 469; Richard Posner, "Truth in Advertising: The Role of Government," in Brozen, ed., Advertising and Society, pp. 111-123. 81. FTC v. Sperry and Hutchinson, 405 U.S. 233 (1972). Examples of practices that may be unfair even though not deceptive include insertion of razorblades in newspapers in such a fashion that non-adults may injure themselves; Phillip Morris Co., FTC Docket 8838 (1971), CCH Trade Reg. Rep. (1970-1973 Transfer Binder), para. 19,548, p. 21,620. Asserting claims in advertising without having first substantiated those claims is an unfair and illegal practice even if the asserted claims prove to be true,Pfizer, Inc., 81 FTC 23 (1972). Exploitation of parents' fears concerning the diet and growth of their children may also be an unfair advertising practice; see in the Matter of ITT, 82 FTC 1183 (1973). See generally Gerald J. Thain, "Advertising Regulation: The Contemporary FTC Approach," Fordham Urban Law Journal, I (1973), p. 349; "Note, §5 of Federal Trade Commission Act - Unfairness to Consumers," Wisconsin Law Review (1972), p. 1071; "Note, Psychological Advertising - A New Area of FTC Regulation," Wisconsin Law Review (1972), p. 1097; and sec FTC Statement of Basis and Purpose of Trade Regulation Rule for the Prevention of Unfair or Deceptive Advertising and Labeling of Cigarettes in Relation to the Health Hazards of Smoking (1964), pp. 77-83 and 95-98. (The noted administrative scholar Kenneth Culp Davis has termed this statement the outstanding administrative law document of the twentieth century); Capital Broadcasting v. Mitchell, 333 F. Supp. 582 (1970), p. 584 (affirmed without opinion, 405 U.S. 1000 [ 1972] ) indicating that Congress, the FTC, the I'CC, the SEC, and other agencies may ban advertising in the public interest; such action is "particularly appropriate for broadcast advertising because of the 'unique' character of electronic communication" and the large numbers of youngsters viewing such messages (333 F. Supp. 584). See also note

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the FTC has long recognized the special vulnerability o f a child audience in determining whether an advertisement may deceive children, the agency was not notably active in questions involving advertising to children prior to the advent o f the public interest advocacy groups. (See the chapter Appendix.) Although it has recently changed its modus o p e r a n d i , " the FTC historically has functioned by responding to complaints from individuals or businesses rather than by planning its activities after reviewing its statutory mandate, its resources, and the optimal allocation o f those resources to produce desired benef i t s . " While individual advertisements to children have received occasional scrutiny in the past, the agency has not until recent years devoted significant resources to more general issues in this area, such as the question whether its jurisdiction over "unfair practices" might authorize it to prohibit all commercials addressed to a specific audience or all commercials for a particular product line. 8 4 The agency has usually taken the view that such questions are matters for the Federal Communications Commission to resolve, 8 5 especially since the FCC has long held that while it lacks authority to deal with specific commercials it has authority to prohibit "over-commercialization" by broadcasters. 86 13. " 'Unfairness' [today) is as fresh a doctrine as was 'restraint of trade' in 1890" according to Robert Pitofsky, a law professor who formerly served as Director of the FTC Bureau of Consumer Protection. Robert Pitofsky, "Developing Concept of Unfairness Under Section 5," in The FTC in Action (New York: PLl, 1972), p. 125. 82. See, for example, Edward M. Kennedy, "Professor Elman and The Changing Federal Trade Commission: A Comment," Georgetown Law Journal, LIX (March 1971), pp. 861-863. 83. ,See Philip Elman, "Administrative Reform of the Federal Trade Commission," Georgetown Law Journal, LIX (March 1971), p. 777; and Report of the A.B.A. Commission to Study the Federal Trade Commission (1969), pp. 27-28, 37, 3 9 ^ 0 , 77. 84. See Thain, "Advertising Regulation," pp. 367-375. 85. Personal knowledge of author. Also see ACT News, Spring 1976, p. 8. 86. In response to a question about the role of the FTC in regulating such things as frequency of commercials, number of commercials per hour, and clustering of commercials aimed at children, FTC Chairman Engman responded that "these matters appear to us to be within the jurisdiction of the FCC, not the FTC." Testimony before the House Subcommittee on Agriculture-Environmental and Consumer Protection Appropriations for 1975, 93rd Congress, 1st Session, series 975, part 6 (April 9, 1974), pp. 754-755.

488 The FCC traditionally has held that it has no direct authority to deal with the substance of unfair or deceptive commercials on television but that such questions are to be referred to the FTC for resolution. 8 7 The FCC's position is that a licensee's practices in broadcasting challenged commercials is a matter that may be taken into account when determining if the station is operating "in the public interest," but that the legality of a specific commercial is not to be considered by the FCC. The FCC has issued official policy statements advising stations that announced FTC challenge o f an advertisement (a challenge that is addressed to the advertiser) places a broadcaster on notice that "a serious question" has been raised concerning the continued dissemination of that advertisement by a station." However, only a final FTC order (or 87. "Notice of Proposed Rule-Making in Docket No. 15083: In the Matter of Amendment of Part 3 of the Commission's Rules and Regulations with Respect to Advertising," 36 FCC 45, 1 P and F Radio Reg. 2d 1606 (1964); although the FCC deferred to the NAB Code on the number of commercial minutes per hour, it did indicate, after this inquiry into over-commercialization, that the FCC authority over limiting the number of commercials is "well-established" (p. 1607). This has long been the official FCC position, and the agency has even denied a license (for a radio station) because of over-commercialization. WMOZ, 36 F.C.C. 201, 10 P and F Radio Reg. 801 (1964). More typical of the agency's actions, however, was its renewal of a license to a station which had aired as much as 33 minutes of commercials per hour. "Accomack-Northhampton Broadcasting Co.," 8 FCC 2d 357, 10 P and F Radio Reg. 2d 142 (1967). 88. See, for example, former F"CC Chairman Dean Burch's statements at the Hearings on the Effect of Promotion and Advertising of Over-the-counter Drugs on Competition, Small Business, and the Health and Welfare of the Public, before the Subcommittee on Monopoly of the Select Committee on Small Business of the U.S. Senate, 92nd Congress, 1st Session, series M46, part 2, pp. 559-740, to the effect that the FCC "has neither the facilities nor the expertise to evaluate claims going to [an advertised] drug's effectiveness or its superiority over other products. This authority, and the means: to exercise it, have been given to the FTC... . Moreover, and of equal importance, the FTC's authority in the matter of advertising is plenary." In that testimony, Burch indicated several times his belief that the FTC is the agency that must deal with substantive advertising practices. Burch's successor as FCC Chairman, Richard Wiley, has also emphasized that the "FTC normally looks for primary jurisdiction" in the area of false and misleading advertisements because it goes "across the board and touch[es] not only the broadcasters and purveyors, but the advertising agencies and the sponsoring companies, whereas [FCC] jurisdiction is primarily on the television or radio licensee. However, [the FCC has) some similar responsibilities

Other Studies court injunction) prohibiting the advertiser from disseminating the advertisement places the broadcaster under a duty to take affirmative action to ensure discontinuance of the advertisement on its station(s). In practice, this is no burden at all for the broadcaster, because virtually all advertisers will attempt to comply with a final FTC order or court injunction rather than risk being assessed civil penalties or held in contempt of court. The FCC, which has paid scant attention to children's programming or commercials until recently, is often cited as a near-classic example of a regulatory body that is captured by the industry which, in theory, it regulates." It is also and jurisdiction in this area." Testimony at the Hearings on FCC Programs and Appropriations before the House Subcommittee on HUD, Space, Sciences, and Veterans Appropriations, 93rd Congress, 2nd Session, series 975, part 2, p. 67 (March 12, 13, 1974). In its "Memorandum Opinion and Order Denying the TUBE [Termination of Unfair Broadcasting Excesses] Petition," Docket RM-1553, in the Matter of Adoption of Standards Designed to Eliminate Deceptive Advertising from Television, 32 FCC 2d 360 (1971), the FCC stated that the continuing efforts of the FTC to tighten advertising controls are one reason for the FCC to remain minimally involved. Moreover, in its 1974 "Children's Television Programs Report and Policy Statement," p. 39,399, the FCC explicitly reserved actions in the area of "specific promotional practices" to the FTC, although the FCC purported to look at "the overall level of commercialization and the need for maintaining a clear separation between programming and advertising"; see also FCC Public Notice on Licensee Responsibility with Respect to the Broadcast of False, Misleading, or Deceptive Advertising, FCC 61-1316, Mimeo No. 11836 (November 7, 1961). This policy is reiterated, along with an announced intention to continue deferring to the FTC in the area of deceptive advertising, in WTOP-CBS, 32 FCC 2d 400(1971). 89. See Noll, Peck, and MacGowan, Economic Aspects, pp. 120-126. During the period 1945-1970, 21 of the 33 FCC Commissioners were employed by the communications industry after their FCC service. Most of those not affiliated with the industry after their service left the FCC to retire (p. 123). See also Louis M. Kohlmeier, Jr., The Regulators (New York: Harper and Row, 1969), pp. 206-208. Ex-FCC Commissioner Nicholas Johnson intimated in testimony criticizing the overall FCC broadcast license renewal system, that both the FCC and the Senate Oversight Committee may be tools of the NAB. See Hearings on Proposed Legislation to Amend the Communication Act of 1934 with Regard to Renewal of Broadcast Licenses, before the Subcommittee on Communications and Power of the House Committee on Interstate and l-'oreign Commerce, 93rd Congress, 1st Session, series 93-95 (March 14, 1973), pp. 130-137, 151. For a survey of political influence upon appointment to the FCC and the FTC, see Appointments to the Regulatory Agencies, (1976), a study by the Institute for Public Interest Representation (INSPIRE), which is a group associated with Georgetown

489 considered an agency more responsive than most t o direct manipulation by the executive branch, because broadcasting regulation is a serious concern for politicians who are aware of television's impact on the public's political consciousness. 90 In a sense, we might expect that the FCC would be a captured agency. As we noted earlier, officials seeking to maximize their own welfare by maintaining the agency as a viable institution, and by creating later employment opportunities for themselves in the industry that the agency ostensibly regulates, will be less willing to upset the operations of either the agency or the industry by mandating significant change than will officials of any agency that is not c a p t u r e d . " The analysis applies to the FTC as well, but the FCC regulates only the broadcast industry, while the FTC has jurisdiction over most of the nation's industries, a circumstance that diffuses the agency's impact and makes it less susceptible to capture by specific industry groups. The question where jurisdiction lies in determining the legal status of advertising to children presents a near paradigm of an "AlphonseGaston" game of administration. The FTC can credibly avoid the question by indicating that its jurisdiction is limited to the substance of specific advertisements; the FCC can credibly respond by indicating that its jurisdiction does not run to programming content or advertising content and that its role, at most, should be to exhort advertisers and broadcasters to " d o better." In the absence of unusual influences, the FTC is likely to limit itself to challenging the substance of advertisements to children that misrepresent some material characteristics of the advertised University. The report was published by the Senate Commerce Committee (which has the responsibility for reviewing presidential nominees to positions on these agencies). See also "Politics Triumphs Over All, Reports Study of FTC, FCC Appointments," Advertising Age, April 26, 1976, p. 2. 90. See, for example, Whiteside, "Annals of Television," p. 41. See generally ErwinG. Krasnow and Lawrence D. Longley, The Politics of Broadcast Regulation (New York: St. Martin's Press, 1973); Henry J. Friendly, The Federal Aministrative Agencies (Cambridge, Mass.: Harvard University press, 1962). The personal interests of legislators with investments in stations licensed by the FCC has also influenced the operations of the agency. See Barnouw, The ¡mage Empire, pp. 67-68; Louis S. Jaffe, "The Scandal of TV Licensing," Harper's Magazine, September 1957, p. 77. 91. See Noll, Peck, and MacGowan, Economic Aspects, pp. 120-126.

Non-Law Public Interest Advocacy product, and the FCC is likely to limit its activity to speeches by its members and occasional public hearings designed to encourage greater concern by broadcasters for the special needs of children. Meaningful change cannot be expected to come from the actions of these government agencies without some outside impetus for change. The lack of clear authority for either the FTC or the FCC to consider generally children's television advertising practices not only makes the governmental failure - the failure of these two agencies - likely to continue but makes it difficult for a public interest law firm to play a meaningful role in this area. The jurisdictional gap between the FTC and the FCC concerning children's advertising makes public interest law efforts concentrating on litigation of little use to correct the problem — private remedies are generally not available and the public agencies are granted wide discretion in determining whether to take action in a given a r e a . " This makes the area of children's television advertising especially appropriate for activity by groups that use means other than litigation t o advocate change — namely, public interest non-law groups such as ACT and CCMM.

Voluntary Sector

Intervention

The possibility, if not the likelihood, of potential failures in both the private market and the government certainly exists, and the direction of those failures is toward too few children's programs, too little variety in children's programs, and t o o much advertising on children's television. Thus there is an a priori case that ACT and CCMM do represent the interests of children and parents, and that a reduction in advertising on 92. Pan Am Airways v. United States, 371 U.S. 296 (1963), p. 306, the FTC Act and similar agency-enabling legislation does not "embracc a remedy for private wrongs but only a means of vindicating the public interest"; followed in Carlson i>. Coca Cola, 483 F.2d 279 (9th Cir. 1973); Polansky v. Transworld Airlines, Inc., 523 F.2d 332, 339-340 (3rd Cir. 1975). And see FTC v. Klesner, 280 U.S. 19 (1929), the FTC may act only "in the public interest," not to remedy private wrongs (per Brandeis, J., sometimes referred to as the "father of the FTC Act"). Discussion of this jurisdictional requirement is found in John D. French, "The Federal Trade Commission and the Public Interest," Minnesota Law Review, XLIX (1965), p. 539, and Elman, "Administrative Reform," p. 787.

490 children's television would be in the public interest in efficiency and equity terms. In addition, as we discussed earlier, an action aimed at correcting failures concerning advertising on children's television would be expected to have an impact on the number and variety of children's programs because of the role of advertising as a financing mechanism. Therefore, the remedy advocated by ACT and CCMM, the complete elimination of advertising on children's programs, may be undesirable in either the efficiency or the equity sense; it may go too far and result in less children's programming. On the other hand, the potential failures we have identified may not be actual failures; this would be the case if there were no corrective remedy that would have, on balance, a beneficial impact. Thus, if the remedy results in a reduction in children's programming or if the potential failures are not actual failures, then ACT and CCMM are not representing the interests of parents and children in this area, at least on the efficiency and equity dimensions we have identified. We shall now turn to consider this possibility in more detail. The Impact of an Advertising Prohibition: Allocative Efficiency That the remedy of eliminating advertising on children's programs could be instituted is clear. The FCC has the authority, despite its own expressed uncertainty, to grant the remedy. It is within the FCC's authority to require that certain losses be absorbed by broadcasters in "the public interest"; in effect, this is a mandatory remission of potential private gain as a cost of the broadcasting licenses which are legal monopolies of public space.' 3 The financial returns that broadcast licensees receive is great,' 4 and the 93. See Office of Communication of Church of Christ v. FCC, 425 F.2d 543 (D.C. Cir. 1969), p. 548; Geoffrey Cowan, "Book Review of Presidential Television by Newton N. Minow, John Martin, and Lee M. Mitchell," UCLA Law Review, XXI (August 1974), p. 1714. 94. The Washington Post, September 8, 1975, Sec. B, p. 1, reported that according to released FCC figures, collected from the industry, pre-tax profits in the TV industry, both networks and stations, jumped $84 million in 1974, the third consecutive year of increase. The dollar increase was from $653.1 million in 1973 to $737.1 million in 1974. The pre-tax profits of the three commercial networks - ABC, NBC, and CBS - were $255.1 million in 1974, as against $184.8 million in

Other Studies obligation of licensees to operate in "the public interest, convenience, and necessity" may be held to require commercial-free children's programs, just as it has been held to require some attention to political issues regardless of the ability to find sponsors for such programs. Whether the elimination of advertising would have a net beneficial impact is difficult to say. The quantification of benefits that are expected from the elimination, or from some lesser reduction, of television advertising to children is a complex and uncertain task. Noll, Peck, and MacGowan, in Economic Aspects of Television Regulation, state that the problem of program tone is the most difficult broadcast characteristic to control in a commercial broadcast system. They consider evaluation of such questions as "inherently subjective," and believe that action can be taken only by making essentially political decisions on the appropriate public goals.'® Although Messrs. Noll, Peck, and McGowan make these assertions with specific reference to such questions as the social value of televising political debate, or televising dramatized violence on entertainment programs, the question of the social value of television advertising to children can be analyzed in the same way." The difficulty of determining the potential benefits of control for persons who do not watch the programs in question, and obtaining objective data 1973. In percentage terms, pre-tax network profits were up 106.5 percent in 1972; 66.2 percent in 1973 and 21 percent in 1974. Pre-tax profits of all television operations were up 41 percent in 1972, 18.3 percent in 1973, and 12.9 percent in 1974. Advertising expenditures for television broadcasts as reported by the FCC, were $435 million in 1974, up 8.8 percent from 1973. See also Broadcasting, May 6, 1974, p. 6. 95. Noll, Peck, and MacGowan, Economic Aspects, pp. 54-57. 96. That the issue here is one of " t o n e " - the influence of children's television advertising on social behavior - is shown by ACT's own comments on its proposals to the FCC to prohibit television advertising to children. The nub of ACT's position is that unless commercial pressures are dealt with, broadcasters will never protect the rights of children to receive suitable access to social, political, esthetic, moral, and other ideas and experiences. Commercial competition in the industry and commercial pressures on licensees are such that the vast proportion of children's programming will continue to serve [only] part of children's needs. Advertising and programming will continue to promote a narrow range of social and moral attitudes which in the long run is likely to be injurious to children and to American society.

491 to determine social impact, bears on the consideration of these issues. Internal staff documents recently leaked to the trade press suggest that the FTC considers the determination of the impact of children's television advertising to be differentially important.' 7 The FTC for some time has been operating under procedures that require its staff to make a cost-benefit analysis of each task it proposes, and it has been emphasized that each analysis is to be in terms of dollar benefits. 9 8 The Commission's Office of Policy and Planning and Evaluation (OPPE) reviews each staff recommendation for the quality of the cost-benefit analysis before the proposal is submitted to the members of the agency. OPPE has not been reluctant to harshly criticize staff proposals that contain justifications that OPPE considers inaccurate or inadequate." One major FTC resource commitment that OPPE has deemed appropriate without a cost-benefit justification is regulation of advertising to children. 100 The office does not even find it nccessary to indicate why this area differs from virtually all other areas of FTC activity. The influence of ACT and Choate in raising the FTC's consciousness in regard to children's television advertising is to some degree responsible for this attitude. The difficulties in quantifying benefits are undoubtedly related to the meager amount of research concluded to date concerning the impact of television advertising to children. Even so, it is not at all clear that additional research would necessarily cause changes in the opinion of those who consider questions of advertising and program tone to be basically subjective matters to be decided through the political process. On the cost side, problems of quantification are compounded by uncertainties about just what the reaction of broadcasters and sponsors 97. "FTC Policy Director Urges Revamp of Consumer Protection Programs," ATTR, No. 693 (December 17, 1974), p. A-l. 98. Ibid. See also memorandum of Commissioner Mayo Thompson concerning FTC policy planning and budgeting, reprinted in FTC Oversight Hearings, pp. 124-125. 99. Reprint of the "1976 FTC OPPE Budget Overview," ATTR. No. 693 (December 17, 1974, Part II), p. D-l, and ATTR, No. 694 (December 24, 1974, Part III), p. D-l. 100. See Reprint of the "1976 FTC OPPE Budget Overview.

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would be if a reduction or elimination of advertising were mandated by the federal government. Any reactions would be determined in part by the form and extent of the governmental intervention and by the expectations of broadcasters and advertisers regarding the possibility of further intervention and regulation. The revenues received from advertising on children's programming are small percentages of total network advertising revenues. It should be noted that networks use the profits from daytime television and evening productions to absorb the losses that result from presenting a sufficient amount of minority interest and public service programming to justify renewal of their licenses. 101 The numerous game shows and interview programs seen on daytime and late night television are relatively inexpensive to produce and may be highly profitable. The "Tonight Show" in 1970 carried 2,194 minutes of advertising, earning gross revenues of $31,451,600, and, according to an FCC economist, made a profit contribution to NBC of almost $8.5 million that y e a r . 1 " ACT and CCMM urge that network profits from such shows be used to support children's programs and that children's programs be considered public service programming to a specified minority — that is, programming that stations must carry, regardless of commercial support, in order to justify retention of their licenses. Broadcasters have asserted that, to the extent they are required to eliminate advertising from children's television, they will be forced to raise advertising rates on the remainder of their 101. Pearce, Economics, pp. 69-71. In his study for the FCC, economist Alan Pearce hypothesized that a Saturday morning schedule under which all three networks presented age-specific programming for children for six hours, with a maximum of six minutes of commercials per hour and an advertising rate of $2 per thousand viewers would turn a profit for two of the three networks and cause the third to lose a minimal amount. A slight increase in the advertising allowed would result in a profitable operation for all three networks, according to Pearce. Dr. William Melody of the Annenberg School of Communications (and a consultant to ACT) contends that commercials could be eliminated from children's programs at minimal loss to the networks if a gradual phase-out of commercials was utilized to allow the networks to adjust their costs and to provide the necessary time to obtain private and public funding of non-sponsored children's programming. Melody, Children's Television, pp. 126-139. 102. Ibid., pp. 69-70.

492 programs, cease to broadcast on Saturday mornings, or broadcast something other than children's programs at that time.103 In fact, it is uncertain whether the "horribles" that the broadcasters say would result from elimination of advertisements from children's programs need occur. In many large urban markets, public television carries such children's programs as "Sesame Street," "Mister Rogers' Neighborhood," and "The Electric Company" on Saturday morning. Networks may well be reluctant to relinquish the market, thereby encouraging young viewers to get in the habit of turning the dial to public TV rather than to the network affiliates. Moreover, the FCC might very well determine that a broadcaster that did not offer programs designed for children, regardless of sponsorship, was not operating in the public interest, or it might simply indicate a willingness to consider the question. In either case, broadcasters would undoubtedly continue to carry some programs directed to children. Further, it is not clear that a ban on children's television advertising would result in increased prices for other television advertising time. An FCC economist's study determined that stations could carry children's programming without advertising at a relatively small loss of revenue because of the lower prices charged for advertising on children's programs in the first instance, and because broadcasters receive only a small percentage of total revenue from children's advertising.104 Moreover, the profits of networks and most stations (although not all individual broadcasters) are sufficiently large that efforts to raise their prices because of a ban on children's television advertising might cause them difficulty with the Department of Justice or the FTC (in its antitrust function) if not with the FCC. Either the Justice Department or the FTC might decide that the monopoly position given stations through the licensing procedure compels them to forego some amount of profits. The concern of most broadcasters, upon examination, seems to be not the direct economic hardship that elimination of children's television advertising might cause but the fear of the potential "domino-effect" of such action, perhaps leading to additional prohibitions such as the elimination of non-prescription drug advertisements from the air waves. This fear is 103. ¡bid., pp. 60-61. 104. Pearce, Economics, p. 70.

Other Studies reinforced by the fact that cigarette advertisements have already been eliminated from television, initially depriving broadcasters of a major portion of advertising revenue (although the portion was regained from other advertisers within a brief period of time). The elimination of cigarette advertising gives credibility to proposed prohibitions of other advertising.105 Broadcasters have further argued that elimination of sponsorship from children's programs would result inevitably in a decline of funding for children's television, meaning a decline in the quality of programming.106 Aside from the reasons that make it unlikely that an advertising ban would result in an absence of children's programming from the commercial airwaves, reasons that would also apply here, it should be noted that support for "quality" children's programming may be available from the private sources that contribute to some of the children's programs now on public television without advertising messages. In addition, there may be companies that would find it practical to fund children's programs without commercial messages of the normal sort, but with a statement at the beginning and end of a program - and perhaps at the halfway point - that "this program is brought to you by Little Giant Industries, manufacturers of 105. "Drugs on TV: Next in Line for Federal Suppression?" Broadcasting, July 24, 1972, p. 16. See also Les Brown, Television: The Business Behind the Box (New York: Harcourt, Brace and Jovanovich, 1971), p. 154. 106. Pearce, Economics, pp. 60-61. At a seminar sponsored by the Hollywood Chapter of the National Academy of Television Arts and Sciences, several industry panelists noted the impact consumer activities have had in driving "good advertisers" away from the Saturday morning time slot. "Panelists Find Side Effects in Cures for Children's TV," Broadcasting Magazine, February 24, 1975, p. 37. The FCC expressed its conclusion that eliminating commercials from children's TV would be an unrealistic and counter-effective method for improving children's television in its Report and Policy Statement on Children's Television Programs, p. 39,399. "Banning the sponsorship of programs designed for children could have a very damaging effect on the amount and quality of such programming. Advertising is the basis for the commercial broadcasting system, and revenues from the sale of commercial time provide the financing for program production. Eliminating the economic base and incentive for children's programs would inevitably result in some curtailment of the broadcaster's efforts in this area. Moreover, it seems unrealistic, on the one hand, to expect licensees to improve significantly their program service to children and, on the other hand, to withdraw a major source of funding for this task."

493 little Giant Tiddly-winks," messages akin to those shown on public television shows that receive grants from private companies as well as from foundations. Another concern expressed by broadcasters has been that while networks may be in a position to subsidize children's programming, a number of economically marginal television stations could not afford the loss of any such revenues. 107 These stations are usually non-affiliated UHF stations with significantly lower ratings than their competitors. It is not unusual for such stations, unsuccessful in the ratings battle for the majority audience, to offer a large number of programs aimed at the child audience in hopes of reaching the audience to which their competitors do not cater. It may be true that such stations will suffer financial collapse if they do not receive all present revenues from broadcasting, including broadcasting to children. Indeed, they may not survive even with revenues from children's programming maintained. Financial success is a requirement for broadcasting, l 0 , and it is frequently asserted that it is in the overall interest of the public for stations to continue to broadcast. While, as we have argued, it is in the public interest in both efficiency and equity senses for a variety of broadcasting alternatives to exist, there is usually little justification for allowing a specific licensee to continue to operate a given frequency or channel. There seems to be no dearth of individuals and groups seeking broadcasting licenses, and the difficulties faced by some of the marginal stations are probably caused more by the network system of telecasting and advertising and the limitations of broadcasting on the UHF spectrum than by other factors. Although it may seem unorthodox for regularly licensed commercial stations to broadcast without advertising, sponsorship for programs was not a part of early broadcasting history. When Congress established the Federal Radio Commission (the forerunner of the FCC) in 1927, it anticipated neither sponsored broadcasting nor the network system of broadcasting. 109 The 1929 NAB Code prohibited com107. Pearce, Economics, p. 57. 108. Carroll Broadcasting Co. v. FCC, 258 F.2d 440 (D.C. Cir. 1958). 109. Erik Barnouw, A Tower in Babel (New York: Oxford University Press, 1966), pp. 199-200.

Non-Law Public Interest Advocacy mercials between 7 and 11 P.M. 110 Even well into the 1930s, only about one-third of broadcast time was sponsored. Some scholars believe this absence of sponsorship allowed specialized broadcasting such as that of the Federal Theatre and Orson Welles' Mercury Theatre (producer of the "War of the Worlds" broadcast) to be produced." 1 A method of presenting children's programs on television in a context other than the present commercial setting has been proposed by individuals associated with the UCLA Communications Law Center in response to the concerns of ACT. 112 They urge the FCC to create a Children's Television Network utilizing its authority under Section 303(c) of the Communications Act. 1 1 3 The network-would allocate the electromagnetic spectrum not for frequencies but for hours, requiring that some portion - perhaps two hours - of a licensee's time be reserved for the presentation of non-commercial children's programming. The FCC would grant a license for those hours to an appropriate group of parents or educators, who would broadcast non-commercial children's programming on the licensee's frequency. license renewal for current licensees (or their successors) would be for the remaining 22 or 23 hours of the day. (The FCC's present rules provide for frequency sharing of this nature.) 1 , 4 Under the Children's Television Network proposal, children's programming would be made age-specific. The times at which children's programs would be broadcast would be approximately the same as now, but commercial pressures would be absent. The major question concerning this proposal is whether sufficient numbers of suitable licensees would be available to implement it. Its proponents suggest that, following the organizational pattern of the Children's Television Workshop (producers of "Sesame Street" and "The Electric Company") and the Public Broadcasting Service, a "time network" could be established with private grants and government subsidies. 110. Martin Mayer, About Television (New York: Harper and Row, 1972), p. 9. 111. Barnouw, The Image Empire, p. 336. 112. See Marjorie S. Steinberg, "Comment, The FCC as Fairy Godmother: Improving Children's Television," UCLA Law Review, XXI (July 1974), pp. 1332-1338. 113. 47 U.S.C. §303(c) (1970). 114. C.F.R., XLVII (1973), §73.622.

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The network would provide the individual licensees with some programs, and the licensees would support the network with some local production of their own, funded by private or public money, or perhaps both. 1 , 5 In essence, this scenario would extend the commitment of public funds (supplemented by private grants) from the present support of public broadcasting only into a wider area that included children's programming on commercial stations.

dren emulate their parents in this respect, it is again children from poor and disadvantaged families who are more likely than others to be misled and exploited by advertising and to benefit most from its elimination. Thus, from a distributional equity perspective, the remedy advocated by ACT and CCMM would be likely to have what most would feel is a desirable impact at least in terms of its direct beneficiaries.

There are a variety of alternatives to the current commercial broadcasting system, any one of which might be adopted by the industry in response to governmental intervention. While some of the alternatives may constitute efficient methods for correcting the market and governmental failures in children's television programming, we cannot state firmly whether any given alternative is efficient. The weight of the evidence suggests that an efficient alternative exists, and that the elimination of children's television advertising could be accompanied by measures that would ensure its having, on balance, a desirable impact.

The Achievements of ACT and CCMM and the Relation of the PINL Status to Achievement

The Impact of an Advertising Prohibition: Distributional Equity The complete distributional impact of eliminating advertising on children's programs is as difficult to specify as the expected efficiency impact. How the burden of financing children's programs would ultimately shift is not at all clear, although the distribution of the immediate benefits of eliminating advertising is a good deal clearer. As a reasonable first approximation, we may assume that those children who watch more television, and are exposed to more advertising, will reap the greater benefits. These children tend to be from families that are disadvantaged, poor (especially urban poor), and less educated. In addition, the disadvantaged, the poor, and the less educated tend more than others to view television as an authoritative source for information and guidance.1 " To the extent that chill i s . Steinberg, "The FCC as Fairy Godmother," p. 1335. 116. There are data indicating that the urban poor spend more than twice the time spent by the general populace viewing television (Howard and Hulbert, Advertising and the Public Interest, p. 67, and sources cited therein). Similarly, studies indicate that the poor and disadvantaged are generally more inclined to treat infor-

In terms of specific results, the efforts of ACT and of Choate's CCMM, detailed earlier, have been largely responsible for the following: (a) disclosure in labeling of the nutritional value of breakfast cereals and the reformulation of some forty cereals to increase their nutritional value; (b) the elimination of host-selling on children's television; (c) the elimination of commercials for children's vitamins from children's television (ACT's petitions to the FTC seeking to prohibit such advertising and otherwise attacking the practice led to "voluntary" withdrawal by vitamin companies of their commercials from children's television); (d) actions by the NAB and the FCC reducing the amount of commercial time sold on children's programs; (e) the establishment of a self-regulatory body to screen advertising practices (NARB) and to give special attention to advertising to children; (f) proposals by the FTC for a regulatory code concerning children's television matters; (g) establishment of children's advertising issues as high priority items at the FTC and the FCC; and (h) ongoing proceedings at the FTC to establish a comprehensive code governing nutrition claims in food advertising. For the reasons discussed earlier, it is unlikely that any of these events would have come about without the efforts of ACT and CCMM. Given the analyses and evaluations presented in previous sections regarding the efficiency and equity dimensions of the objectives and remedies advocated by ACT and CCMM, each of these accomplishments represents a move in the direction of mation received from television as authoritative than are members of the general public, pp. 66-68. See also Thomas Donahue, "Effect of Commercials on Black Children," Journal of Advertising Research, XV (December 1975), pp. 41-47.

495 correcting private market and governmental failures. Indeed, in some cases they may not go far enough. Although they fall far short of eliminating advertising on children's television, these achievements taken together clearly represent an advance toward that goal. At this point, it is useful to consider whether any or all of these accomplishments would have been achieved by groups utilizing PIL rather than PINL activities. While groups concentrating on the use of PIL instruments certainly could have carried on the lobbying activities of ACT and CCMM and presumably would have obtained similar results, it is questionable whether PIL groups would find it desirable to engage in this type of activity rather than in litigation. Leaving aside for the moment the normative issue of whether a lawyer's time would be better spent in activities for which a lawyer is supposed to be particularly skilled, the greater difficulty of measuring and demonstrating performance in lobbying as opposed to litigating activities seems to provide motivation for directing PIL activity toward litigation, a possibility analyzed in detail in Chapter Five. In the case of children's television advertising, it is more realistic to expect gradual steps toward the goals of public interest groups than dramatic advances toward those goals. Indeed, in lobbying activity, maintaining the status quo by preventing action detrimental to the group's interests may be as significant as a major advance toward an announced goal. Yet, conduct of this prophylactic nature frequently is informal and difficult to document. Even when documentation is possible, demonstrating a causal connection between the lobbying activity and the outcome may be extremely difficult. Thus, given the publicity-maximizing behavior of PIL firms (discussed in Chapter Five), we would not expect to find PIL groups entering this area of controversy. In the area of children's television advertising, the goals of ACT and CCMM, as noted earlier, are essentially goals for which there is no private right of legal action. Whether action to reach such goals will or will not be taken is a decision to be made by administrative agencies and is therefore subject to administrative discretion. When this is the case, the absence of a legal remedy may serve as a further disincentive for the involvement of lawyers in lobbying activity, since the absence of litigation as an alternative

Non-Law Public Interest Advocacy prevents lawyers from using even the threat of litigation, thus stripping lawyers of one of their traditional bargaining tools. Choate's stated attitude toward lawyers is of interest in this regard. For his purposes, lawyers are not much different from carpenters or plumbers. He hires one when a particular crisis requiring the services of an attorney arises. Otherwise, he considers it particularly useful to be a non-lawyer in a town of lawyers dealing in legal issues. 1 , 7 He believes that his non-lawyer status makes it easier for him to divert attacks on his proposals that are based on legal or technical grounds, which he views as matters that can be resolved by lawyers and other technicians who draft rules and legislation. Although he occasionally has had legal services rendered to him either free or for a fee by public interest lawyers, " * Choate prefers to hire an attorney when he feels counsel is necessary or desirable, because a donee of legal service finds it much more difficult to direct an attorney than does a paid client. Choate thinks that in large part, the U.S. is a government of "men, not laws" and that it is more important for him to understand the philosophy and political aspirations of those legislators and regulators with whom he deals than to have a firm grasp of the letter of the l a w . " ' Choate's reputation and his Washington location have made it a fairly simple task for him to obtain quick access t o the commissioners' offices in the relevant regulatory agencies and to the staffs of a number of key Congressmen. 1 , 0 In 117. Interview with Choate, June 26, 1975; Interview with Charren, June 18, 1975. 118. These attorneys have included James Turner, once associated with Ralph Nader and now a partner in the " m i x e d " firm of Swankin and Turner in Washington, D.C.; Geoffrey Cowan, formerly a Washington public interest lawyer specializing in communications and advertising issues and now adjunct Professor of Law at UCLA; and A1 Kramer, a Washington public interest lawyer specializing in FCC and communications law. 119. Interview with Choate, June 26, 1975. 120. As an FTC employee during the years 1963-1974, the author of this chapter had considerable exposure to Choate's activities and their impact upon the FCC, the FDA, and particularly upon the FTC. During those years, Choate was the only consumer advocate in consistent contact with the Commission whose approaches were treated with great deference and concern at all levels of the FTC, from the office of the Chairman to the working staff level. His ability to gain publicity for his views, his friendly reception as an ally by the Democratic majorities on the Senate and House

496 addition, he has contacts at high and middle staff levels at the FTC, FCC, and F D A , as well as an informal liasion relationship with ACT. These contacts have made it possible for him to obtain attentive informal hearings f r o m agency members and staff. His ability t o lead Congressional appropriations committees to ask regulators embarrassing questions at public hearings or otherwise press t h e m for specific stands on issues is a major incentive for agency responsiveness t o his presence. Choate's lobbying activity f r o m his Washingt o n base is nearly parallel with the lobbying activities frequently carried o u t by Washington lawyers and former government officials on behalf of business interests. In this respect, Choate functions in a manner similar to the way some lawyers f u n c t i o n . However, he does so as a nonlawyer. ACT is not able t o m o u n t a lobbying campaign that compares with the lobbying on behalf of broadcasting and advertising interests. Much of the lobbying for broadcasting and advertising interests is carried out by lawyers, and muckrakers have consistently n o t e d the heavy emphasis of large Washington law firms that represent corporate interests on administrative law and lobbying. 1 2 1 Although lobbying in Washington and elsewhere is by n o means an activity limited to those with law degrees, it requires a skill of persuasion and a knowledge a b o u t the nature of the organization that is lobbied that lawyers, especially those with past experience at the particular organization, are apt t o possess. ACT has on occasion utilized the services of public interest lawyers in communications law, but ACT had n o t , before 1975, utilized any Commerce Committees overseeing, with frequent public hearings, the work of the FTC, and his continual cultivation of relations with key staff members of the agency all helped Choate gain this degree of acceptance. One example of Choate's influence is that the FTC did not have a staff nutritionist to give in-house advice on advertising and nutrition issues until Choate campaigned for such a position to be created; the position was then filled by a former FDA nutritionist who had worked with Choate and others in organizing the White House Conference on Nutrition and who was generally receptive to Choate's views. 121. For example, Joseph C. Goulden, The Superlawyers (New York: Weybright and Tulley, 1971); Mark J. Green, The Other Government: The Unseen Power of Washington Lawyers (New York: Grossman, 1975).

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single a t t o r n e y or firm on a regular basis. 1 2 1 The organization has n o w hired a full-time a t t o r n e y , a 1975 graduate of Villanova University who also holds a masters degree in child psychology and thus seems to have a particularly appropriate background for ACT's purposes. It is not expected that this a t t o r n e y will remain with ACT for more t h a n one or t w o years because the organization is unable t o pay her a rate competitive even with other public interest organizations. According t o ACT president Peggy Charren, ACT needs an a t t o r n e y ' s advice n o t only for counseling on precise points of legal procedure, tactics, and precedents, b u t also because it is useful t o be represented b y one w h o has been trained t o "present positions in argumentative fashion." ACT believes t h a t it could survive with only minimal technical assistance f r o m attorneys b u t that the training of attorneys in wording and presenting arguments m a y help ACT t o pose its arguments to governmental bodies more persuasively. The experience of the a u t h o r of this paper while at the FTC was that petitions by PINL groups generally were seen and treated as requiring more detailed responses on policy concerns than petitions by PIL groups knowledgeable (or educable) on matters of legal drafting, agency c o m i t y , jurisdiction, and the like. T o o technical a response t o a PINL group was something to be avoided; hence, substantive issues had t o be treated to some extent in weighing a proposed response t o PINL concerns. This need may well have forced agency personnel to give greater reflection and weight to the substantive issues raised than would have been given if the petition had been presented by a P I L group. T h u s for a n u m b e r of reasons, we expect that groups concentrating on the use of PIL instruments would not have taken u p the issues involved in children's television, even if ACT and CCMM had never existed. F u r t h e r , we believe that, had P I L groups entered the area, they would not have been as effective in accomplishing change as have the PINL groups ACT and CCMM. These t w o organizations have therefore played a role distinct f r o m PIL organizations and 122. Unless otherwise noted, the following information on ACT conies from interviews with Charren, June 18 and June 19, 1975.

497 in doing so have, in some measure, represented the interests of, and gained benefits for, previously underrepresented individuals.

The Future Role of A CT and CCMM The activities of ACT and CCMM represent instances in which PINL instruments have been used and in which PIL instruments would have served as far less effective substitutes. Certain legal instruments, such as those used in formal dealings with governmental administrative agencies, have complemented the use of PINL, nonlegal instruments. But the emphasis in ACT and CCMM activities has been on the utilization of a variety of non-legal tools that PIL groups would be unlikely to use or to use as effectively. Further, in the specific area of concern to ACT and CCMM, children's television, those tools have been used to advance, at least to some extent, the interests of underrepresented groups and to promote the public interest in efficiency and equity in some aspects of children's programming. ACT and CCMM have not yet achieved their goals, and, if our analysis is correct, at least potential private market and governmental failures remain in the production of children's television. The goals of ACT and CCMM point toward what would need to be done to correct those failures, and may in themselves represent cost-efficient remedies for those failures. Alternatively, the process of advocating the goals of ACT and CCMM may reveal yet another desirable remedy, or may reveal that the potential failures are not actual failures and no remedy exists. In any case, there is a role for ACT and CCMM to play in the future in representing underrepresented interests. Whether these two organizations carry on that role will be determined in large part by whether they can continue to receive funding, a question to which we now turn. The Funding of ACT The funding of ACT's activities has been a persistent problem for the organization. From its founding until 1971, the organization's officers were all volunteers. The first financial support received from outside sources was a $5,000 grant from the Ford Foundation in October 1970 to

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Advocacy

cover some expenses of its first annual conference on children and television. At the end of 1970, the organization received a grant from the Markle Foundation of $6,000. That was followed by a grant of $164,500 from Markle in March 1971. Peggy Charren, ACT's president, believes that without the financial support received from Markle and Ford, ACT might have expired some time in 1970 or 1971, with the organization's achievements limited to its initial filing at the Federal Communications Commission, the first conference on children and television, and "a certain amount of consciousness raising about the issue in the nation." Even when operating on donations from friends and members, ACT attempted to reimburse some of the people working for the organization with part-time salaries. As early as 1968, the organization had an office run by a person on part-time salary. In the summer of 1971, it obtained rental space in modest quarters in Newtonville. It has retained that space and rented additional offices there to the extent that it is now the principal tenant of the premises. Subsequent to the $164,000 grant from the Markle Foundation, the organization received funding from the Ford Foundation to continue its annual conferences, an additional $150,000 grant from Ford in May 1974, and an additional $150,000 from Markle that same period. In the spring of 1975, the Carnegie Foundation awarded ACT $165,000 for fund raising. In addition to foundation grants, contributions, and membership fees, the organization has obtained funds through special efforts such as benefit ballet performances of the "Nutcracker Suite" given for the organization at Christmas time by dance companies in Boston and New Y o r k . ' " With the additional funding that ACT received from foundations and special projects, as of June 1975 the organization was able to employ ten individuals — six full-time and four part-time — including a full-time librarian. ACT occasionally hires people for special projects, and volunteers continue to work for the organization. The organization is running on a budget of approximately $200,000 a year and like most organizations, has been seriously affected by the inflationary spiral of the mid-seventies. To offset 123. See Act Facts, pp. 4, 20.

498 f u t u r e costs, the organization hopes for continuing support f r o m the foundations, its membership, and f r o m special projects. ACT has p r o d u c e d , among other things, a film concerning its view of children's television advert i s i n g , " * printed material containing information about television shows, programming, and ways citizens can organize t o let their views be known to appropriate public officials; a b o o k , The Family Guide to Children's Television b y ACT's former executive director; a game called " S w i t c h " that encourages children to recognize the nature of commercials for products ACT considers u n w o r t h y ; and other items that are sold or rented in order to bring extra income t o the organization. ACT considers that its Massachusetts headquarters and its chapters scattered around the country give it credence as a "grassroots" group. Nevertheless, its location is a major financial handicap, because the frequent need t o be in Washington increases travel expenses. Partly in order to keep apprised of developments in Washington, ACT maintains continuing contact with CCMM on matters of m u t u a l interest. Choate's base of operation in Washington allows him to obtain first-hand i n f o r m a t i o n f r o m sources there, which he frequently communicates t o ACT.

T h e F u n d i n g of CCMM Choate has never established a non-profit organization for his consumer activities. He remains convinced that his credibility with the business c o m m u n i t y and o t h e r groups will be significantly stronger if he shows that he can be self-sustaining. Moreover, as long as he is not associated with a non-profit organization, Choate need not be concerned with avoiding action that might violate strictures against lobbying b y those who hold tax-exempt status. (See Chapter Five for a discussion of these strictures.) Choate also considers it vital that some portion of his time remain his alone. He explains this 124. But First This Message, a 15-minute 16 mm. film produced by Cinemagraphics for ACT. Evelyn Kaye, The Family Guide to Children's Television (New York: P:intheon, 1974), p. 162. 125. Interview with Charren, June 18, 1975; interview with Choate, June 25, 1975. Unless otherwise noted, the following information on CCMM comes from the June 25 interview with Choate.

Other

Studies

b y saying that he does not want to be inhibited, either actually or psychologically, f r o m presenting his views as an individual citizen to Congress or o t h e r sources because of his connection with a particular organization. But he does not operate on a totally individual basis. As he has said: "Washington is an organization t o w n . The first question asked of one going to his or her government with other than a purely personal matter is ' w h o are y o u w i t h ? ' " Although by means of lectures, consultations, occasional teaching positions, articles, and other activities, Choate has been able t o generate sufficient income t o keep his operation going, it has been necessary for him t o obtain additional f u n d s in order to fulfill all the functions he had set out for his organization.1" Choate was partially self-funded as a result of " a p o c k e t f u l of realty c o n t r a c t s , " all profitable, that he t o o k f r o m his real estate operations in Arizona. Most of these contracts called for payments to Choate to continue for a period of ten years, 1965-1975, making this source n o w largely depleted. In the past, Choate has received f u n d ing f r o m the Bruner F o u n d a t i o n , the New York F o u n d a t i o n , and the Norman Fund for research to provide him with statistics to use in his industry and government contacts. Choate has also received funding f r o m organizations interested in research concerning children and marketing, and in June 1975, stimulated by Choate, the Ford F o u n d a t i o n put new money into this area for the 1975-1976 fiscal y e a r . " 7 Choate continues to reserve a percentage of his working time to himself, currently about one-fourth of his time. 126. For an example of writings produced by Choate to generate income, see Robert Choate and Nancy Debovise, "How to Make Trouble: Battling the Electronic Baby-sitter," Ms. Magazine, April 1975, p. 91. 127. Choate also received, in 1976, funding from the FTC under its recently granted authority to provide financial support to representatives of groups that might otherwise be unable to participate, to present their views in informal rule-making proceedings of the Commission. The rule-making proceeding is one in which the FTC is considering a code governing the advertising of food products; Choate was funded in order to present consumer views concerning the advertising of food to children. (Telephone interview with Choate, August 10, 1976.) As indicated earlier in this chapter, Choate's advocacy activities, including his testimony concerning the nutritional value of breakfast cereals and their advertising claims, played a significant role in stimulating FTC activity in this general area. See the chapter Appendix.

499 The Prospects for Future Funding ACT and CCMM both consider their existence as separate groups with similar goals and insufficient funds to be something of a problem. Given the limited amount of foundation money and other funding available for specific causes, the majority of available money may eventually go to the group that has established itself as the recognized force in that particular field.To date, ACT and CCMM have each been able to obtain sufficient funding to survive and to expand their areas of advocacy. Each group is cautiously optimistic about being able to receive adequate future funding. One of the major problems each organization faces is the need to show the effectiveness of its operations in order to obtain adequate future funding, when the nature of its activities does not lend itself readily to "scorecard" record-keeping. Success in lobbying efforts of the nature undertaken by these organizations is more frequently achieved by a gradual shift toward the positions they advocate than by a sudden acceptance of their positions by government or industry. To the extent that this is recognized by potential sources of funding, ACT and Choate should be able to obtain adequate funding, for they have brought about significant changes in the way children's television advertising issues are treated and considered by the private and public sectors.

Is There a Special Role for PINL Groups? To the extent that public interest activity does not require litigation, it is obvious that one need not be a lawyer to participate in such activities. The type of activity in which ACT and CCMM engage is of necessity activity that rarely involves litigation - there is no recognized private remedy for most of the issues with which they are concerned. The courts have consistently ruled that it is for an administrative agency such as the FTC to determine what activity constitutes an unfair practice in a given factual setting. This determination is subject to review by the courts only upon proper completion of the administrative process and upon petition by one of the parties to the administrative proceeding. 1 " 128. Interview with Charren, June 19, 1975; Interview with Choate, June 26, 1975. 129. See the cases and materials cited in note 79.

Non-Law Public Interest Advocacy Thus, if private remedies are not available, then even though there may be private market and governmental failures, the role of public interest groups will be limited to lobbying the public bodies (or the legislature) to take positions that would be advocated by the public interest law groups, were a private remedy available. The public interest group may also attempt to gain a more receptive ear for its concerns by infiltrating the relevant public body or bodies. This infiltration may take the form of obtaining positions within the agency for individuals known to be sympathetic to the views of the public interest group, or it may take the form of continuing contact with and influence upon certain individuals in an agency who are receptive to the public interest group's concerns and willing to advocate them within the agency. These tactics are frequently utilized by lawyers, especially Washington lawyers dealing with federal regulatory agencies. While lawyers may possess knowledge of laws and procedures that non-lawyers do not, such knowledge may not be vital for effective lobbying. There appears to be no proof that the lawyer lobbyist, by virtue of his training, is more effective than the nonlawyer lobbyist. The former Congressmen who is a lobbyist and a lawyer is probably most effective because of his past experience as a Congressman, rather than because of his legal training or experience. As Chapter Five has noted, public interest lawyers may participate in lobbying as well as litigation. But as also discussed in that chapter, public interest lawyers are more likely to be attracted to litigation than to non-litigation activities. It seems reasonable, therefore, to expect that where litigation is not a feasible alternative (for example, in the area of children's television advertising) PIL groups will not be active and, if change is to occur, PINL groups will take the lead. Many of the laws and rules under which our society operates are promulgated and enforced by administrative agencies. Although the "capture" of many of these agencies by those the agency supposedly regulates is a common problem, the decisions of those agencies frequently are subject to court review only at the behest of a regulated company that will be adversely affected by an agency's decision, which means that a PIL group will have no recourse to the courts. This problem is not limited to the concerns of

Chapter Seventeen

Public Interest Law Activities Outside the U.S.A. Ellen Sward and Burton A.

In the area-study chapters of Part Two we examined the role and structure of public interest law in the United States. In this chapter we look at similar activities in other countries, using the same theoretical framework. This comparative work was done to determine whether PIL as it is found in the United States is unique, and to discover the nature of substitute devices for PIL that are found throughout the world. The chapter began as a study of PIL activities and organizations in other countries, but it soon become evident that, with a few exceptions to be noted, there are none. We have, therefore, looked closely in this chapter at PIL-like activities in other countries, to see how collective goods problems and governmental failures are handled elsewhere, in the absence of PIL. (There are, of course, P l U i k e activities in the United States as well.)' Our theme, then, is a reiteration of one presented in Chapter Two and discussed in various of the area-study chapters: there are many ways by which social-economic problems of underrepresented interests can be, and are, dealt with; the instruments of PIL are only a subset of the available corrective tools. As we noted in Chapter The authors thank Professor Mauro Cappelletti for his comments on an earlier draft, and Professor Akio Morishima, who provided us with comments on the section on Japan. 1. See Chapter Four for a description of some of those PIL-like devices. Some of the "area study" chapters in this volume discuss activities by PIL-like organizations; note especially Chapters Eleven and Twelve.

Weisbrod

Two, just as there are failures (to allocate resources efficiently and equitably) in the private market, so, too, there are governmental and voluntary-sector failures. No one sector can fashion institutions to deal in a completely satisfactory way with the full range of efficiency and equity problems; as a result, a variety of institutions in each sector and in combinations of sectors is required. This chapter provides examples of the variety of such institutional arrangements that have been developed in various countries for coping with the limitations of any single approach. The arrangements are to some extent substitutes for one another, and to some extent complements for one another. We do not attempt to provide an exhaustive catalogue of institutional arrangements, but rather to present examples of the variety of organizational forms that have been developed. 2 We also attempt to 2. A number of research methods were employed in preparing this chapter. (1) We made a thorough search of the card catalogs in the University of Wisconsin libraries, looking for titles on comparative politics and comparative law as well as on the individual subject matter of public interest litigation (such as pollution, consumerism, and education). (2) We also searched the periodicals indexes, including the Public Affairs Information Service Index, the Index to Literature in the Social Sciences and Humanities, the Index to Legal Periodicals, and the Index to Foreign Legal Periodicals. We looked for articles on various countries, on the subject matter of public interest litigation, on ombudsmen and legal aid, and on civil procedure, administrative procedure, and standing. (3) We wrote to a number of people who had written articles that indicated that they might know something about public interest law activities in other countries, and received further references

501 show how the activities of these various forms relate to PIL activities. In the course of our research for this chapter, it became clear that the American model for PIL firms is not important elsewhere in the world, though public interest law activity in the sense we have described it here is more common. * from many of them; we also received a number of references from other project members. In all, we wrote to over twenty people in ten countries, and received replies from most of them. (4) In addition, we received unpublished manuscripts from Professor Richard Buxbaum of The University of California at Berkeley, Mr. Robert L. Seymour of the University of Colorado, and Professor Mauro Cappelletti of the University of Florence and Stanford University. Professor Cappelletti provided us with over thirty manuscripts, prepared for his "Access to Justice" Project, that discuss public interest advocacy by governmental and non-governmental agents in other countries. See his "Governmental and Private Advocates for the Public Interest in Civil Litigation: A Comparative Study," Michigan Law Review LXXI1I (April 1975), pp. 793-884, for a thorough analysis of those papers. Professor Cappelletti concentrates more heavily on governmental advocacy than we do, so his article is written from a different perspective than ours. Finally, (5) we went through a number of unindexed foreign, English-language periodicals, both legal and non-legal; much of our material on Japan was found by this last method. We should warn the reader that this chapter was prepared by writers who were trained in neither comparative law nor comparative politics. We have attempted to dispel error by having experts read early drafts of the chapter, but any errors that might remain must, of course, be our responsibility. There was also a language barrier that was only partially resolved by commissioning translations. 3. See Cappelletti, "Governmental and Private Advocates," p. 852, and Richard Buxbaum, "Report of Conference on Comparative Legal and Institutional Aspects of Public Interest Activity in the Environmental Sector," (unpublished manuscript), pp. 12-13. The Ford Foundation recently began funding the Research Center for the Defense of Public Interests in Bogota, Colombia. The Center was formed to "conduct research, participate in administrative proceedings of government agencies, and, when necessary, litigate" (Ford Foundation letter, May 8, 1975). In concept, then, the Center closely resembles American PIL firms, as might be expected with Ford Foundation funding. In defining the public interest, the Center's promotional literature speaks in terms of equity and efficiency, saying that "individuals should help in some manner to bring about a more just society (equity) where the rights of people who now lack efficient representation before civil authorities are recognized [underrepresentation, efficiency)." The Center also seems to recognize government failure, arguing that its role is to protect the public interest by ensuring that state officials carry out the laws they arc sworn to uphold. Although the Center's stated objectives are both environmental protection and aid for the indigenous Indian population, most of its efforts so far have been concentrated on Indians, who constitute a

Activities Outside the U.S.A. Some organizations in foreign countries closely resemble the PIL firm model, while others vary in several characteristics; we will suggest some possible reasons for the variations we found. With its emphasis on PIL-like activities, this chapter will give us some perspective on American public interest law and the alternatives to the PIL firm as an institutional form. Many of these alternatives already have counterparts in the U.S.; we are not trying to contrast these alternatives with activities in the U.S., but to emphasize their similarities. The first section of this chapter briefly provides the theoretic setting for the comparative study, drawing primarily on the material presented in Chapter Two. The next section discusses specific public interest law activities in foreign countries, including examples from all three sectors — government, voluntary, and forprofit — as well as some "combined solutions" involving two or more sectors. The third section summarizes the evidence in terms of the theory, and draws some tentative conclusions regarding the variations and the relative strengths of the three sectors.

Theoretic

Setting

In our study of PIL activities in the United States, PIL was defined as a phenomenon of the voluntary sector. Thus, while we recognized that there are "close substitutes" for PIL firms in all three sectors, we focused in this book primarily on an evaluation of the activities of voluntary PIL organizations. In Chapter Two, we defined PIL activities as activities that meet the following three criteria: they are in the voluntary sector; they use primarily legal tools, such as litigation; and they produce significant external benefits, usually because they involve collective goods for small minority of the Colombian population; thus the organization seems to be more like a traditional civil rights group than a PIL firm. The Center has a budget of $35,000 per year, mostly from American sources, and employs two lawyers. Most of its work seems to be "community organizing" (among Indians) or research rather than litigation. (Information on the Center is from a publicity brochure prepared by the Center, and translated by Olivia Mitchell; and from Louise Trubek, Executive Director of the Center for Public Representation, Madison, Wisconsin, who spoke with the Director of the Bogota organization, Mr. Fernando Umana Pavolini, in March 1976.)

502 ACT and Choate, but is applicable t o other areas of administrative law as well. In such cases, w h e n litigation is neither a feasible alternative nor an attractive alternative, P I L groups are unlikely t o take action. Moreover, the resources of P I L groups are probably more productively spent in activities that require the services of lawyers. Thus, without the existence of PINL groups such as ACT and CCMM, a void in public interest representation may be f o u n d in those major areas of law (especially administrative law) where a private legal action is unavailable to redress grievances. It is not asserted here that the experiences of ACT and CCMM are generalizable to all P I N L activity. It is reasonable to conclude, however, that their experiences are generalizable to P I N L activity concerning matters essentially within the discretion of various administrative agencies — matters t h a t , in total, comprise a vast range of legal and policy issues, the resolution of which may affect the life of every citizen to some degree.

APPENDIX: Commercials

The FTC and

Children's

The F T C has for years held that advertisem e n t s aimed at children must m e e t higher standards of clarity and "fair p l a y " than those aimed at adults. In 1934 the FTC held that the competitive practice of " b r e a k and t a k e " in selling candy to children — where children did not k n o w what t h e y were buying — was exploitative of children, and thus an unfair m e t h o d of competition. 1 3 0 In Ideal Toy Corp., respondent's television advertisement created the false impression "even to a d u l t s " that " R o b o t C o m m a n d o " was voice-controlled, thus making the advertisement deceptive. 1 3 1 In Wilson Chemical Co., an advertising campaign, primarily directed at child readers of comic books, which did n o t clearly i n f o r m its readers that by sending c o u p o n s for " f r e e " trinkets they were obligating themselves to become sales representatives for the c o m p a n y , was f o u n d deceptive; the coercive nature of the follow-up dunning letters was t h o u g h t to be magni130. FTCv. Keppel, 291 U.S. 304 (1934). 131. Trade Reg. Rep. (1963-1965 Transfer Binder), para. 16,751 (FTC 1964, Docket No. 8530).

Other Studies fied when it was considered that children were the recipients of the letters. 1 3 3 In Stupell Originals, Inc., a t o y m a n u f a c t u r e r that failed to reveal in its advertising that there was a risk of injury f r o m the use of the toy was charged with an unfair and deceptive practice because the t o y was sold to children. 1 3 3 Since 1970, the FTC has been more conscious, in issuing complaints, of deceptive advertising directed toward children. In Topper, Inc., and Mattel, Inc. t o y m a k e r s were charged with using deceptive or misrepresentative advertising techniques in television advertisements that unfairly exploited children. 1 3 4 The consent orders prohibited, among other things, the use of film or camera techniques that misrepresent the performance of the t o y or its use b y the child or the length of the t o y ' s operations; the endorsement by f a m o u s personalities unless they have special expertise in the area; advertising incompatible toys under the same brand n a m e ; and advertising two or more toys that must be purchased separately in the same advertisement w i t h o u t explaining the need for separate purchase. In Avalon Industries, Inc., respondents were ordered t o stop using oversized packages for selling their t o y and h o b b y crafts products because children "play a significant role in purchasing or in influencing an adult to purchase respondents' products," and thus a higher standard of care is warranted. 1 3 5 With respect to food advertising, the FTC has taken action to prohibit implied misrepresentations a b o u t the growth-producing or nutritive value of f o o d s consumed b y children: RJR Foods, Inc., Hawaiian Punch ads impliedly represented that the p r o d u c t contained primarily natural fruit j u i c e s ; 1 3 ' Wonder Bread product impliedly purported to be an extraordinary f o o d for producing dramatic growth in children; 1 3 7 Kellogg and Co., complaint issued against f o u r largest manufacturers of ready-to-eat ( R T E ) cereals, claiming that their advertisements directed at 132. 64 FTC 168 (1964). 133. 67 FTC 184 (1965). 134. Trade Reg. Rep. (1970-1973 Transfer Binder), para. 19,735, para. 19,850 (FTC Consent Orders C-2071, 1971). 135. Trade Reg. Rep. para. 20,572 and para. 20,616 (FTC 1974). 136. Trade Reg. Rep., para. 120,334 (FTC 1973). 137. 82 FTC 1183 (1973).

503 children represented directly or by implication that the RTE cereals, without any other foods, enable children to perform the physical activities represented or implied in the advertisements, and led consumers, especially children, to believe that their brand of RTE cereals were different from other RTE cereals.' 34 Moreover, the FTC has indicated its awareness of the children's advertising problems in speeches, proposed rules, and other actions. In August 1973 Chairman Engman addressed the ABA Young Lawyers meeting, calling for action on children's television, and initiating an effort to develop a code of children's television advertising practices by FTC mediation of meetings of consumer advocates and advertising representatives. On June 3, 1974, Chairman Engman spoke before the American Advertising Foundation and outlined a regulatory plan that would encompass premiums, endorsements, host-selling, drugs, and dangerous toy advertisements. 139 On June 2, 1975, FTC staff member Rosch reiterated some of these policies and also indicated that the FTC may consider banning such commercials as those for over-the-counter (OTC) drugs, in a talk before the NAB Conference on Children's Tele140

vision. The FTC has also, since 1970: (1) conducted hearings on advertising, part of which were directed toward children's advertising; 141 (2) proposed a '"Guide Concerning Advertising of Children's Premiums on Television"; 142 (3) proposed "Guides Concerning the Use of Endorsements and Testimonials in Advertising"; 143 and (4) proposed a "Trade Regulation Rule on Food Advertising.'" 4 4 Most recently, the FTC settled with General Foods regarding the Grape Nuts advertising cam138. (1970-1973 Transfer Binder), Trade Reg. Rep.. para. 19,898 (FTC 1972). 139. Reported in the Public Interest Newsletter, I, No. 8, August 1974. 140. Reported in the Washington Star, June 3, 1975, Section 3, p. 2. 141. October and November 1971, reported in Howard and Hulbert, Advertising and the Public Interest. 142. Federal Register, XXXIX (July 11, 1974), p. 25505. 143. Federal Register, XL (May 21, 1975, pp. 22127 and 22146. 144. Federal Register, XL (May 28, 1975), p. 23086.

Activities

Outside the U.S.A.

paign featuring Ewell Gibbons. Fearful that the advertisements might encourage foraging activities by children who could not distinguish a wild hickory nut from a poison berry, the FTC said "These ads have the capacity to undercut a commonly recognized safety principle, namely that children should not eat any plants found growing or in natural surroundings, except under adult supervision."' 4 s Children traditionally have been accorded special treatment by the law in view of their mental and emotional disabilities in the three major common law areas of tort, contract, and criminal law. Thus, for negligence purposes, a child is generally held to the very narrow standard of care of "a reasonable person of like age, intelligence, and experience, under like circumstances." 146 The child is shielded from contributory negligence to varying degrees until the age of fourteen or sixteen. 1 4 7 Moreover, the tort doctrine of attractive nuisance compels adults to exercise caution even in the use of their own property, or else be liable for injuries to a child trespasser although not to an adult trespasser, should the child be too young to appreciate the danger. 14 * The child under fourteen at least presumptively was deemed incapable of committing a crime at common law, and similar protection is now extended by statute in many states to the age of eighteen. 149 In the area of contracts, most jurisdictions make contracts into which children enter before the age of eighteen voidable. Contracts made with children are voidable to protect children from designs and artifices of adults that are beyond the comprehension of children, and to shield them from their own lack of dis. . 150 cretion. 145. "General Foods, Inc.," Trade Reg. Rep., para. 20,928 at p. 20,768 (FTC, 1975), ATRR, No. 721 (July 8, 1975), p. A-19; see also "FTC Hits Ewell Gibbons Ads, Asks for Premium Comments," July 7, 1975, p. 3. 146. Restatement of the Law: Torts (2nd ed.; St. Paul: American Law Institute, 1965), Sec. 283A. 147. See generally 77 A.L.R. 2d 908, 920 (1961). 148. William Prosser, Law of Torts (3rd ed.; St. Paul: West Publishing, 1971), Sec. 59. 149. Wayne R. La Fave and Austin W. Scott, Criminal Law (St. Paul: West Publishing, 1972), p. 352. 150. See generally Samuel Williston, Contracts (2 vols., 3rd ed., Mt. Kisco, N.Y., Baker, Voories, 1959), II, Sec. 222 et seq.

504 which there is underrepresented demand. Underrepresentation, which suggests failures in both the private and governmental sectors, constitutes the justification for intervention used by most PIL firms in the U.S. The three criteria we have developed will be used to identify PILlike activities in foreign countries. To the extent that an activity in a foreign country exhibits these characteristics, we call it a public interest law activity. We recognize at the outset, however, that some activities may exhibit only some of the defining characterisitcs, which suggests that public interest law should be thought of as a matter of degree — that is, an activity may have a larger or smaller PIL component. The public interest in efficiency and equity may be enhanced by activities not only in the voluntary sector, but by those in the government and private for-profit sectors as well. Litigation and related legal tools are likely to be found in all of the activities we study except, perhaps, some of those in the government sector; government, with its coercive power, may be presumed to have at its disposal devices that can correct some market efficiency or equity failures without litigation (to a greater extent than do the other sectors). Only the last criterion — the existence of externalities — is essential to each of the activities we discuss in this chapter, since externalities provide an activity with its public interest component. Thus, to refer once again to Chapter Two, each of the activities discussed here may be thought of as being in the public interest law industry, even if it does not strictly meet all of the criteria for a public interest law activity. Since activities in the three economic sectors substitute for each other, we might expect that insofar as a particular activity is performed effectively and at efficient and equitable levels in one sector, it is less likely that the other sectors will develop it. Thus, it is likely that in most countries we will find that one sector predominates in the provision of PIktype activities; in the United States it may be the voluntary sector, but other sectors may predominate in other countries. We will attempt to identify some reasons for such variation. Even in countries where one sector clearly dominates PIL-type efforts, the other sectors are also involved. Thus, the sectors not only substitute for each other, but complement each other:

Other Studies what is not done in one sector may be done in another. We may also find the same activity being performed by more than one sector, and in some instances, sectors may collaborate. Such a "pluralistic" approach to PIL — in which not one but many alternative devices are used to achieve some social objective — is highly favored by some observers as a safeguard against the abuses by government or by private citizens that might occur if either had the sole responsibility for protecting the public interest in achieving efficiency and equity in the use of resources.4 This chapter is primarily descriptive. Our survey was designed to illustrate the kinds of approaches various countries take to collective goods problems, and it is not intended to be exhaustive. We will not draw firm conclusions regarding the reasons for any observed variations in forms of PILtype efforts among countries, though we do hope to offer some plausible hypotheses for further research.

Survey of Foreign Countries In this section, the bulk of the chapter, we investigate PIL-like activities in other countries under four heads: activities by voluntary-sector associations, by government agencies, by private citizens, and by combinations of these three. Actions by Voluntary-Sector Associations We begin our discussion of PIL activities in foreign countries by examining activities in the voluntary sector. Each of the cases discussed in this section exhibits, to some extent, all three of the defining characteristics for PIL activity, although none of the voluntary-sector organizations bringing the cases is a public interest law firm in the American sense. We will see that the voluntary-sector organizations involved in PIL activities in foreign countries more nearly resemble groups like the Sierra Club or Consumers Union than an independent PIL firm: they are involved in a number of "public interest" activities, only some of which involve legal tools such as litigation. In this section, we will discuss voluntary organizations in three countries, and the legal activ4. Cappelletti, "Governmental cates," pp. 883-884.

and Private Advo-

505 ity they support. These are the French consumer associations, an Italian environmental-cultural group called Italia Nostra, and the Basque organization in Spain. Some of these have been more active than others in litigation, but all of them have been involved in some legal activities. The French Consumer Associations. Civil law countries, such as France and Italy, traditionally have restricted legal standing to individuals and to the government; individuals have standing to sue only when they have suffered some personal damage, and the government has standing to sue in all public interest matters. 5 These rules of standing effectively excluded various associations from the courts for many years. In France, they meant that the syndicats professionnels (trade unions and employers organizations) and the ordres professionnels (professional or artistic associations) could not sue to protect the interests of their members. Also excluded were associations de défense, organizations formed for the sole purpose of defending a common (collectivegood) interest of their members.' Beginning in 1913, these rules of standing were gradually eroded. In that year, the Cour de Cassation, the highest French civil court, ruled that a syndicat professionnel could sue as the "representative of the 'collective interest of the association' " 7 The ruling was later validated by statute. As a result of this ruling and its subsequent development, "actions are frequently brought by labor unions to enforce labor legislation providing for such matters as weekly rest, paid vacation, and minimum salary." * A few years after the ruling on syndicats professionnels, the Cour de Cassation began a series of rulings that opened the way for certain associations de défense to sue to defend the common 5. "Public interest" in civil law countries may mean something narrower than it does in c o m m o n law countries; specifically, the public interest is more likely to be associated with the interest of the "state" - as something apart from its citizenry - in a civil law country. This difference is even reflected in language: "public" in most Continental languages refers to the state, but does not include intermediate groups such as private associations, or the general public as represented by the government. By contrast, "public" in English does connote intermediate groups and the general public. (Cappelletti, "Governmental and Private Advocates," p. 867.) 6. Cappelletti, "Governmental and Private Advocates," pp. 862-863. 7. Ibid. 8. Ibid.

Activities Outside the U.S.A. interests of their members. This new interpretation of standing was given full statutory support in 1973, with the passage of the Loi Royer. This law "opened new possibilities for consumer associations to sue in cases of 'direct or indirect prejudice to the collective interest of consumers.' " ' There are also some provisions of the law that are designed to assure that the consumer associations adequately represent the people they claim to represent; these provisions mean that government often works with or supervises the activities of consumer associations in France. Consumer associations in France, then, are armed with substantial legal weapons. It will be important, over the next few years, to observe the extent to which the associations make use of those weapons. It should be noted, however, that the power of such associations may be blunted somewhat by the fact that there is almost a complete lack of injunctive relief in France. The damage suit, which is the only remedy open to an individual or an organization, may or may not be the most efficient way to force a firm to stop violating the law. A damage suit does not necessarily require that the guilty party stop the offending activity, but depends on the organization's desire to avoid future damage claims; this depends, in turn, on the costs and benefits to the firm of ceasing or reducing the offending behavior. An injunction, on the other hand, does require a change in the firm's behavior. Despite this theoretic variation in expected results, we will see, when we examine the Japanese residents' movements, that damage suits can be an important incentive for change. Not all of the groups that have been granted standing in France during the last sixty years are protecting interests that could be considered underrepresented. Some of the professional associations (the ordres professionnel) have overcome the free-rider problem to a great extent because of compulsory membership. Consumers, however, constitute a broad and relatively unorganized group of people, and enhanced representation for consumers promises external benefits. Legal action by the consumer associations exhibits all three defining characteristics for public interest law. The associations themselves are voluntary-sector organizations, and they make some 9.

Ibid.

506 use of legal tools, such as litigation. Consumer interests are collective interests which, if left to individuals, would most likely be underrepresented due to the free-rider problem. Thus, representation for consumer interests would be expected to produce external benefits for persons who are not members of the organization that represents them. Italia Nostra. Italia Nostra is a voluntary association in Italy that resembles the U.S. Sierra Club, though the group is concerned with Italy's cultural heritage as well as the environment. Supported by donations from some 20,000 members throughout Italy and another 50,000 outside Italy, the group's activities are primarily cultural and educational, not litigational, and are carried out for the purpose of providing information to Italy's citizens regarding the dangers to their heritage and the steps they can take to prevent cultural and environmental destruction. The state-approved charter promises that the group will "stimulate the application of the laws in force," and it is to this end that Italia Nostra has sought standing to sue in matters relating to its interests. 10 The group's legal activity is carried out with the purpose of combating "the dual threat to the Italian patrimony of private speculation and government inaction." " But Italia Nostra faced much bleaker precedents than would a similar group in France. Italian law had insisted, for the most part, that only individuals could litigate, and that the litigants must have a "legitimate interest" — a substantive interest in the issue, such as an economic interest. Further, the issue must be personal to the litigant(s), meaning that others could not share it, and the court must be able to provide an effective solution. 12 When an organization is the litigant, it has generally been permitted to sue only to protect its own interests, and not the interests of its members. 13 Exceptions to these rules involve "popular actions," in which standing is granted by statute to a specified individual or group to defend a certain narrowly defined "public interest." Thus, 10. Alex Nicholson, "Italia Nostra and Problems of Standing in Italian Public Interest Litigation in the Environmental Sector" (unpublished manuscript), Institute of Comparative Law, Florence, prepared for the "Access to Justice" project, cited in note 2.

11. Ibid., pp. 4-5.

12. Ibid., pp. 10-11.

13. Ibid., p. 1.

Other Studies there are cases where an individual citizen is permitted to sue "to defend the public interest of some political subdivision of which he is a member when such interest has been neglected by the public officials to whom it has been entrusted"; where an individual may sue the administration to protect a public interest that a public official has injured; and where certain organizations may sue to protect the "legitimate" interests of their members. 14 These cases are strictly defined by statute, and the courts have been restrictive in their interpretation of those statutes. When Italia Nostra filed a "public interest" suit in 1973, these restrictions on standing had just been reaffirmed in two cases. In one case, an association of ships' agents in Naples had sued regarding an act of the port authority "which prevented the association from restricting competition in the field." 15 The court denied standing in this case, because the interest being litigated, while a collective interest of the members of the association, was not the interest of the association itself. In other words, the association did not have a legitimate interest to sue." The second case involved an association of hotelkeepers on the Bay of Gaeta who sought revocation of a license granted for the construction of two oil storage facilities on the shore, a docking terminal for tankers at sea, and a connecting pipeline. The hotelkeepers alleged that construction of the facilities violated several provincial laws and would result in a decline in tourism because of the damage to the scenic beauty of the area, ultimately causing them economic damage. But the Consiglio di Stato, Italy's highest administrative court, ruled that the interest the hotelkeepers claimed was also held by other people in the area, and the interest was therefore not a "legitimate interest," and could not be protected by the courts. "In effect, the court [said] that an interest that belongs to everyone belongs to no one, so far as judicial recognition of it is concerned." 1 7 Thus, the existence of externalities in this case was seen as a reason not to permit the suit to be heard. With these cases as its precedent, Italia Nostra filed suit in the administrative courts challenging 14. Ibid., pp. 11-12.

15. Ibid., p. 15. 16. Ibid., p. 16. 17. Ibid., p. 20.

507 a resolution of the Province of Trent that had approved construction of a 13-kilometer road through a park. "The association charged . . . that such a road would require a new provincial law rather than a mere administrative resolution, and . . . that the road would not be strictly necessary for the functioning of the park, as certain provincial laws required it to b e . " ' 8 The administration countered that Italia Nostra did not have standing to challenge its resolution. Despite the precedents, the court ruled in favor of Italia Nostra, both on the merits of the case and on the question of standing. Most of the opinion dealt with standing, suggesting that the court considered that to be the more important problem at issue here. While the Italian legal system does not generally allow public interest actions, the court ruled, first, that "Italia Nostra . . . has for its purpose the protection of an interest that merely happens to coincide with a general, public interest." " Second, the state's recognition of Italia Nostra through its certification of the organization's charter gave that purpose legitimacy. Finally, the mention in the organization's charter of legal methodology further legitimizes its claim to represent the public interest in court. 20 These observations by the court are not, on the face of it, sufficient to distinguish the Italia Nostra case from previous cases, for several reasons. First, the ships' agents association also had a charter that was recognized by the state; second, a public interest had never been considered actionable, for any reason, except by a government official; third, case law dictated that the interest must belong to the plaintiff, in a personal way and to the exclusion of others. 21 It appears, then, that the court strained somewhat to make the distinction between Italia Nostra and other special interest organizations (at least in this case). Indeed, the case does not appear to have established any new precedents. In a similar case the following year, an association of Venetian gondoliers was denied standing. 22

Activities Outside the U.S.A. hibits all of the defining characteristics set out in Chapter Two. It is a voluntary-sector oganization, and while litigation is not the main tool for achieving its ends, it is important enough to be named in the organization's charter. Further, the suit we have studied here involved a collective good that offered considerable externalities to persons outside the organization, and for which we might expect underrepresentation of demand. Indeed, not only are many bénéficiaires not members, but most of Italia Nostra's 70,000 members cannot be considered direct beneficiaries of the suit, since they are scattered throughout the world and the suit involved an Italian provincial park. Direct beneficiaries of the suit are those users of the park who wish to preserve the natural setting; indirect beneficiaries, of course, include anyone concerned with environmental preservation - whether he is a member of Italia Nostra or not. In addition to these potential external benefits from non-construction, however, there may be external dis-benefits imposed by the successful Italia Nostra action upon those citizens who, for whatever reason, do want the road to be built. Both of these groups are probably sub-optimally organized and underrepresented, so it is not clear whether the representation that Italia Nostra provided for the former class of underrepresented citizens does or does not contribute to the public interest in efficiency. 2 3

Once again, we can see that Italia Nostra ex-

A Spanish Basque Organization. Basque separatists in Spain have often been in the news in recent years for their activist campaign against Spanish domination. One less-noticeable group of Basques is carrying the struggle for autonomy to the courts, in a case that largely meets our criteria for public interest law activity. The Basques in this case are attempting to block construction of a new Dow Chemical Company insecticide plant in Lejona, in the heart of Basque country. 24 The Basques claim that the plant will make an already serious air pollution problem a collectively consumed commodity that residents consider bad — even worse. In the face of opposition, Dow has redrawn the plans in order to reduce pollution, even though several studies

18. Ibid. 19. Ibid., p. 21. 20. Ibid. 21. Ibid., pp. 16-17. 22. Consiglio di Stato, Decision No. 829 of Nov. 13, 1973 (19741, Foro. Ital., Ill, 262.

23. See the discussion in Chapter Two concerning absolute versus relative underrepresentation. 24. This case was discussed in "Why the Basques are Singling out Dow." Business Week, July 28, 1975, pp. 32-34.

508 have suggested that the plant would not contribute significantly to the pollution problem. In addition to the evidence that the plant will contribute little or nothing to the pollution problem in Lejona, two other points seem to weaken the argument that the proposed plant would constitute either an efficiency or an equity failure. First, the plant would create 50 new jobs in an area where jobs are desperately needed. Second, the plant's product would be primarily for export and would bring Spain an estimated $21 million in export earnings annually. But the value to the Basques of local control — which is a collective good for the Basques - must also be considered. Given the strong desire for Basque autonomy, a decision to construct the plant, made without Basque participation, would produce negative external effects for the Basques. Whether or not the organization's goals contribute to the overall public interest in efficiency or equity, the organization itself seems to meet most of our criteria for a PIL group. It is an organization in the voluntary sector. It uses, at least in this instance, legal tools to accomplish its ends. Both pollution abatement and local autonomy are collective goods that produce significant external benefits. It is less clear, however, whether the Basque demands for autonomy are underrepresented in either the willingness-to-pay or the one-person, one-vote sense, given the many forms of their efforts for local control.

Other Studies

discussion will show how institutions might adapt to the contingencies of various countries. The other institutions we will discuss are more confined. We will see that the ministère public is found almost exclusively in civil law countries, while the attorney general is a creation of the common law. The last two of our examples are unique to the countries of their origin, in form if not in function. The "consumer ombudsman" in Sweden is a new and active consumer protection agency, whose function differs in several important ways from that of Sweden's original ombudsman. The State Comptroller in Israel guards against financial mismanagement in government agencies. These last four institutions will receive less detailed treatment in this chapter than will the ombudsman. The Ombudsman. The ombudsman may be thought of as one institutional mechanism by which government attempts to deal with its own failures to be efficient and equitable. The first ombudsman institution was established in Sweden in 1809, and the second more than a century later, in Finland in 1919.25 It was not until after the Danish ombudsman was appointed in 1955 that the institution began to spread beyond the Scandinavian countries. One factor in the increased interest in the institution seems to have been the enthusiastic proselytizing of the first Danish ombudsman, Professor Stephan Hurwitz." By 1973, "variations of the ombudsman system had been adopted in twenty-one countries." " Most of these variations rely to a great Actions by Government Agencies extent on the Scandinavian models, so we will A great many governmental activities meet examine closely the Swedish and Danish omsome of our criteria for "public interest law"- budsman institutions. type activities — far too many to discuss in this 1. The Danish and Swedish Ombudsmen. The limited space. We have selected five government ombudsmen in Denmark and Sweden differ agencies to describe here. The first is the om- somewhat, but their basic features are the same. budsman. Although the ombudsman institution In both countries, the institution was founded to is native to Scandinavia, it has spread throughout supervise officials in the central government, the world, and has been adopted in a wide variety of countries. Because the ombudsman is 25. Alfred Bexelius, "The Ombudsman for Civil Afnot unique to any one country or legal system, fairs," in Donald C. Rowat, The Ombudsman (London: we will give it considerable attention. The om- George Allen and Unwin, Ltd., 1968), p. 24. The Swedish institution consists, today, of two ombudsmen with budsman institution will serve as an example, not slightly different jurisdictions. only of government public interest action, but 26. Walter Gellhorn, Ombudsmen and Others (Camalso of the adaptation of PIL-type institutions to bridge, Massachusetts: Harvard University Press, 1966), a variety of countries. Not all institutions are as pp. 5-6. 27. Donald C. Rowat, The Ombudsman Plan (Toradaptable as the ombudsman, of course, but this onto: McClelland and Stewart Limited, 1973), p. vii.

509 though the p o w e r was expanded later t o include local government officials. In b o t h countries, however, t h e o m b u d s m a n treads softly in the domain of local government, since local governm e n t is itself viewed as a kind o f p r o t e c t i o n for the people. While the o m b u d s m a n cannot reverse an administrative decision, his opinion is well-respected, largely because of the high caliber of the people w h o have held the office, and always receives serious consideration. T h e Danish and Swedish o m b u d s m e n b o t h have the power t o order the prosecution of administrative officials whose offenses are particularly serious. In Denmark, this power is n o t used; rather, the ombudsman requests the public prosecutor t o proceed with the prosecution, and the prosecutor usually complies. In Sweden, the prosecutor proceeds on the o m b u d s m a n ' s order w i t h o u t debate, but in b o t h countries, prosecution is considered an e x t r e m e measure and is rarely ordered or requested. F r o m 1960 through 1964, for example, there were 32 punitive proceedings in Sweden at the request of the o m b u d s m a n , but there were 1220 reprimands, suggestions, and other relatively mild f o r m s of c o r r e c t i o n . " Currently, the Swedish o m b u d s m a n orders a b o u t five prosecutions each y e a r . " T h e Scandinavian o m b u d s m e n are authorized to investigate citizens' complaints, or conditions that come to their attention through newspaper articles and other public exposés. T h e y are also e m p o w e r e d t o conduct inspections of governm e n t facilities such as prisons, government hospitals and t r e a t m e n t centers, or even administrative d e p a r t m e n t s . D e n m a r k ' s o m b u d s m a n has not valued inspections very highly, b u t in Sweden, inspections are an important part of the ombudsman's w o r k . Some 13 percent of his annual caseload comes to him as a result of his inspections, and he considers them to be some of his most i m p o r t a n t cases, largely because of their widespread effects. For example, an inspection led t o development of a standardized m e t h o d for analyzing the results of blood tests given t o people suspected of driving while intoxicated. The standardization will affect all persons to w h o m 28. Gellhorn, Ombudsmen and Others, p. 206. 29. Bexelius, 'The Ombudsman for Civil Affairs," p. 30.

Activities

Outside the

U.S.A.

the test is given in the f u t u r e , assuring t h e m that they will not be the victims of arbitrary or capricious application of the test. These people cannot easily organize t o make known the intensity of their w a n t s f o r fair procedures, in part because they are widely dispersed and organizing costs would be prohibitive, b u t also because f u t u r e members of the class cannot yet be identified. The o m b u d s m a n ' s inspection activity, therefore, can contribute to the public interest in terms of efficiency. T h e impact of inspections on distributional equity is more difficult t o assess, though one writer believes that inspections are particularly i m p o r t a n t t o protect "persons w h o may be t o o ignorant or t o o inert to assert their legal r i g h t s . " 3 0 If inspections have this f u n c t i o n , they m a y involve some transfer of legal protection to persons w h o are less able to ensure that protection for themselves. By contrast with Sweden, the o m b u d s m a n in D e n m a r k is believed to rely more heavily on individual citizen complaints to achieve what we have defined as "public interest" results. F o r example: Danish lawyers give the Ombudsman very considerable credit . . . for having speeded the final determination of tax matters. This he achieved by proposing procedural and organizational changes after a sweeping study of tax administration. The study was undertaken after a single taxpayer had complained about a seemingly unc o n s c i o n a b l e delay in obtaining a needed ruling. . . . The same may be said of numerous other cases. What may at first have seemed to be narrowly personal grievances were later perceived to have implications that overshadowed the initial episodes. 31 Thus, individual complaints in Denmark o f t e n have broad external effects because they lead the o m b u d s m a n t o make r e c o m m e n d a t i o n s for changes that affect many people besides the complainant. This is true of Sweden as well; the difference is that in Sweden, the o m b u d s m a n does not always wait for a citizen complaint if he believes that an administrative procedure warrants investigation. 30. Gellhorn Ombudsmen and Others, p. 225. 31. Ibid., p. 21.

510 In both Sweden and Denmark, the ombudsman relies heavily on publicity. The ombudsman informs the public of his activities through annual reports describing the cases he has handled. Unsatisfactory cooperation from government officials will be obvious in the reports, and officials try to avoid such bad publicity. But if publicity alone is to have an impact, there must be some basic agreement over what constitutes unsatisfactory cooperation. An agent, such as the ombudsman, w h o lacks the power to enforce his opinions must rely on the cooperation of officials, and that cooperation, in turn, depends on how widely a single social value system is accepted. It has been suggested elsewhere that a value system is more likely to be widely accepted in societies where there is a certain degree of demographic h o m o g e n e i t y . " As we noted in Chapter Three, the ombudsman might be expected to be less successful if the problem results from a substantive disagreement than from a lack of information.

Other Studies occur with little or no notice; Swedish government officials do not want in their files records of cases that were not handled satisfactorily. It is thought that the presence of the ombudsman prompts the officials to consult their "consciences," and that, as a result, officials usually agree with the ombudsman. 3 4 As we noted, this kind of cooperation from officials would seem to presuppose a widely shared value system, which in turn may depend on the relative homogeneity of the population. But regardless of the source of the agreement, it appears that the fact of the ombudsman's existence produces benefits in the form of more careful consideration of administrative agency actions than might otherwise have occurred.

A bonus for the ombudsman in both Sweden and Denmark has been substantial favorable press coverage. The first Danish ombudsman was a favorite of the press, and his work was well-publicized. In Sweden, there is a law guaranteeing citizens access to all government files and records, with a few exceptions regarding military and other state secrets. This law has meant that journalists have access, not only to the records of the administrative agencies, but to the ombudsman's records as well. The press takes advantage of this privilege to print numerous detailed stories about the ombudsman's w o r k . " Perhaps one of the greatest benefits of the ombudsman comes from the mere fact that he exists. It is surely true that the knowledge that citizens have someone to turn to should they find that they are being mistreated by the government bureaucracy is a source of satisfaction to them. Further, in both Sweden and Denmark, public officials often exercise their duties with the ombudsman in mind, considering first what the ombudsman might say about the case. This is especially true in Sweden, where inspections can

2. Limitations on the Ombudsman Institution. There are those who argue that certain countries will not be able to adapt the institution of ombudsman for various political, legal, cultural or demographic reasons. It is argued, for example, that an ombudsman would not be successful in a heavily populated country because his effectiveness depends in large part on the personal touch he is able to give to the problems that are brought to him. 3 5 Thus in Denmark, with five million people, and in Sweden, with eight million, the institution has become important and effective; but Britain has fifty-five million people, and some observers believe that the British ombudsman (or Parliamentary Commissioner as he is called) is doomed to ultimate failure because of the size of the p o p u l a t i o n . 3 6 This belief overlooks the possibility that an ombudsman office with enough staff professionals to handle the caseload could prove to be effective even in a populous country. Excluding Britain and Israel, the average size of an ombudsman's professional staff is about seven. 37 Britain, with 55 staff professionals in the ombudsman's office, is apparently attempting to deal with the problem of population size. Ironically, however, Britain has the lowest per capita number of complaints annually, and the second lowest absolute number; only 800 complaints are filed in an

32. See Burton A. Weisbrod, "Toward a Theory of the Voluntary Non-Profit Sector in a Three-Sector E c o n o m y , " in Edmund S. Phelps, ed., Altruism, Morality, and Economic Theory (New York: Russell Sage Foundation, 1975). 33. Gellhorn, Ombudsmen and Others, p. 228.

34. Ibid., pp. 226-227. 35. Samuel Krislov, "A Restrained View," in Rowat, The Ombudsman, pp. 249-251. 36. Ibid., p. 250. 37. Kent M. Weeks, Ombudsmen Around the World: A Comparative Chart (Berkeley: Institute of Governmental Studies, 1973), pp. 50-101.

511 average year, compared with 1100 in Denmark, which has less than 9 percent of Britain's populat i o n . " Another solution to the problem of size is the one adopted by Sweden: appoint several ombudsmen, each with limited geographic or functional jurisdiction. Other experts argue that the institution will work well only in countries that are reasonably well-administered to begin w i t h . " If this argument is correct, it suggests that an effective ombudsman is an indication not of widespread and serious government failure, but of relatively minor and, perhaps, isolated failings. Even in Scandinavia, where the institution has the longest history, most of the cases investigated affect only the individual complainant and thus have no significant collective-good component. There may also be a problem in instituting the office of ombudsman in countries where the executive is particularly dominant within the government. 4 0 The ombudsman is an agent of the legislature who is responsible for uncovering instances of injustice and maladministration in the executive branch. A powerful executive might interfere with that mission. At the same time, administrative courts are often found in countries with dominant executives, and some argue that the ombudsman would merely duplicate the efforts of the administrative courts. This is not necessarily true, however, because the administrative courts are expensive for individuals to use and governed by rather stringent rules; the ombudsman should be easier for ordinary citizens