Governing Risks

Pat O'Malley

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781351932417
• Edition: 1
• Topic: Law
• Subtopic: Law Theory & Practice
• Index: Law

Contemporary law and government are increasingly characterized by a focus on risk. Fields such as health, psychiatry, criminal justice, vehicle safety, urban design and environmental governance all provide examples of settings in which problems are dealt with as risks. While risk has become more prominent, there have also been changes in the nature of risk techniques deployed. Whereas welfare states provided many services through socialized risk - such as social insurances covering health, employment and old age - increasing emphasis is now placed on individual risk management arrangements such as private insurance. In this environment, the positive side of risk has also been made more salient. Enterprise, innovation and risk-taking have become qualities valued, or even required, of current governance. In this volume, the most influential examinations and interpretations of this major trend have been brought together, in order to make clear the range and diversity, the spread and penetration of risk in contemporary societies.

[1] Risks and Rights in the History of American Governments

DOI: 10.4324/9781315253893-2

Theodore J. Lowi

IN THEIR ORIGINAL LETTER OF OCTOBER 1988, our conveners observed, in good New England understatement, that "risk is something of a popular subject these days." Why? Our colleague Mary Douglas has her own explanation in our first article, but it can't be left to her alone because the explanation is part of the problem— and the problem is the politics of risk allocation. Risk has returned to the public policy agenda and to public discourse either because objective conditions affecting risk have changed significantly, or because ideology and values regarding the distribution of risk have changed. My explanation rests upon both, but more heavily upon the latter.

Three factors can be singled out. The first factor is the return of laissez-faire ideology to a place of respectability and influence in public discourse. The second is the democratization of risk-control and risk-indemnification policies, spreading advantages from the upper to the lower classes. Third is the still more recent movement toward public policies that convey the benefits of risk regulation as a matter of right.

As for the first, the societal benefits of individual risk taking is a well-known element of nineteenth-century liberalism. As that brand of liberalism (later erroneously relabeled conservatism) returned through the efforts of people like Milton Friedman to the inner circle of Republican administrations, the virtues of risk taking would become well advertised once again. There is a self-evident relation among risk taking, profit, and productivity, and to deliberately eliminate the element of personal risk from economic endeavor would almost certainly affect the other two variables, profit and productivity. However, the extent and character of this relationship is heavily steeped in myth. When the Reaganauts came to power and looked with fear and loathing on the efforts of past administrations to create a "risk-free society," they were tapping deep wells of American emotion. No matter that those who spoke loudest against risk-alleviating policies were among society's most risk-insulated persons.

Theodore J. Lowi is John L. Senior Professor of American Institutions at Cornell University.

The second factor, democratization, is another ideological point, or, let us say, an objective fact magnified by ideology. The democratization of risk can happen at either extreme of the continuum of risk. At one extreme, risk can be democratized whenever every member of society is subject to the same dangers, as in the case of total war. Everyone is expected to pitch in, everyone puts everything up for sacrifice, including life itself, and, thanks to modem delivery systems, everyone has about an equal chance of being injured. Policy can move society away from democratization of risk at this extreme of the continuum by adopting policies exempting certain categories of persons from jeopardy, permitting the wealthy to pay for others to take risk in their place, and so on. At the other end of the continuum, risk can be democratized by policies that spread toward everyone the deliberate, collective protections from risk, or at least from the cost of injuries that mount as the level of risk increases. The welfare state itself can be defined as the partial democratization of risk in those terms. In response to the significant expansion of welfare state programs in the late 1960s, complaints began to emerge about the costs of risk control. As one critic put it:

A new social order has evolved that started with a reliance by citizens on government for the solution to certain... problems and has grown to include pressures on government to mitigate almost every risk any individual might be asked to bear.... [There is a movement] away from reliance on the rational individual as a ... bearer of the consequences of his choice to a socially determined allocation... designed to shift responsibility for both new and existing risks from individual to society.¹

This is the stuff myths are made of. It suggests that there was a time when all individuals were the sole bearers of the consequences of their own choices. But the fact remains that risk shifting through collective means is as old as government itself and that what appears new is the effort to spread some of the advantage of risk shifting to the lower classes.

The third factor is the most relevant and the most true, yet the least appreciated. Recent policies reallocating risk and the responsibilities and costs of risks have been framed in such a way as to convey rights to the beneficiaries. Thus, where once the distribution of risk was a political question—whether in the hands of governments or private institutions—these questions have been increasingly taken out of the political process. This has rigidified the work of governing institutions and has become a means of delegitimizing politics itself, first by narrowing the universe of politics and second by creating expectations that cannot possibly be met. Each of these factors will be taken in turn.

BALANCING THE BOOKS ON RISK TAKERS AND PRIVATE MARKETS

In the 1880s, Illinois adopted a statute which, among other things, provided for regulation of rates charged by interstate railroads for that segment of the trip taking place within die state of Illinois. The Supreme Court held that the statute was unconstitutional on the grounds that die interstate trip could not be arbitrarily broken up into segments and that, therefore, the Illinois law was an unconstitutional burden on interstate commerce.² Within a decade die Supreme Court invalidated still other state efforts to regulate the conditions (risks) of work, the safety (risks) of plants and their machines, the working hours of women, and the working conditions of children. The Court held that, although the Constitution reserved all powers to the states that were not explicitly delegated to the national government, the states could not adopt "unreasonable" regulations and certainly could not interfere with the right of individual employees and individual employers to negotiate individual contracts for labor.³ During this epoch of more than forty years, die United States was clearly the least regulated of any major industrial nation. The states could not regulate and the national government would not It was the golden age of the myth of the free market, of freely operating entrepreneurs, and of voluntarily assumed risk.

But risk taking was counterbalanced by a wide variety of public policies dedicated to risk control, risk reduction, and risk shifting. These policies were not fully seen or appreciated as the debit side of a fully balanced accounting of the history of risk, because we were a strict federal system, and because virtually all of these interventionist policies were products of state legislatures.

People who embrace the myth of free markets driven by risk takers operate on the general assumption that if government would leave things alone, people using reason would risk what they have in order to get more, and in the process would produce more for society than if politicians ordained the outcome. But if, as observers, we use an equivalent amount of reason to analyze the behavior of risk takers, we would recognize fairly quickly that few people will habitually take risks to improve on what they have unless certain minimum conditions are met beforehand. Sociologists would call them functional prerequisites. A more accessible term would be presuppositions—that is, holders of wealth would be unwilling to put it voluntarily at risk unless they could presuppose certain states of affairs in advance of their entry to the market.

The following is a list of some of those presuppositions that have in fact been met historically and frequently by governments. The listing does not pretend to be an exhaustive or a logical scheme. Its purpose is to balance the books on the history of risk in America.

Provisions for Law and Order

Predictability in human affairs obviously precedes everything else. Risk itself is a probability statement about the extent of danger in an otherwise orderly environment. Although market regularities may contribute to social order, markets cannot exist in the first place without it. And the social order is more than the order imposed by military means, important as that is. Max Weber, in his important General Economic History (published in English in 1927), observed that an important presupposition for the existence of modern capitalism is what he called "calculable law." As he observed, "The royal 'cheap justice' with its remissions by royal grace introduce continual disturbances into the calculations of economic life." In a word, precisely the heavy hand that Adam Smith was objecting to. This bleeds over into the next several points.

Provisions for Property

Property is a legal fiction. It is a synthesis word for all the laws against trespass. Through this process, the government renders highly probable that we can enjoy real dominion over that which we claim as our own. Philosophy and ideology may guide legislators, courts, and citizens in the policies and provisions they support regarding property; and an unregulated free market may set the price of property. But property itself is nothing more than a residuum of all the things that die state does to permit me to call something my own and to have a reasonable probability of making it stick. "The market" comes after the risk of property ownership itself has been close to eliminated.

Provisions for Contract Enforcement

One of the world's great social revolutions, first described by Sir Henry Maine, was the transformation from status to contract. Contract became increasingly necessary for an economic system as people dealt increasingly with strangers, involving exchanges beyond their communities and their statuses. A contract is simply an agreement to control some specified aspect of the future. In other words, a contract is a means of controlling and channeling the risk inherent in every exchange. But just as it is impossible to imagine transactions today without contracts, it is impossible to imagine contracts without some close-to-absolute assurance that "the state" will make breach of contract more expensive than observance.

Honoring contracts, of course, has become a habit in advanced industrial societies. This is definitely an aspect of civil society. But it is a habit derived from routine enforcement by governments. There are some absolutists who would argue that free markets are enough in themselves to establish and maintain contracts without state intervention. There are two things wrong with that argument. First, when pushed, such an argument reveals an assumption that courts will be involved and that somehow courts are not part of the state. Second, it tends to play down the category of persons who don't care about reputation because they don't care about making a second contract after the first one in which they can make a large killing and then escape a particular market altogether. There is probably no half way in a matter of this importance: either entrepreneurs must be able to assume that mechanisms for contract enforcement work, or modern private markets won't work.

Provisions for Exchange

Although contract is at the very center of any conception of exchange, there are still other matters that lie behind contract, making contract itself possible. In brief, there has to be an agreed-upon language or terms by which contracts are written. The best simplification of this very complex process can be provided in the concept of standardization. This comes in at least two forms.

First, there has to be a legal language, a very formalized, conventionalized, in a word, standardized, set of references, to eliminate as many ambiguities as possible that are likely to arise between and among people who haven't lived a lifetime together or who would like to gain some advantage later by words that may have special and advantageous meaning.

The second form of standardization is provision for a technical language. Law itself is technical; the distinction intended here has to do with those concepts and terms that precisely describe qualities of the goods of services to be exchanged by the contract. Standards for establishing universal weights and measures are the most fundamental, and the most likely to be provided by government. Although a lot of standardization nowadays is accomplished by private means, mainly through trade associations, these trade associations are themselves private governments which exist outside the market in order to shape the market in one way or another; moreover, their standards are validated and upheld by governments through the statutory route and through the application of those standards in adjudication.

Provisions for Conveyance of Public Domain to Private Hands

The United States has gone so far in conveying public domain to private hands that few Americans are aware of die historic, market-creating role played by government through the subdivision and "privatization" of domain that was in public hands by right of conquest. It is also not generally appreciated in the United States the degree to which any government maintains the right to set conditions on conveyance of ownership and on the use of that which had been conveyed. There is in fact a continuum of private ownership, ranging from freehold to leasehold; and there is a continuum of ownership depending on what proportion of mineral rights, rights-of-way, or air rights have been retained as public domain. Many countries with as good a record of free-market capitalism as the United States set far more strict public limits, in these terms, on the degree to which private property is really private. From public health to public order, all of these conditions on conveyance are risk related.

A still less appreciated category of conveyance of public domain to private hands—and one highly related to risk control—is the conveyance of privilege rather than of real estate. This kind of conveyance is best known as licensing. A license is a grant of a privilege by a sovereign to do something that is otherwise illegal. Licensing, with all its abuses, is a quintessential public function in virtually all sectors of the private sphere from private professional services, such as law and medicine, to the key institution of capitalism itself, the corporation. Licensing and risk reduction are so closely associated as to be almost synonymous. Governments use licensing to restrict entry into particular markets in order to limit the number of participants to a level that will help keep prices stable and at a level higher than unrestricted markets might provide. Licensing is also used to redirect entry into a particular market in order to keep it limited to safe competitors and to qualified persons, thereby protecting all consumers from risk in their use of essential services. The corporation itself is a form of license, and it has been sought as a privilege—that is, "limited liability," which is a governmentally protected limit on the risk of all the stockholders. Historically, the corporation was a still more valuable privilege because it was a grant of immortality; a corporation is a fictitious person who can hold property, can sue and be sued, and can perpetuate all of the interests of the stockholders completely independently of their own life spans. The corporate charter was once used as a means of imposing detailed regulations; that is, the state implanted in a specific corporate charter certain limits and obligations on the conduct of that corporation. In that sense, the conveyance was a much more limited one than the present, virtually unconditional corporate charters. But any government could return to the practice of limited corporate charters anytime its legislature chose to adopt such a policy. The fact that governments could use the corporate charter as a means of imposing risk reduction to favor all consumers is an aspect of the democratization of risk that we can look at a bit later.

Provisions for Social Overhead Capital

Social o...

Table of contents

• Cover Page
• Half Title Page
• Series Page
• Title Page
• Copyright Page
• Contents Page
• Acknowledgements Page
• Series Preface Page
• Introduction Page
• PART I RISK, POLITICS AND INEQUALITY
• 1 'Risks and Rights in the History of American Governments', Daedalus, 119, pp. 17-40.
• PART II RISK, PRIVATE LAW AND JUSTICE
• PART III RISK, CRIMINAL LAW AND JUSTICE
• PART IV RISK, UNCERTAINTY AND ECONOMIC LIFE
• PART V RISK, HEALTH AND TECHNOLOGY
• Name Index