Repurposing the Tools & Methods of Capitalism

Government Failures and Private Options

PUBLISHED

Jon Michaels is Professor of Law at UCLA School of Law. His scholarly and teaching interests include constitutional law, administrative law, national security law, the separation of powers, presidential power, regulation, bureaucracy, and privatization.

PUBLISHED

Jon Michaels is Professor of Law at UCLA School of Law. His scholarly and teaching interests include constitutional law, administrative law, national security law, the separation of powers, presidential power, regulation, bureaucracy, and privatization.

Increasingly progressives are championing “public options” as a response to various market failures. Public options in the all-important health care space stand in for old-school regulation of private providers and old-school redistribution (to better support those struggling to pay for private insurance and medical services). Public options in banking, likewise championed by leading progressives, work substantially the same way. The government casts aside sovereign tools of democratic lawmaking, tools that could be used to require, or nudge, banks to expand services and accept customers currently deemed too poor or risky. Instead, government officials set up and run public banks, offering a range of commercial services to so-called unbanked and underbanked cohorts. And, lastly, Senator Elizabeth Warren, among others, has called for the government to manufacture (or specially license) generic drugs—a response to runaway private-sector pricing coupled with a lack of political will to regulate said pricing using traditional command-and-control levers.

While it is of course essential that we continue identifying and addressing market failures, we should not lose sight of various government failures. One need not conclude that we’re becoming a failed state to recognize that the American state is limited, even compromised, in ways attributable to constitutional design, present-day constitutional jurisprudence, and present-day political dysfunction.

Just as the old-school responses to market failure were government interventions of a sovereign (command-and-control) sort, old-school responses to government failures were of a decidedly private, commercially oriented sort. If the government cannot or will not provide the good or service or protection we need, market actors may step in and sell it to us. The Supreme Court says the government has limited constitutional authority to regulate firearms? Enter market actors happy to sell you bullet proof vests—and, tragically, schoolbags for the little ones! Congress is too captured to empower or fund food inspectors? You may then choose (assuming you have the resources) to contract with a private, commercial service that independently tests foods and gives you the thumbs up before you dig in.

But what about a new-school approach to government failure—a contemporary analog to public options? Unimaginatively enough, I call such interventions private options. Public options involve governments using commercial pathways to remedy market failures. And private options involve firms (or groups of employees) adopting sovereign-like postures to overcome government failures or shortcoming. 

Private, sovereign-like interventions refer to one or more of the following:

(1) Firms (or subsets of firm stakeholders, such as employees) use democratic pathways and deliberative procedures in furtherance of some public policy. In effect, they follow the laws of democracy and public administration rather than the laws of capitalism and commerce—namely, buying, selling, and trading pursuant to the demands and dictates of supply and demand. 

(2) Firms (or employees) take on substantive responsibilities that modern liberal democracies have, by and large, consistently assigned to government actors. 

(3) Firms (or, once more, employees) provide principally for the general welfare and they proceed in ways that suggest they may be, among other things, voluntarily internalizing externalities, at some profit loss or legal risk; or voluntarily reducing rather than exploiting power and information asymmetries. 

Private options of a quasi-sovereign variety include such things as Facebook’s proposed digital currency and its self-styled supreme court tasked with rendering adjudicatory decisions as to user content. They also include Google and Amazon’s planned stewardship over what are in many respects twenty-first century reboots of old-school company towns

These examples may seem, quite literally, like business as usual—and, in truth, the motivations behind these undertakings may be precisely that. (The same may well be true when government acts as a market participant. Maybe the government has different motives, such as when it raises revenue by “selling” VIP accommodations to inmates who can afford to opt out of gen pop. But, perhaps just as likely, government is simply using new and different tools or pathways to achieve longstanding welfarist aims.) What’s different, though, is the firms are (a) responding to real or perceived government lacunae and (b) doing so in a way that’s substantially different from traditional commercial approaches to said lacunae. Coining currency has traditionally been the role of nation-states. But here we have Facebook doing it—surely profiting but nonetheless using a sovereign-like tool to bridge the gap between national currencies and the borderless, transnational flow of capital, labor, and ideas. Something similar may well be going on with Facebook’s Oversight Board, regulating content in ways neither government agencies nor courts are equipped to do—and regulating using adjudicatory tools that very self-consciously resemble those of judges. Last, big tech’s experimentation with latter-day company towns is in part an effort to stand-in for dysfunctional or depleted city and county governments increasingly stymied in their efforts to provide quality housing, education, and transportation.         

We may look, too, beyond the C-suite and consider workforces fashioning their own private options, quite possibly as commercial analogs to political movements among the body politic. Specifically, worker strikes and protests over their companies’ participation in politically or morally questionable government programs may likewise constitute private options. These workers are not taking steps to augment their own wages and benefits. To the contrary, they may well be sacrificing their own financial security to stand in for the American electorate when that electorate is, for reasons of structural government failure, voter suppression, and the like, unable to influence, say, U.S. immigration, defense, or criminal justice policy.

Government failures are far-ranging, consequential, and (at least for the moment) unlikely to be addressed directly—that is, remedied through constitutional, legislative, or electoral reforms or political awakenings. If anything, they’re likely to be compounded, at least in the short run given the pandemic, the nature of our federal system, the increasingly divisive nature of our politics, and the extant challenges and weakening commitments to our democratic system.

At the same time, powerful firms and groups of employees have, at this same moment (and for a variety of reasons), the agility, clout, resources, ambition, and possibly even civic mindedness to swoop in to—as they see it—save the day. 

Opportunities to create additional or alternative democratic spaces are, to be sure, exciting. So are opportunities to cut through jurisdictional and jurisprudential thickets, and bypass seemingly compromised public institutions. But we must be cautious, even watchful. Exercises of commercial power—even assuming they are divorced from the logic and lure of profit-maximization—are still exercises of commercial power, responsive to the dollar rather than the vote.  What normative criteria would allow us to, say, embrace Facebook’s currency or Amazon’s company town? And even if many of us applauded Silicon Valley engineers’ resistance to facilitating the Trump administration’s defense initiatives, how would we feel if those same engineers, flexing their libertarian muscles, held up software essential to implementing duly enacted Medicare for All legislation?

In my essay, What About Private Options?, I identify private options—and put them in conversation both with public options as well as more conventional market interventions. It bookends with a 2020 essay on government’s turn to market participation. Future work will, among other things, consider how these patterns and practices correspond to seemingly similar transnational trends.   

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