Category Archives: Academic Papers

The Social Contract and the Social Safety Net

Text of article published in Journal of Civic Literacy.

Is the Social Contract Incompatible with the Social Safety Net? Revisiting a Key Philosophical Tradition

Eric M. Meslin, Indiana University Center for Bioethics, Indianapolis

Aaron Carroll, Indiana University Center for Health Policy and Professionalism, Indianapolis

Peter H. Schwartz, Indiana University Center for Bioethics, Indianapolis

Sheila Kennedy, Center for Civic Literacy, School of Public and Environmental Affairs, IUPUI

Introduction

As this is being written, two opposing forces are at work: the Obama administration has announced that 7.1 million Americans have signed up for ‘Obamacare’ by the March 31 2014 deadline, meeting expectations that were in doubt only a month earlier; meanwhile, the U.S. Congress (particularly the Republican-led House) remains mired in a dysfunctional relationship with the White House that consistently stymies efforts to reform policies, especially social welfare policies, even when such reforms have widespread public support. Improvements that most knowledgeable observers believe to be necessary seem increasingly beyond political reach. From health care to immigration reform to economic policy, the American political landscape is characterized by ideological posturing and seemingly intractable disagreement. This situation is worrisome for two reasons: first, it is regrettable that programs and policies that would benefit millions are being rejected or curtailed for reasons unconnected to evidence of their value; second, it suggests that civil discourse and civic literacy are themselves under siege.

The question is: why? What aspects of American political culture generate resistance to even modest efforts to mend or extend the social safety net? Why is it that we cannot address the plight of the unemployed and the undocumented, even when it is clearly in the interests of both political parties to do so? Is there an explanation for American legislators’ current unwillingness to moderate their positions even slightly, in order to make at least some progress on the challenges we face? And most importantly, would greater civic literacy—a more informed appreciation of the origins of America’s legal framework and culture by the general public—help ameliorate the current impasse?

We believe the answer to that question lies, at least in part, in what we might call America’s “constitutional culture.” While we certainly recognize—and do not discount—many other factors, especially the influence of a deeply-ingrained if not always visible racism, which continues to distort public debate and derail progress in so many aspects of American life, anthropologists and sociologists have long confirmed the existence of national and regional characteristics, distinctive “folkways” that are an outgrowth of the fundamental assumptions that shape societies. Those folkways are rooted in religious and historical assumptions about the nature of reality and “the way things are.” In the United States, along with a strong and still-potent Puritan influence, the political culture has been shaped largely by the Enlightenment philosophers whose theories about personal autonomy and the proper role of government became an indelible part of its constituent documents and ultimately, the national psyche.

Take the contemporary debate over healthcare reform. This fight cannot be understood without recognizing the continued potency of the country’s foundational assumptions, and especially the continued relevance of social contract theory most directly attributed to John Locke. In this paper, we echo arguments made by historians and legal theorists like Daniel Boorstin and Louis Hartz[1] who noted that Americans who may never have heard of Locke or the Enlightenment, have nevertheless internalized Locke’s philosophy in ways that make social inclusion and extensions of the social safety net particularly difficult. In a very real sense, John Locke doomed more comprehensive healthcare reform, at least in the short term, and made it far more difficult to extend unemployment benefits, increase payments under Temporary Assistance for Needy Families (TANF), or raise the minimum wage. If we are to have any success in changing the long term prospects for these and similar reforms, we will need to go beyond the academic, moral, and fiscal arguments, no matter how persuasive some of us find them, and directly engage the need to update and expand our basic understanding of the social contract.

 

The Affordable Care Act

Americans have historically been leery of government interventions that might be considered “welfare.” Access to healthcare is a case in point. Rising costs and the plight of the uninsured are not a recent development. Indeed, proposals to provide national health insurance can be traced to Theodore Roosevelt and have included various versions from almost every President since. But with few exceptions (some of which, like Medicare and Medicaid, are significant, and others that were state-wide experiments) the ‘big idea’ of having the federal government ensure universal access to comprehensive health care has been impossible to implement. Equally elusive is an answer to the question why.

In 1993, concerns about the cost of healthcare and the number of uninsured Americans prompted the Clinton administration to propose significant reforms to the U.S. health care system.  The Clinton plan met with great opposition both for the content of its proposals and the process by which it was drafted. After considerable public and political debate, the plan was rejected (Davis, 2001). Subsequently, policymakers limited efforts to reform the health care system to incremental changes such as Medicare Prescription Drug Coverage and expansion of the State Children’s Health Insurance Program (SCHIP) (Institute of Medicine, 2003; Berman, 2004; Frakt & Pizer, 2006).

The effectiveness of such incremental reforms, however, was limited. The United States famously spends more on health care per capita than any other country – about 48% higher than the next highest spending country (Sweden), and about 90% higher than countries that might be considered global competitors, such as France, England, Canada, and Japan (The Henry J. Kaiser Family Foundation, 2007). Health care costs have grown an average of 2.4 percentage points faster than the U.S. gross domestic product since 1970, and in 2010, national health care expenditures in the U.S. totaled $2.6 trillion, a 3.9% increase from 2009 (The Henry J. Kaiser Family Foundation, 2007). Between 2006 and 2007, premiums for employer-sponsored health insurance rose by 4-5%, outpacing overall inflation and wage gains (The Henry J. Kaiser Family Foundation, 2013). By 2012, Census data revealed that the number of uninsured Americans had reached 48 million (DeNavas-Walt, Proctor & Smith, 2013). By 2008, there were more uninsured people in the United States than at any time since the passage of Medicare and Medicaid in the mid-1960s (DeNavas-Walt, Proctor & Smith, 2013). Even more dispiriting, beginning in 1997, though the country saw a steady decline in the percentage of children who were uninsured; 8.9% of children under the age of 18, or 7 million children, were still uninsured in 2012 (DeNavas-Walt, Proctor & Smith, 2013).

As the U.S. approached the 2008 Presidential election, health care reform was again on the minds of most Americans and the candidates. Most observers believed that there was a mandate for sweeping reform, and during President Obama’s first 100 days in office, he and the Democratic majorities in the House and Senate approached the issue from that perspective. In the end, the Affordable Care Act instituted far less sweeping changes than many supporters wished and many critics feared. Gone were “Medicare for All” and a public option as part of the exchanges.  Nevertheless, the resulting lawt did include historic changes to American healthcare – including the individual mandate, the expansion of Medicaid, and requirements that private insurers spend a fixed percentage of policy premiums received on medical care rather than overhead – and it aroused historic opposition and rancor. By March 2014, the House of Representatives had held more than fifty votes to repeal the ACA. Even after the Supreme Court upheld the constitutionality of the mandate and President Obama won re-election in 2012 on a campaign in which the ACA was a central issue, critics fixed their sights on elections in 2014 and 2016 and issued promises to undo or cripple the law.

Why hasn’t the U.S. been able to achieve real health care reform? What accounts for the resonance of recurring accusations about “death panels” and “socialism”? Most Americans are compassionate people who are uncomfortable with the idea that others go without health care in the richest country on the planet; they would be unlikely to endorse the notion that only people with means should have access to medical care. Yet surprisingly large numbers continue to oppose the ACA and similar governmental interventions.

Social welfare programs are where our culture’s deeply ingrained understanding of the social contract conflicts with our more humanitarian impulses. Americans’ current division over the ACA is yet another iteration of the deeply embedded conflict between the Social Darwinist attitudes exemplified by William Graham Sumner and the Social Gospel most closely identified with Walter Rauschenbusch. No matter how logical or effective, programs requiring extensive government involvement, or that include “mandates” of any sort, trigger an almost visceral reaction in those who tend more to Social Darwinism, a belief that “productive” people’s rights are thereby violated, and that such approaches are contrary to freedom, to “real” Americanism. In other words, at a basic—perhaps unconscious—level, many people believe that government involvement in healthcare, or government intervention via provision of a social safety net, is somehow un-American and therefore must be rejected. It does no good to point out how deeply government is already involved in providing a social safety net through Social Security, or in providing health care in particular (e.g., the Veterans Administration which is the largest integrated health care system in the country serving more than 8.75 million Veterans each year) — the issue is emotional, not factual. The passage of Medicare generated cries of socialism, and the New Deal—even in the midst of the Great Depression—was aggressively opposed. It is the rare social program that hasn’t had to contend with accusations of incipient communism, for reasons the next section helps illustrate.

 

The Role of Norms and Values in Social Programs

Efforts to achieve significant and sweeping (rather than incremental) social reforms in the U.S. have largely ignored (or avoided) in-depth discussions of fundamental norms, values, and principles; yet it is the compatibility with these normative ideas that provides the foundation for successful reform efforts. The failure to explore such foundational issues leaves proposals open to crippling attacks. Too often, a meritorious proposal is defeated by attacks portraying it as a violation of individual rights or a deviation from the foundational principles of U.S. society. As noted above, critics often attack reforms by labeling them “socialist,” a tactic that is popular because it is designed to cause an instinctive reaction that equates socialism with communism – a tried and true method of garnering support for what many take to be the antithesis of democracy. Using this rhetorical tactic is effective, especially when uttered dismissively as directly contrasting with fundamental principles of American democracy. Claims about universal health care provide a number of other examples of the favored “scare tactics” used to trigger such worries:

  • The state will choose your doctor and your treatment options, not you – a charge that the proposal threatens individual freedom.
  • Scarce resources will be used inefficiently, or spread too thin, and you will be denied care that you need, perhaps inadvertently, perhaps as a result of rationing – a claim that the measure fails to respect the sanctity of life and that persons will be considered expendable if treatment is too expensive. (Hence the “death panel” accusations.)
  • Scarce resources will be re-allocated so that everyone has the same level of (inadequate) healthcare—a claim that those who “merit” healthcare services by reason of greater productivity will somehow be cheated of what they have “earned.”
  • The government will become larger, more overbearing, and more intrusive – a claim that healthcare reform threatens the value of individual liberty.

 

An especially instructive example of such an argument occurred during the first Clinton administration. In 1992 DHHS Secretary Louis Sullivan described the different approaches to health reform being proposed by incumbent President George H.W. Bush, and candidate Bill Clinton, as follows: The “fundamental difference is philosophical. It is a question of whether we want to remain true to our commitment to choice and the private sector.” The Sullivan statement draws a stark dichotomy between government control of health care and private market control. In a country where belief in the market’s “invisible hand” is quasi-religious, and suspicion of government is endemic—where former President Reagan could count on an appreciative response to his assertion that government “isn’t the solution, it’s the problem”—the prospect of government control of anything triggers deeply-held fears. The fact that this is a false dichotomy (people without health insurance cannot exercise “choice,” and neither can the millions of Americans who get their insurance through their employers) doesn’t detract from its continued political salience.

A more contemporary example comes from those who maintain that policymakers advocating social welfare reforms similar to systems in France, Canada, Germany, Sweden, or New Zealand are advocating “nanny-state” solutions that will inevitably impose stifling governmental bureaucracies on an efficient economic system (Santora, 2007). The term “nanny-state” is both provocative and pejorative, raising the specter of a government that oversteps the bounds envisioned by a libertarian reading of Locke, among others.

The rhetoric used against significant health reform is just the most recent example of themes long used to oppose social welfare measures. The social safety net is repeatedly framed as a threat to life, liberty, and theindividual pursuit of happiness. There is a reason that social welfare proposals have historically faced an uphill climb in the U.S.; not only must such proposals stand on their own merits, by demonstrating their medical or economic feasibility, they must also be defended against claims that they are un-American and contrary to the principles that animated the Constitution and Bill of Rights. Unfortunately, few Americans are sufficiently acquainted with those principles—or those documents—to recognize the speciousness of such claims, and this deficit of civic knowledge is a significant barrier to efforts to revisit social contract theory. For far too many Americans, revisiting social contract theory is impossible, because they have never visited that theory in the first place.

Available data is plentiful and unambiguous, and it demonstrates a troubling and widespread lack of basic civic literacy in the United States. Only 36 percent of Americans can even name the three branches of government (Jamieson, 2007). Fewer than half of 12th grade students can describe the meaning or operation of federalism. The National Assessment of Education Progress (NAEP) 2006 report on civics competencies found barely a quarter of the nation’s 4th, 8th and 12th graders proficient in civics, and only five percent of seniors able to identify and explain checks on presidential power.

Democratic self-government requires a civically educated citizenry. When a polity is very diverse, as in the United States, we would argue that it is particularly important that citizens know the history and philosophy of their governing institutions; in the absence of other ties—race, religion, national origin—a common understanding of constitutional principles is critical to both the formation of national identity and the ability of citizens to assess whether policy proposals are congruent with the national legal system and political culture. This civics deficit is one of the reasons the rhetoric of individualism and the social contract has been so potent a weapon against social welfare measures; concepts like personal autonomy, individualism, liberty and the like have taken on cultural meanings for large numbers of Americans that differ from more nuanced interpretations held by citizens who are familiar with the primary sources of those concepts.

 

Advancing Civil Literacy by Correcting a Key Misunderstanding of the Social Contract

 

Above and beyond the general lack of civic literacy, these examples demonstrate a key dysfunction in our national conversation: much American thought and dialogue is based on a particular interpretation of social contract theory, a reading of key thinkers such as John Locke that supports the belief that government’s job is to promote individual freedom rather than promote the common good. In its most extreme form, such beliefs are seen as mutually exclusive; that government activity can only support the common good at the expense of individual liberty, or promote individual flourishing at the cost to social well being. If that diagnosis is correct, then the treatment must involve exploring and promoting a more nuanced (and, we would argue, correct) reading of key social contract thinkers.   Once the social contract tradition in political philosophy is correctly understood, social welfare policies can actually be seen to fit quite well within it. In fact, we will argue, failure to provide at least a minimal social safety net—including access to healthcare—is a violation of the principles that grow out of this tradition.

In order to make that argument, we review the contours of the social contract, especially as developed in the work of Thomas Hobbes, John Locke and Jean-Jacques Rousseau. Reflecting on these themes does nothing to solve pragmatic policy questions, or to change the political culture that makes passage of such proposals so difficult, but it is a useful starting point. Revisiting the foundations of the social contract may allow us to bring a measure of clarity to some of the confusion and widespread public misconceptions about the roots of America’s governing principles, misconceptions that continue to hobble reforms (Beauchamp & Childress, 1994; Danis, Clancy, & Churchill, 2002). If we are to foster and ground a truly civil dialogue and discourse, we must genuinely understand and engage with the intellectual tradition that gave birth to our country.

In support of this contention, consider the perspective of John Rawls, a philosopher in the social contract tradition, who wrote one of the most important works in political philosophy in the 20th Century (A Theory of Justice, first published in 1971). It is worth noting that even critics of Rawls see this as a central book in recent political philosophy, since it stimulated so many robust and thoughtful arguments and counter-arguments, among them, Robert Nozick’s (1974) arguments for libertarian principles in Anarchy, State, and Utopia, and Michael Sandel’s arguments for communitarianism. Rawls sees political philosophy as playing four key roles in understanding society and political culture. (Rawls & Kelly, 2001) First, political philosophy plays a practical role by helping us to look for common philosophical or moral ground. Second, such philosophy also has a role in orientation, by leading to better understanding of how people think about their social institutions, about themselves, and about their own roles and relationship to society. Third, political philosophy can lead to reconciliation, by facilitating an understanding of how institutions arise and the context within which they are rational. Through explanations, rather than justifications, frustrations can be calmed and raw nerves soothed. Finally, and perhaps most significantly, political philosophy can be used to probe the limits of political possibility. Through such work, Rawls argued, we seek to learn what we can realize as a society; we can discover what is possible, and how we can accomplish our aims. (Rawls & Kelly, 2001)

Those aims are inescapably moral, and morality is a social construct. Even countries with very similar antecedents and values will display differences in their approach to social goods. Jecker and Meslin (1994) illustrated this point two decades ago in a paper comparing and contrasting the United States and Canadian approaches to “justice in health care” and suggesting that the U.S. approach to health care policy reflected the prevailing American understanding of John Locke’s social contract theory, in which justice is a voluntary agreement between consenting and otherwise self-interested groups. Canada’s approach was more consistent with the political theory developed by David Hume, for whom an emphasis on concern for others and the needs of the community took precedence over the prerogatives of the individual. (Beauchamp & Childress, 1994) This strategy was used as a heuristic, to show how a set of shared cultural values developed out of those respective philosophical roots, and how those values continue to shape present day discussions. They were not intended as strict benchmarks against which countries could be tested. But seen in this way it requires little imagination to see how a libertarian reading of Locke’s social contract theory would find support from an American point of view.

A much broader understanding of our founding political philosophy will be necessary if we are to overcome existing cultural barriers to enacting sound social policies in the United States. If we are ever going to revisit our own social contract, lawmakers and the general public must be equipped with information and skills that will allow them to counter the (very effective) rhetoric employed by opponents of social welfare programs. As we note below, it is doubtful that a sufficient percentage of the American public currently possesses that information, and that deficit in civic knowledge and skills is a formidable barrier to the sort of renegotiation that is needed.

Any serious exploration of the policy impediments to a more adequate U.S. social safety net must start by confronting the political and philosophical origins of the United States. Over 200 years after the founding documents were drafted, their values have become embedded in our culture and are still expressed through our political dialogue; they remain central to the essential American “message”. Even Americans who know very little about the nation’s history, who have never heard of the Enlightenment, have been acculturated to adopt those values—or at least, a superficial version of them.

Hobbes, Locke, and Rousseau Redux

            In his great work, Leviathan, Hobbes argued that that the principal purpose of a social contract is to protect people from the harm that others might do them. The social contract removes man from the state of nature, and a life that Hobbes famously described “solitary poor, nasty, brutish and short,” where people live in a state of mutual distrust and “war of all against all.” (Hobbes & Macpherson, 1985) Because this is the case, social institutions must be established to control human nature and protect us from each other. Social cooperation and mutual reciprocity flow from the recognition that these are rational behaviors that confer substantial advantages to individuals in a society. Nothing in Hobbes’ approach to the social contract suggests any benevolent, other-regarding motivation to establish civil society. Rather, he suggests that people will participate in social institutions if voluntary compliance is an apparent good to them. Political systems and social institutions are valued for the advantages they provide, not for their fundamental fairness.

Like Hobbes, Locke (1955) argues in Of Civil Government that the state of nature is sufficiently dangerous that a social contract is necessary to protect the interests of individuals. In the standard reading, Locke places great emphasis on the importance of property rights and on limiting the power of the state. (Nozick, 1974) Unlike Hobbes, however, Locke’s state of nature is not necessarily a state of war. The basis for society is not simply avoidance of an unpleasant life, but its ability to improve lives that are already minimally acceptable. But there is another reading of Locke.

According to some interpretations, Locke’s version of the social contract offers a mechanism for social improvement. The evidence for this is found in two passages of the Treatise. Locke writes in Chapter 5:

“For this labour being the unquestionable property of the labourer, no man but he can have a right to what that is once joined to, at least where there is enough, and as good, left in common for others.”

The usual reading of this passage is that individuals are entitled to 100% of the fruits of their labor. But the phrase “where there is enough, and as good, left in common for others” is intriguing. Who gets to decide what should be done with the “property” left in common for others and how it will be used?  Locke would certainly agree that the government has the right to use this other property/money for protection of property (e.g. national defense and police), but does the government also have a right to use it on behalf of other citizens—i.e., to redistribute it? Locke is mostly silent on this but arguably, a reading of Locke does support the idea that government has the moral authority, even the duty, to redistribute some portion of wealth/property for the good of others.  Indeed, modern social contract theorists (like Rawls) explicitly argue for this interpretation.

The second passage can be found in Chapter 15 of the Second Treatise, where Locke writes about the relationship between parents and children, saying, that a child “having received life and education from his parents, obliges him to respect… and support… both his father and mother.” What Locke is saying is that there is a responsibility, binding on children, to care for their parents (because parents gave them life, liberty, property, etc.). Perhaps the obligation of children to take care of their parents may serve as an analogy, or even a basis, for government’s obligation to look after all the “parents” in society, i.e., those who helped build or sustain it.  The direct relevance today in the U.S. is Medicare, the federal insurance program that guarantees health insurance to people over 65. Indeed, it is ironic that this government program was the source of the rather bizarre exchange that occurred during one of the town hall meetings discussing the ACA, where a senior citizen demanded that his Representative “keep your government hands off my Medicare.” (Rucker, 2009)

It becomes difficult to discuss the role of government, let alone the social contract, when so many people are unaware that programs from which they benefit are, in fact, government programs.

Here, then, is the genesis of the schizophrenic American reaction to social welfare: individuals become horrified by the stories of destitution, or by their own experiences of the system, and demand that something be done. But with concrete proposals for policy change comes warnings that the reforms will undermine individual liberty, both by reducing individual choice and by imposing onerous taxes. This oppositional rhetoric is especially powerful when coupled with the very human tendency to be uneasy when confronted with change of any sort. This superficial—almost visceral—reaction makes it doubly important to make people aware that the social contract is more complex than generally assumed.

Even at his most libertarian, Locke did not suggest that property rights should trump the power of the state to facilitate human flourishing. Indeed, in some readings of Locke, the social contract allows the state to do much more than most libertarians would countenance, including projects that serve the public welfare. (Rawls & Freeman, 2007) Locke’s social contract is a more substantive collaboration than libertarian orthodoxy allows, and appeals to Lockean social contract theory as the source of oppositional rejections of social welfare programs are not cut and dried. That being said. the dominant reading of Locke is still used to characterize social welfare programs as somehow un-American. That traditional reading makes the goal of “providing a minimum standard of living” or “providing healthcare for all” seem inconsistent with both the need to limit the reach of the state and to respect the sanctity of property rights. The more recent readings challenge this; furthermore, other social contract arguments make the case more compelling.

These themes were developed more explicitly in the writings of Jean-Jacques Rousseau, who, in contrast with Hobbes and Locke, claimed that man is naturally good, only acting badly through his social institutions. Rousseau sought to diagnose the evils in society, explain their origins, and determine how they might be eliminated. He warned that inequalities in society can lead to dangerous alienation, and cautioned that the rich and powerful can create schisms in society. Rejecting Hobbes, he also argued that we need to align our institutions with the social contract to secure moral freedom, political and social equality, and independence:

It is therefore one of the most important functions of government to prevent extreme inequality of fortunes; not by taking away wealth from its possessors, but by depriving all men of means to accumulate it; not by building hospitals for the poor, but by securing the citizens from becoming poor… and in short, venality pushed to such an extreme that even public esteem is reckoned at a cash value, and virtue rated at a market price: these are the most obvious causes of opulence and of poverty, of public interest, of mutual hatred among citizens, of indifference to the common cause, of the corruption of the people, and of the weakening of all the springs of government. Such are the evils, which are with difficulty cured when they make themselves felt, but which a wise administration ought to prevent, if it is to maintain, along with good morals, respect for the laws, patriotism, and the influence of the general will.

Although he argued for free will and respect for the rights of the individual, Rousseau also argued for the existence of a “general will”, a set of social bonds that hold individuals together. (Rousseau, Masters and Kelly, 1990) This general will is what remains after removing all private and particular biases. The general will is not utilitarian—it is not the sum of individual desires. Rather, it is the convergence of individual beliefs (not unlike Rawls’ “overlapping consensus”). Rousseau argued that society and its institutions should be used to ameliorate inequality in order to alleviate suffering and avoid letting urgent needs go unfulfilled. Significantly, Rousseau claimed that inequality is not the wrong in itself; rather the wrong is the suffering that inequality causes. Social institutions must act to prevent some parts of society from dominating others, and must prevent people with less money and power from being treated unfairly. Everything may not be equal for everyone, but we should all be equal citizens. In Rousseau’s just society, inequality is not eliminated, but it is moderated in order to preserve personal independence and avoid the arbitrary use of power and human suffering.

One wonders whether, stripped of the names of the authors or the texts they authored, which of the values (Hobbes, Locke – in either interpretation – or Rousseau) the American public would endorse. Unfortunately, our highly politicized civic discourse and our troubling deficit of civic literacy prevent such conversations from occurring.

He Who Frames the Issue Wins the Debate

We have suggested that the language used to support (and reject) social welfare proposals implicates key values important to Americans. Indeed, some reform proposals have been attacked using arguments that rest on an entirely libertarian reading of Locke, ignoring both his more nuanced passages and the communitarian strains of Hume or Rousseau. Clearly, the history of social policy reform efforts in the U.S. cannot be traced in a straight line from the group of white men who met in Philadelphia back to Hobbes, Locke, Hume, or Rousseau. As with all policies, some have been responses to challenges (such as wars, or economic depression); others have been responses to opportunities (such as great discoveries by scientists, technological advances, or new ways of organizing hospitals and research universities). But the most significant challenge that all policy proposals face is the need to align whatever pragmatic concerns they address with the values of the dominant political culture.

We believe it is possible to defend robust proposals for reform and to place these proposals squarely within the social contract tradition—invoking the fundamental values that Americans hold dear. It would be a major political mistake to appeal to a different tradition to justify reform in a country founded squarely on the ideas and values emanating from the social contract tradition, and that is most definitely not what we propose. Rather, we believe the time has come to show the value and relevance of America’s social contract tradition in formulating and defending meaningful social policies; to re-frame the debate, and to propose that the social contract be re-imagined in order to continue serving us in the modern era.

If such a reframing seems impossibly utopian, we would offer an analogy to civil rights and our expanded understanding of what is meant by “equal protection of the laws.” At one point, the belief that African-Americans, women and GLBT citizens could be afforded equal legal rights, let alone that such inclusion would come to be seen as quintessentially American, seemed idealistic and unrealistic. Yet imperfect and halting as that social change has been, as long as it has taken (and will likely take to be fully realized), Americans have reimagined our history and enlarged our understanding of our founding principles.

It is much easier to frighten people into inaction than it is to inspire them to change. In part, that is due to the fact that we conduct our policy debates using language that is likely to stifle momentum and highlight the risks. Some of our failures, however, are due to our inability to adequately explain the ways in which a robust social safety net actually advances the deepest values of Americans, and how a concern for social justice is consistent with the fundamental philosophy of the United States. If reform is to succeed, proponents must argue for it from within the American constitutional and political culture.

This approach is significantly more difficult than it might otherwise be because so few Americans are acquainted with the ideas that emerged from these seminal Enlightenment figures, or with the basic premises of our constitutional system.

We suspect that Americans value individual liberty and personal freedom as much or more than they did over 200 years ago, when the experiment began. The vast majority of our citizens have views that are rooted in the philosophies of Hobbes, Locke, and Rousseau, even if they cannot identify any of those thinkers. Indeed, one might suggest that the spectrum found in American political thinking reflects the spectrum found in these thinkers: we can find ardent libertarians who might identify with Hobbes, and equally passionate communitarians who would recognize Rousseau as a soul-mate. It is thus not surprising that any attempt at social policy reform based on a monolithic, narrow view of the social contract is doomed to failure. But this is not to say that policy reform is impossible, especially if respectful efforts are made to accommodate those foundational values. It is not enough to argue that a national healthcare system or a more robust social safety net would achieve better results at significantly reduced expense, or to point to public dissatisfaction with the way things are. Any successful attempt to craft legislation expanding the social safety net must argue from within the terms of the social contract itself.

Conclusion

As in all countries, no single event or person is responsible for the policies and institutions currently in place—and no single person or event will be responsible for their reform. All American policy is the result of many hands, (Starr, 1982) and it will be reformed by many hands. Our current social welfare policies are firmly rooted in America’s highly individualistic political culture. Our citizens remain devoted to an ideology of the minimal state and reliance on the free market, no matter how incongruent that ideology may be with the realities of today’s administrative state. Policy proposals that ignore this deeply-rooted belief in a (bygone) minimal government will inevitably fall victim to assertions that the proposals violate our most fundamental social norms. It is not enough to point out that established safety nets are increasingly insufficient, or even that current policies have reduced the social mobility that has been one of the proudest aspects of our “American exceptionalism.” Within the United States, despite mountains of data showing otherwise, a widespread belief exists that our health care is the best in the world, that anyone willing to work hard can succeed, and that the social safety net is available to those who need it (or at least to the deserving poor). Even when individuals do recognize the deplorable state of many social health metrics, there persists a stubborn, “Lockean” refusal to entertain the idea that more government may be the solution.

If we are ever to achieve reform, it will be through a public conversation that re-examines the social contract and frames reform as an extension of, rather than as a departure from, the basic values that have always grounded our democracy. However, that discussion cannot occur without better civic literacy, defined as more—and more accurate—civic information and citizenship skills.

When more Americans are familiar with the country’s history, founding philosophy and institutions, we can invite John Locke back into the national discourse, not to defend barriers to progress, but to expand upon the elements of a social contract worthy of a great country.

 

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Annenberg Public Policy Center of the University of Pennsylvania.Retrieved from: http://www.annenbergpublicpolicycenter.org/Downloads/20071017_JudicialSurvey/Judicial_Findings_10-17-2007.pdf

Jecker, N. S., & Meslin, E. M. (1994). United States and Canadian approaches to justice in health

care: a comparative analysis of health care systems and values. Theoretical medicine, 15(2), 181-200.

Jonsen, A. R. & Toulmin, S. E. (1988). The abuse of casuistry: a history of moral reasoning.

Berkeley: University of California Press.

Locke, J. (1955). Of Civil Government: second treatise. Chicago: Regnery.

National Assessment of Educational Progress (NAEP). (2006). Civics Assessment. U.S.

Department of Education, Institute of Education Sciences, National Center for Education Statistics.

Nozick, R. (1974). Anarchy, state, and utopia. New York: Basic Books.

Rawls, J. & Freeman, S. R. (2007). Lectures on the history of political philosophy. Cambridge,

MA: Belknap Press of Harvard University Press.

Rawls, J. & Kelly, E. (2001). Justice as fairness: a restatement. Cambridge, Mass.: Harvard

University Press.

Rousseau, J., Masters R. D. & Kelly, C. (1990). The collected writings of Rousseau. Hanover,

NH: Published for Dartmouth College by University Press of New England.

Rucker, P. (2009, July 28). Sen. DeMint of S.C. is Voice of Opposition to Health-Care Reform.

The Washington Post. Retrieved from: http://www.washingtonpost.com/wp-dyn/content/article/2009/07/27/AR2009072703066.html?hpid=topnews

Santora, M, (2007, October 11). McCain Health Care Plan Puts Focus on Spending. New York

Times. Retrieved from: http://www.nytimes.com/2007/10/12/us/politics/12health.html?ref=politics&_r=0

Starr, P. (1982). The social transformation of American medicine. New York: Basic Books.

 

Acknowledgement:

The authors wish to thank several people for comments on earlier versions of this paper including Eric Wright, Heather McCabe, Halley Rose Meslin, Kimberly Quaid.

 

 

[1] Boorstin and Hartz authored two of the most influential books of the 1950s, explaining—and defending—the notion of American exceptionalism. In The Genius of American Politics, in 1953,Boorstin attributed American “greatness” to a lack of class conflict and an “instinctive conservatism.” In The Liberal Tradition in America (1955), Hartz agreed. Both credited Locke with providing a philosophical base for the new country, obviating the need to create a new and separate tradition; American political philosophy was seen as a “long footnote” to Locke.

Fourteenth Amendment: The Privileges or Immunities Clause

 Section 1 of the Fourteenth Amendment reads: “All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the state wherein they reside. No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any state deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.”

As Constitutional scholar Erwin Chemerinsky has written (in The Supreme Court and the Fourteenth Amendment: The Unfulfilled Promise), “The simplest, and perhaps most elegant, way of understanding the Fourteenth Amendment is to view the Privileges or Immunities Clause as protecting rights from government interference, the Equal Protection Clause as assuring equal treatment, and the Due Process Clause as prescribing the procedures that government must follow when it takes away life, liberty or property.”(1151-52)

Although subsequent case law has relied far more substantially upon the Due Process and Equal Protection Clauses, the history of the Amendment suggests that the Privileges or Immunities Clause was originally intended to play a far more vital role than has subsequently been the case.

The Privileges or Immunities Clause should not be confused with the Privileges and Immunities Clause of Article IV, Section 2 of the Constitution. That clause reads “The Citizens of each State shall be entitled to all Privileges and Immunities in the several states,” and has been applied to situations where residents of one state have been disadvantaged under the laws of another state; in other words, to situations involving the refusal of a state to treat U.S. citizens from other states equally under its laws.

History

Passage of the Privileges or Immunities Clause and the rest of the Fourteenth Amendment was a direct outgrowth of the national debate over slavery, and the subsequent emancipation of the slaves during the Civil War. In the aftermath of that war, Congress confronted a number of thorny issues: what would be done about the rebel leaders? Would the defeated states contribute to paying off the Union’s debts? Would slave owners be compensated for the loss of their property? What measures would be required of the defeated states as a condition of their full re-admittance to the Union?

While the Republican Congress wrestled with these and other issues, and engaged in arguments with Democratic President Andrew Johnson about their resolution, the governments of the former slave states were passing measures intended to prevent the freed slaves within their jurisdictions from enjoying the same rights accorded to white citizens. There was little or nothing Congress could do about these efforts. The Constitution offered no remedy to people treated unequally or unfairly by state and local governments, as the Supreme Court had made abundantly clear in 1833, in Barron v. Baltimore.

John Barron was one of the owners of a wharf in Baltimore’s harbor. The wharf had been quite profitable; however, as the city expanded and more and more development occurred, the city allowed large amounts of sand to be dumped in the harbor. The build-up of sand eventually deprived Barron and his partners of the deep waters they needed in order to continue their successful operation of the wharf. Barron sued the city to recover a portion of his financial losses, citing the Fifth Amendment’s prohibition on taking private property for public use without just compensation. The Supreme Court ruled that the Fifth Amendment, and the other provisions of the Bill of Rights, applied only to actions by the federal government.

The Barron decision thus prevented Congress from using provisions of the Bill of Rights to punish states that acted to oppress or disadvantage former slaves, no matter how official or egregious the act.

Several Senators and Representatives had come to believe that the Constitution should be amended so that the limitations of the Bill of Rights would restrain state level governments, but the first section of the Fourteenth Amendment owes both its form and substance to Ohio Representative Jonathan Bingham, who authored the language and worked tirelessly for the enactment of the Fourteenth Amendment. In an important speech that later was reprinted as a pamphlet (One Country, One Constitution, and One People: Speech of Hon. John A Bingham of Ohio in the House of Representatives, February 28, 1866, In Support of the Proposed Amendment to Enforce the Bill of Rights), Bingham argued that the proposed Amendment was not an intrusion on states’ rights, as some asserted, because no state had the right “to withhold from any citizens of the United States, on any pretext whatever, any of the privileges of a citizen of the United States.” He insisted the Amendment was necessary to correct both the racial inequities upheld by the Supreme Court in the infamous Dred Scott decision, and the economic injustices allowed by Barron v. Baltimore.

The Fourteenth Amendment was ratified on July 28, 1868, but only after passage of the punitive Reconstruction Acts. Re-admittance of former Confederate states to the Union was conditioned upon that state’s vote to ratify, a coercive measure still cited by opponents of the Amendment who argue that ratification under duress should be considered ineffective.

A reading of the legislative history of the Fourteenth Amendment strongly suggests that its supporters saw the Privileges or Immunities Clause as the vehicle to incorporate the Bill of Rights, that is, to impose the limitations on federal action enumerated in the first eight Amendments on state and local government actors as well. The Supreme Court, however, declined to read the Clause in that way, and in The Slaughterhouse Cases,  dramatically limited its scope.

The Slaughterhouse Cases

The State of Louisiana awarded a 25-year monopoly to Crescent City Livestock Landing and Slaughter-House Company. Other abattoirs were ordered closed, and the legislature authorized the fining of competing businesses.  The Court majority dismissed claims that this favoritism violated the Fourteenth Amendment, and narrowed the Privileges or Immunities Clause into virtual irrelevance.

In a 5-4 decision, Justice Samuel Miller held that the first sentence of the Fourteenth Amendment, “All persons born and naturalized in the United States and subject to the jurisdiction thereof, are citizens of the United States and of the State where they reside,” distinguished between two citizenships, one of the United States and one of the state. He further held that the second sentence, forbidding abridgment of the Privileges and Immunities of citizenship, applied only to situations in which a state was abridging federal rights.

“The privileges and immunities of citizens of the United States are those which arise out of the nature and essential character of the national government, the provisions of its Constitution, or its laws and treaties made in pursuance thereof, and it is these which are placed under the protection of Congress…” The Court limited application of the Equal Protection Clause to protection “of the Negro Race,” and upheld the grant of the monopoly as a proper exercise of the state’s duty to protect public health.

Most legal scholars today agree with the four dissenters, who read the protections of the Amendment more broadly. The Slaughterhouse Cases ignored the plain effect of the language, and gutted the Privileges or Immunities Clause. In America’s Constitution: A Biography, Yale law professor Akhil Amar explains why credible legal scholars today do not consider the Slaughterhouse Cases a plausible reading of the Amendment.

Current Status and Interpretation

Perhaps the best summary of the unfortunate and continuing consequences of the opinion in the Slaughterhouse Cases was written by Kimberly C. Shankman and Roger Pilon in a 1998 Cato Policy Brief, No. 326,  Reviving the Privileges or Immunities Clause to Redress the Balance Among States, Individuals and the Federal Government.

Although intense litigation under the [Fourteenth] amendment should not surprise, what is surprising is that most of it has taken place not under the Privileges or Immunities Clause, which was meant to be the principal font of individual rights, but under the Due Process and Equal Protection Clauses. Using the Due Process Clause, judges have “incorporated” most of the Bill of Rights under the Fourteenth Amendment, then applied those protections against state actions to find the actions unconstitutional. More recently, judges have used the Equal Protection Clause to the same effect and others, raising all manner of questions about the scope of their authority and the grounds of their reasoning. In all of this, however, neither liberals nor conservatives have given more than a moment’s attention to the cardinal clause of the Fourteenth Amendment, the Privileges or Immunities Clause, which remains uncited, unlitigated, uncommented upon–in a word, unnoticed. Whole chapters of modern constitutional law casebooks are devoted to due process and equal protection while privileges or immunities are dismissed in a few pages at most. Like the bark of the hound in the canon of Sherlock Holmes, what is most striking about the Privileges or Immunities Clause in the canon of Constitutional law is its absence.

Bibliography

Amar, Akhil Reed. 2005. America’s Constitution: A Biography. Random House.

Chemerinsky, Erwin. 1992. “The Supreme Court and the Fourteenth Amendment: The Unfulfilled Promise,” Loyola of Los Angeles Law Review. Vol. 25: 1143-1158. June.

Magliocca, Gerard N. 2013. American Founding Son: John Bingham and the Invention of the Fourteenth Amendment. New York University Press.

Shankman, Kimberly C. and Roger Pilon. 1998. Reviving the Privileges or Immunities Clause to Redress the Balance Among States, Individuals and the Federal Government. Cato Policy Analysis, No. 326.

——————————————————————

Sheila Suess Kennedy

Professor of Law and Public Policy, School of Public and Environmental Affairs

Indiana University Purdue University Indianapolis

 

Legal Regime and Public Service: Legitimacy, Ethics and Comparative Context

International and comparative studies have the ability to enlarge our worldviews and inform our policy landscape, but only if we are sensitive to context.[1] Learning from the “best practices” of other countries works best when the practices being shared are technocratic: traffic management, water treatment, construction standards and the like.  When lawmakers move to import more complicated policies and practices, especially those requiring some measure of political support and implicating government services and actions, the prospects become considerably more fraught.[2]

Public law and public management are inescapably particularistic, rooted in very specific national norms and reflective of the regimes within which they operate. Indeed, the discipline of public administration is defined as analysis and management of the public’s business as that business is defined by a particular society at a particular time. Efforts to study or replicate “best practices” from other countries, even other Western democratic countries, without due regard for the governing premises and legal systems of the society within which those practices occur are at best inexact and at worst counterproductive.

There’s a Reason They’re Called Norms

The importance of legal and social context presents educators and public officials with a significant challenge: how do we learn from each other while recognizing and respecting the cultural distinctions that shape and define legal approaches to governance? The ongoing debate over the proper approach to comparative public administration pedagogy raises both normative and technical questions about what those of us teaching law and policy tell our students. Several such questions come immediately to mind: How do we teach students to approach public policy with an informed sensitivity to the operation of national norms? How do we identify and assess the function and relative importance of mediating institutions—nonprofits and NGOs—in countries with very different understandings of the roles such organizations should fill? How do we ensure that students will recognize and accommodate the systemic structures that empower or constrain public officials in different constitutional contexts? How do we connect ethical practice to foundational legal principles? In short, how do we marry relevant legal norms to public management skills and practices, so that public policy and administration will be informed by both sets of competencies?

A well-regarded American introductory public affairs text describes the policy process as a series of eight steps: 1) establish the context; 2) formulate the problem; 3) specify project objectives; 4) explore alternative solutions; 5) set the policy; 6) develop an implementation plan; 7) monitor and evaluate; and recycle the process.[3] This prescription and sequence begins with an instruction to understand the context because a failure to do so is likely to lead policymakers astray.

“Establishing the context,” necessarily starts with national histories and legal systems, because those are the forces that shape distinctive national cultures and norms, and thus establish the relevant context. Where they exist, constitutions are controlling declarations of public policy, embodying a society’s fundamental philosophical assumptions about law, legitimacy and government power. Constitutions dictate the ways in which citizens “formulate the problems” and effectively foreclose exploration of certain “alternative solutions.” To take illustrative examples from America, the United States Constitution does not permit officials to entertain the “alternative solution” of imposing martial law when burglary rates get too high,[4] or the “alternative solution” of censorship when music lyrics are deemed by a majority of Americans to be too suggestive.[5] It does not permit American deficit hawks to reduce welfare rolls by feeding only Caucasian children,[6] or to combat pollution by appropriating privately owned property.[7] The U.S. Constitution and the jurisprudence it has generated control the methods Americans use to “set the policy” and how we proceed with the “implementation plan.” In civil law countries, where case law does not constitute legal precedent in the same way court decisions do in common law countries,[8] the guidance provided by the relevant Constitution is textual rather than jurisprudential, but that document nevertheless requires managers to discharge their responsibilities within the framework of rules provided.

Accountability and Legitimacy

Failure to follow the applicable rules, failure to operate within the appropriate legal or constitutional context, undermines legitimacy—the very definition of which is “operational rules rooted in constitutional or societal norms.”[9] A legitimate exercise of authority, no matter how coercive, is different from the exercise of raw power unrestrained by adherence to codes rooted in normative values, and members of the polity can be counted on to see it differently.[10] Being perceived as legitimate is especially critical to the continued effectiveness of those serving in local government agencies who must make and implement policies having an immediate and concrete impact on the citizens with whom they regularly interact.

Constitutions and other settled legal regimes circumscribe the arena within which public policy debate may legitimately occur in a given society; familiarity with applicable legal principles and the culture they have shaped also provides citizens with a common language allowing for meaningful democratic dialogue.[11] Lawmakers and public officials operating within a particular regime need not agree with every choice required by a nation’s constitution, but in order to communicate effectively with their fellow-citizens, they do need to understand what those choices were, why initial legal or constitutional decisions were made, and why and how they continue to matter (or not). Without that essential shared framework, public policy issues cannot be properly framed or their connection to the regime clearly understood; they will tend to be viewed as isolated and unconnected challenges rather than aspects of a coherent approach to the use of state power. It is likely that the absence of a recognizable and readily perceived connection to a familiar regime—the inability to connect new approaches and practices comfortably to a pre-existing worldview or frame of reference–is one of the many barriers to the creation of effective pan-national and international bodies.

It is important to recognize that unless they are trained to look for inconsistent normative assumptions, inhabitants of different cultures will take for granted the universality of their own worldviews. This very human tendency makes it difficult to identify significant differences in the cultures of democratic countries that on the surface seem quite similar.  To offer just one example, the term “public affairs” implies the existence of both public and private realms. A generally underappreciated reality is that even in Western democratic countries, legal and constitutional systems define those spheres very differently.

In the United States, the legal system draws a constitutionally significant distinction between the public sector, defined as government and its agencies and officials, and civil society, defined as the multitude of nongovernmental, voluntary communal and religious associations through which individuals may act and connect. That distinction is a crucial, if unarticulated, element of most U.S. policy decisions, because only government actors can violate the American Bill of Rights, which limits government actions but not private behaviors.[12] Based upon this particular understanding of the relationship of public and private behaviors, the American Constitution does not grant affirmative rights; it limits the power of the state to infringe private ones. This is not the case in many other Western democratic states, where it is common to have a constitutional system that both restrains and empowers government,[13] and where social entitlements frequently are embedded in the constitution. As a consequence of these differences in legal context, public managers working in different countries must confront a different set of questions when they are contemplating collective social action.

 An example of the practical significance of such legally disparate worldviews can be seen in the responses of different systems to efforts to privatize previously governmental functions. The move toward greater privatization has gained popularity in a number of countries over the past quarter-century despite considerable confusion over the precise meaning of the term.[14] The government continues to determine the need for the program or service, funds it, and remains ultimately responsible for its management; however, the relevant agency enters into an arrangement—typically a contract, but sometimes a grant or other partnership arrangement—with a private or nonprofit organization to deliver the service or otherwise perform the designated function. In the United States, during the past century, these arrangements have fundamentally transformed governance. The scope of government action has increased at all levels of our federal system, but the truly radical changes have been in the means through which agencies of government address service delivery and public problem-solving.[15]

In the United States, a transfer of sovereignty to nongovernmental agents is more than merely a management problem, as it is in many other countries, because constraints on the use of public authority are fundamental to the United States’ political and constitutional order. The Bill of Rights restrains only government action, making it essential that citizens and public managers alike be able to identify when government has acted. The growth of contracting arrangements has made that identification increasingly problematic, blurring the boundaries between private and public action and making it difficult in many situations to determine whether a particular action or decision can fairly be attributed to government. The result, in the opinion of many scholars has been a loss of essential governmental accountability and thus legitimacy.[16] Note, however, that this is not an issue in countries with constitutions that do not rest on foundations of “negative liberty.”  In those regimes, public service delivery by private contractors or NGOs raises management issues, not constitutional ones. Different systems embed different concepts of accountability and legitimacy.

Similarly, most European governments routinely contract with religious organizations; separation of church and state, if it exists at all, is framed very differently than in the United States.[17] American courts have long held that, whatever else the First Amendment’s Establishment Clause may mean, it definitely precludes the use of tax dollars to advance religion or support religious endeavors.[18] On the other hand, faith-based and religious organizations remain free to contract with agencies of government to provide secular services, and local units of government fund thousands of them to provide job training, childcare, adoptions, homeless interventions and a plethora of other human services.[19] Legally, public managers must ensure that the contracting organizations providing these services are not engaging in constitutionally prohibited activities, i.e., that they are not proselytizing clients, requiring their attendance at church services or engaging them in prayer. The ability of cash-strapped government agencies to assure compliance with these constitutionally required prohibitions is virtually non-existent; as a result, the propriety and legitimacy of governmental partnerships with religious organizations has from time to time become a heated and bitterly contested political issue.[20] This is simply not a problem in most of the E.U., where close partnerships between governments and religious bodies are common, and do not raise issues of legitimacy.

These outsourcing issues are far from trivial. They do not simply reflect different ways of delivering social services. Instead, they implicate the previously-referenced, normative understandings of accountability—a concept absolutely integral to the legitimacy of public actionIn an important article on outsourcing and the New Public Management, Peters, Guy and Pierre, made precisely this point:

The basic problem in both theories [outsourcing and NPM] is that the linkage between control and accountability—the heart of democratic theory and a democratic system of government—has been confused. Both models of public administration seek to replace political power derived from legal mandates or elected office with an entrepreneurial style of leadership or—with NPM—a remote and indirect model of leadership. This creates two different problems, derived from different perspectives on governance and citizenship. First, if elected political leaders have such limited control over public administration, is it reasonable to hold them accountable for the decisions and actions of the public service, and if elected officials should not be held accountable, then who is accountable?[21]

Contracting with a third-party surrogate for service delivery is simply one example of the complex interplay between basic governmental institutional theories and managerial efforts to improve service delivery. Peters, Guy and Pierre quite accurately note the problem with assigning accountability—the problem with determining who is responsible for what. There is, however, an even more foundational accountability issue, and it brings us back to the central concern of this article, the role of national political culture in determining accountability. It is necessary, but not sufficient, to identify the person or institution responsible for a particular government action. It is even more critical to ask the question “accountable to what?” What is the system of rules, what are the normative expectations, against which we are to measure action and determine accountability?  If we do not understand that legal and cultural context, we cannot form a coherent theory of accountability, and without a coherent theory of accountability—a theory that is grounded in normative expectations and transparent enough to allow citizens to identify responsible actors—we simply cannot teach a discipline called public administration. At most, we can offer technocratic skill training.

A Question of Ethics

Legal cultures not only dictate perceptions of accountability and legitimacy, they also provide the framework within which a polity defines ethical public service. One of the thorniest problems faced by employees of multinational businesses is how to navigate the ethical landscape in countries where payments that would be considered bribes in the U.S. are common and expected. Often, laws forbidding such practices exist, but as relatively new and to-date ineffective grafts on pre-existing and more forgiving legal systems.[22] Law shapes culture, but the process takes many generations, and ingrained practices are demonstrably difficult to eradicate.

Much of the recent literature on what constitutes ethical behavior in the American context has focused upon explication of specific ethical principles, the challenges of contracting out, the New Public Management, and the consequences of America’s increasing “marketization” and a corresponding diminution in concern for the public good.[23] These are important topics, but considerably less attention has been paid to the importance of the nexus between ethical public behavior and the relevant legal culture.  Yet as scholars have long recognized, ethical public service is rooted in, and defined by, the legal context within which it occurs.

In the United States, ethical public service is ultimately defined as consistency with the American Constitution and Bill of Rights, and that consistency is essential to government legitimacy.[24] It is important to emphasize the often-conflated distinction between personal and professional ethics in this context. While personal ethics are very important to avert what Adams and Balfour have called “administrative evil,”[25] the professional ethical obligations emphasized by Rohr and Rosenbloom, among others, require fidelity to the principles of the American legal and constitutional system. As Kennedy and Schultz have written,

The decision-making procedures and substantive protections for rights found in the Constitution and Bill of Rights define the first layer of duties and obligations that public servants have. Together, they define how decisions are to be made (procedural justice) and what can be decided or done (substantive fairness or justice)…the Constitution and Bill of Rights form the first tier of a public administration or public service ethic.[26]

Lawmakers and public officials, as well as those who teach them, need to recognize both the constitutional roots of public sector ethics, and the negative systemic consequences of frequent deviations from exemplary behavior. Average citizens may not be able to articulate the constitutional bases of their discomfort with conflicts of interest and other ethical departures, but they expect public servants to understand that they have an obligation to place the public good above private interest. When breaches of the public trust engender widespread cynicism, it is not only a situation constituting a genuine threat to the conduct of the business of government, but also a failure to understand the relevant constitutional and civic culture and context. As noted above, ethical and effective public performance depends significantly upon consistency with the legal and constitutional context of the relevant regime.

 Comparative Public Administration: Some Final Observations

Unfortunately, conscientious public affairs instructors who understand they must begin any comparative exercise with an introduction to the basic assumptions of a regime do not have a wealth of pedagogical materials available to them. Too many books dealing with comparative public administration and law ignore or slight foundational social and contextual differences, preferring to highlight the more technocratic issues common to governments everywhere.  There are a few scholars who have argued for the importance of grounding public management pedagogy in the relevant political theory.  Michael Spicer’s book, The Founders, the Constitution and Public Administration, published in 1995, made a strong case for the importance of a public management rooted in a nation’s constitution.[27] “The purpose of this book,” Spicer noted in his introduction “is to examine the worldviews underlying public administration and the Constitution.” Although Spicer directed his attention to the U.S. Constitution, all legal systems are constitutive of national cultures to a greater or lesser extent, and they all shape the worldviews of those who operate within them. Differences in those worldviews can be seen in the varying attitudes toward government that characterize different countries, even when the countries being considered are all constitutional democracies. In the U.S., as public administration has concentrated on the need to legitimize the administrative state, it has found itself at odds with a polity fixated on the need to limit government power, a central U.S. Constitutional concern. As a result, administrative actions that are taken for granted in European countries with strong administrative traditions often generate accusations of illegitimacy in highly individualistic America.

Unlike citizens of countries characterized by racial or ethnic homogeneity, American identity is rooted in allegiance to a particular worldview; it is based upon an understanding of government and citizenship originating with the Enlightenment and subsequently enshrined in the U.S. Constitution and Bill of Rights. Understood in this way, “constitutional culture” has a considerably broader scope than law and policy; it is an expression of the ongoing dialectic between society’s legal norms and the broader culture within which those norms are situated and must be understood. The American “constitutional culture” arises from the operation of our constitutional values in a radically heterodox culture, and the effects of that interaction on policy choice and contestation.

Decisions made by those who designed America’s constitutional architecture shaped contemporary definitions of public and private, notions of governmental and personal responsibility, and conceptions of human rights. They dictate the manner in which we frame and understand civic responsibility, and allocate collective social duties among governmental, nonprofit and private actors. In short, as with regimes elsewhere, those initial constitutional choices have been constitutive of a distinctive American culture. What Kennedy and Schultz have called “the Constitutional Ethic” is behavior grounded in, and compatible with, the United States Constitution.[28] In the U.S. and elsewhere, when significant segments of a population do not know the history, philosophy or contents of their legal system, they are unable to make informed judgments about the propriety of behavior of their public officials.

Unlike many of our European allies and trading partners, the American Constitutional ethic grows out of an approach to government based upon—and structured to so as to minimize—political distrust.  The battle to separate from England was triggered by distrust of King George III and the British Parliament.  The weak government of the Articles of Confederation was rooted in distrust of central authority; the Constitution of 1787 was the result of distrust of both weak decentralized government and “majority factions” that could infringe upon the rights of individuals. In fact, the entire American constitutional machinery—separation of powers, checks and balances, federalism, bi-cameral legislatures—grew out of an effort to address this fundamental suspicion of concentrated power, and the belief that abuses of power are likely in the absence of structural constraints on administrative behavior.

This mistrust could be considered constructive, since it led to the creation of institutional limitations on abuses of power.  But a culture of distrust also has quite negative implications for democratic governance: distrust of individuals who are in a position to abuse power for personal gain or to engage in other forms of self-dealing.  That sort of mistrust is corrosive.  It generates public suspicion that those who participate in government are corrupt. When such suspicion or cynicism becomes pervasive, it becomes much harder for government to generate citizen engagement, let alone the voluntary compliance necessary to achievement of public purposes.[29]

If it is important for citizens to believe in the honesty of those who serve, and that most officials be viewed as trustworthy public servants, it is equally important that government officials not only be honest, but that they be seen to be honest—both personally honest and honest in their fidelity to the relevant legal regime and its ethics of public service. As a consequence, conflicts of interest and the appearance of impropriety—while considered improper in virtually all regimes—will be defined differently in the U.S. than in India, for example, just as office-holders’ sexual peccadillos generate quite different responses in the U.S. than in France.

A nation’s legal and social culture are products of a complex interplay between its history, religious and ethnic composition and legal regime, and the latter consists of considerably more than a nation’s founding documents and/or assumptions. Citizens of one country are unlikely to fully understand and appreciate the nuances of another nation’s culture without considerable effort and exposure, but that should not deter us from recognizing the fundamental challenge of comparative law and policy: Measurements of legitimacy and accountability are necessarily contextual, and public administrators focused upon the importation of “best practices” need to preface that exercise with a review of the nature of the practice at hand and the extent to which its success or failure requires an administrative context within which it makes sense.

Unfortunately, there is no simple test for appropriateness; each case must be assessed on its merits. What we can do, however, is highlight the issue and its significance.

All constitutions and legal systems rest upon considered normative judgments about the conduct of public affairs, judgments that have their roots in the particularities of that country’s history and experience. Trying to teach comparative law or public administration without constant reference to those foundational judgments is like trying to teach reading without reference to the alphabet.

 

References

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Cortazar, Juan Carlos. 2006. “Learning from Best Practices in Public Management: A Methodological Approach” in Alberti & Bertucci (eds) Innovations in Governance and Public Administration: Replicating What Works. New York, NY: United Nations.

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Lupu, Ira C. and Robert W. Tuttle. 2004. The State of the Law 2004: Developments in the Law Concerning Government Partnerships with Religious Organizations. Roundtable on Religion and Social Welfare Policy. Albany, NY: Rockerfeller Institution of Government.

Lynn, Laurence E., Jr. 2001. “Social Services and the State: The Public Appropriation of Private Charity.” Social Service Review.

Lynn, L.E., Jr., Heinrich, C. J., & Hill, C. J. (2000). Studying governance and public management: Challenges and prospects. Journal of Public Administrations Research and Theory, 10(2), 233-262.

 

McGrath, C., Moss, D., & Harris, P. (2010). The evolving discipline of public affairs. Journal of Public Affairs, 10, 335-352. doi: 10.1002/pa.369

Metzger, Gillian E. 2003. “Privatization as Delegation.” Columbia Law Review 103: 1367-1502.

Pierre, J. (1995). Bureaucracy in the modern state: An introduction to comparative public administration. Northampton, MA: Edward Elgar Publishing Limited.

Peters, G. B., & Pierre, J. (1998). Governance without government? rethinking public administration. Journal of Public Administration Research & Theory, 8(2), 223-243.

Pollitt, Christopher (2011) accessed at http://blogs.worldbank.org/governance/30-years-of-public-management-reforms-has-there-been-a-pattern

Rohr, John. 1999.  Public Service, Ethics, and Constitutional Practice. University of Kansas Press.

Rosenbloom, David H., Carroll, James D. and Carroll, Jonathan D. (2000) Constitutional Competence for Public Managers: A Casebook. Wadsworth Publishing

Salamon, Lester M., ed. 2002. The Tools of Government: A Guide to the New Governance. New York: Oxford University Press.

Spicer, Michael. 1995. The Founders, the Constitution, and Public Administration: A conflict in worldviews. Georgetown University Press.

Taube, C. (2002). Baltic Diversity: Comparing Constitutions. Jurisprudencija30(22), 42-46.

 

 

 


[1] Sheila Suess Kennedy, Context Matters: Pedagogy and Comparative Public Administration, Croatian and Comparative Public Administration 161-172 (2013), available at http://en.iju.hr/ccpa/ccpa/downloads_files/06%20Kennedy.pdf

[2] Id.

[3] Charles F. Bonser et al., Policy Choices and Public Action (Prentice-Hall 1996).

 

[4] U.S. Const. art. I, § 2, cl. 15.

[5] U.S. Const. amend. I; See also Miller v. California, 413 U.S. 15 (1973).

[6] U.S. Const. amend. XIV, § 1.

[7] U.S. Const. amend. V.

[8] The Common Law and Civil Law Traditions, in The Robbins Collection (The University of California at Berkeley), available at http://www.law.berkeley.edu/library/robbins/pdf/CommonLawCivilLawTraditions.pdf

[9] Kennedy, supra note 1, at 166.

[10] See, for example, reactions to police actions when officers are perceived to have disregarded constitutional limits, or exceeded their authority.

[11] Footnote: a concern voiced by many Americans is that we are losing that common language.

[12] See generally Sheila Kennedy & David Schultz, American Public Service: Constitutional and Ethical Foundations (Jones & Bartlett Learning 2011); D. M. Hartmus, Teaching Constitutional Law to Public Administrators, 14 J. Pub. Aff. Educ. 353 (2008); Frank B. Cross, Article, The Error Positive Rights, 48 UCLA L. Rev 857, (2001); and Sheila Suess Kennedy & Wolfgang Bielefeld, Charitable Choice at Work: Faith-Based Job Programs in the States (Georgetown University Press 2006) [hereinafter Charitable Choice at Work].

[13] Cross, supra note 12.

[14] Although “privatization” literally means ceding government-run enterprises to the private sector, much as Margaret Thatcher did in England, most of these arrangements are more accurately described as “contracting out.” Sheila Suess Kennedy, When is Public Private? State Action, Privatization and Public-Private Partnerships, 11 Geo. Mason L. Rev. 203 (2001).

[15] See Charitable Choice at Work, supra note 12; Kennedy & Jensen 2005; Lester M. Salamon, The Tools of Government: A Guide to the New Governance, (Oxford University Press 2002); H. George Frederickson, Ethics and Public Administration: Some Assertions, in Ethics and Public Administration (H. George Frederickson ed., 1993); and Donald F. Kettl, The Transformation of Governance: Public Administration For Twenty-First Century America (Interpreting American Politics) (Johns Hopkins Press 2002).

[16] Gillian E. Metzger, Privatization as Delegation, 103 Columbia L. Rev. 1367-1502 (2003); See also Sheila Suess Kennedy, When is Public Private? State Action, Privatization and Public-Private Partnerships, 11 Geo. Mason L. Rev. 203 (2001); and Robert S. Gilmour & Laura S. Jensen, Reinventing Government Accountability: Public Functions, Privatization, and the Meaning of “State Action,” 58 Pub. Admin. Rev. 247 (1998).

[17] For a compendium of research on the various relationships between church and state in Europe, see International Consortium of Law and Religion Studies, http://www.iclars.org/

[18] See Murdock v. Pennsylvania, 319 U.S. 105 (1943).

[19] Charitable Choice at Work, supra note 12.

[20] Id. See also Ira C. Lupu & Robert W. Tuttle, The State of the Law 2003: Developments in the Law Concerning Government Partnerships with Religious Organizations, Roundtable on Religion and Social Welfare Policy, available at http://www.rockinst.org/pdf/faith-based_social_services/2003-12-the_state_of_the_law_2003_developments_in_the_law_concerning_government_partnerships_with_religious_organizations.pdf; Ira C. Lupu & Robert W. Tuttle, The State of the Law 2004: Developments in the Law Concerning Government Partnerships with Religious Organizations, Roundtable on Religion and Social Welfare Policy, available at http://www.rockinst.org/pdf/faith-based_social_services/2004-12-the_state_of_the_law_2004_partnerships_between_government_and_faith-based_organizations.pdf; and Laurence E. Lynn, Jr., Social Services and the State: The Public Appropriation of Private Charity, Social Service Review (2001).

[21] G.B. Peters & J. Pierre, Governance without Government? Rethinking Public Administration, Journal of Public Administrations Research and Theory 223-243 (1998).

[22] For an illustrative discussion of the infirmities of such measures, see “Latin American Anti-Corruption Laws Ineffective” at http://www.latin-corporate.com/2012/11/latin-american-anti-corruption-laws-ineffective/

[23] April Ejka-Ekins, Teaching Ethics in Public Administration, 48 Pub. Admin. Rev. 885-891 (1998); See H. George Frederickson, Public Ethics and the New Managerialism: An axiomatic Theory, in Ethics and Public Management (H. George Frederickson ed., 2005); Metzger, supra note 13; Peter W. Singer, Corporate Warriors: The Rise of the Privatized Military Industry (Cornell University Press 2003); Steven R. Smith & Michael Lipsky, Nonprofit for Hire: The Welfare State in the Age of Contracting (Harvard University Press 1993); and Lisa A. Zanetta & Guy B. Adams, In Service of the Leviathan: Democracy, Ethics, and the Potential for Administrative Evil in the New Public Management, 22 Administrative Theory and Practice 534-554 (2000).

[24] John Rohr, Public Service, Ethics, and Constitutional Practice (University of Kansas Press 1999); Rosenbloom Carroll & Caroll 2000; and Paul C. Light, Preface: An Audacious Task, 71 Pub. Admin. Rev. S5-S6 (2011).

[25] G.B. Adams & D.L. Balfour, Unmasking Administrative Evil (Sage Publications 1998).

[26] Kennedy & Schultz, supra note 12, at 74-75.

[27] Michael Spicer, The Founders, the Constitution, and Public Administration: A Conflict in Worldviews (Georgetown University Press 1995).

[28] Kennedy & Schultz, supra note 12.

[29] John T. Scholz, Voluntary Compliance and Regulatory Enforcement, 6 Law and Policy 385-404 (1984); Organization for Economic Cooperation and Compliance (OECC), Reducing the Risk of Policy Failure: Challenges for Regulatory Compliance (2000), available at http://www.oecc.org/dataoecd/23/37/46466287.pdf.

Fiscal Magic: Outsourcing and the Taxing Power

 Seth B. Payton and Sheila Suess Kennedy


Abstract

Some state and local governments in the United States are increasingly outsourcing services through third-party surrogates. In some instances, outsourcing is used as a mechanism to raise revenue to cover current deficits or pay for goods that would otherwise require increasing taxes. We argue that certain forms of outsourcing have been used to mask accountability for the levying fees that are substantively indistinguishable from taxes and thus shift tax burdens. We call for additional research to examine the shifting cost burden associated outsourcing deals and the increased challenge of maintaining public fiscal accountability.

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Government authority to tax is directly related to the provision of public goods and services. The relationship between taxing authority and taxpayer is shaped by demands for goods and services and budget constraints. Principles like transparency, neutrality, equity, and fairness have long been held essential to the proper exercise of the taxing power (Stiglitz 1999; Mikesell 2010). The recent legal argument that there is no ‘‘reasonable’’ distinction between a tax, a fee, or a penalty does not render the matter moot.1 The imposition of a tax by a governmental unit possessing statutory taxing power is subject to certain constraints. The governmental unit that fails to comply with those constraints risks loss of legitimacy.

The purpose of this article is to examine one of the ways in which local government officials may relinquish taxing power. In this article, it is argued that outsourcing is used to pay for hidden costs using a powerful ‘‘fiscal illusion.’’ The fiscal illusion associated with outsourcing is so powerful it might be deemed ‘‘fiscal magic.’’

The fiscal magic which is alluded in this article evades transparency and therefore legitimacy. This article first presents a brief explanation of the notion of fiscal illusion—a term that repre- sents multiple hypotheses for how the costs of public goods and services are hidden and diffi- cult to calculate. Then this notion is extended to show how tax arrangements not designed for, but used to, support outsourcing also can hide real costs from the public. Such hidden costs result in another sort of fiscal illusion. This notion is applied to a case study in Indianapolis, Indiana—a city that has vigorously embraced the   outsourcing   of   goods   and   services historically provided by government, within a state that has done likewise. Finally, this article concludes with some thoughts on the wider implications of these notions.

 Fiscal Magic and Fiscal Illusion

Like good magicians, sometimes public officials are able to deflect the attention of their taxpayer audience from what is actually important in understanding how taxes pay for government goods and services. When public officials are able to pull this kind of trick, they get the public to believe that some managerial magic has been performed on the costs and associated tax reven- ues rather than having them understand that the bargain price is an illusion. Nevertheless, what has happened in reality is that a good illusion has passed for magic. This is equivalent to a stage show. The ‘‘trick’’ results in what public finance scholars call a fiscal illusion.

Fiscal Illusion

When public officials’ implement shifts in the tax burden which are not transparent to the taxpayers and create the impression that the resulting tax burden is better than it is, they are using a fiscal illusion. Clearly, public officials may have an incentive to do this. Public officials can look fiscally conservative while covertly addressing constituent demands at a perceived lower cost. Fiscal illusion is a concept based upon the notion that taxpayers do not always understand the real costs at which they receive public goods and services. Oates (1988) specifically presents five potential forms of fiscal illusions used by public officials: (1) tax structure complexity; (2) income elasticity of tax structure; (3) renter illusion; (4) the flypaper effect; and (5) debt illusion. He notes that Puviani (1903) and Buchanan (1967) suggest that political leaders may fragment tax levies through complex tax structures to make it difficult for taxpayers to accurately identify the actual costs associated with public goods and services. In addition, public officials may benefit from the hidden tax burden shift from landlords to renters, creating  a  renter  illusion,  which  leads  to increased spending when a jurisdiction is made up of a larger fraction of renters. Furthermore, public officials may offset taxes collected from highly income elastic sources when economic circumstances are beneficial for the underlying tax base (i.e., income elastic tax structure) or from intergovernmental revenues (i.e., flypaper effect). Finally, when taxpayers are confronted by borrowing strategies that displace the current costs of public services and goods onto future generations they may be denied the transparency necessary to calculate those costs as part of the tax burden and suffer from a particular fiscal illusion, what might be called debt deception and Vickrey (1961) calls ‘‘debt illusion.’’

Oates (1988) explains that the empirical evidence has yielded mixed results for various fiscal illusion hypotheses. Those hypotheses are difficult to test. Outcomes sought are whether or not circumstances exist that reduce the perceived costs of public and goods and services.

This article suggests that fiscal illusion may occur through an additional mechanism, the out- sourcing of the taxing power—a fiscal mechan- ism we provocatively refer to as fiscal magic because it encompasses and transcends typical fiscal illusionary strategies. This is an illusionary tactic that is easier to explain. It is a case in which the power to tax for providing public goods and services has been delegated to the nongovernmental sector. A case from Indiana- polis, Indiana, illustrates the fiscal transfer asso- ciated with our hypothesis of fiscal magic in which public officials relinquish a portion of their taxing power to finance a particular project that is not disclosed as such. Specifically, the case looks at the sale of a public sewer and water utility to generate revenue for the repair of side- walks and streets.

Outsourcing as a Source of Fiscal Illusion

Outsourcing, privatization, and contracting2 are terms employed to describe mechanisms intended to provide government services through third-party surrogates. There are liter- ally hundreds of scholarly articles on these and various other aspects of contracting and the New Public Management. These terms have been subject to comprehensive scholarly analysis by scholars in public administration, political science, and law among others (e.g., Dannin 2006; Minow 2000; Chassy and Amey 2011; Milward 1994; Milward and Provan 1993, 1998, 2000; Brudney et al. 2003; Hefetz and Warner 2004; Winston et al. 2002; Kennedy and Jensen 2006; Kennedy and Bielefeld 2002; Kennedy 2003; Dannin 2008; Fernandez 2007; Marvel and Marvel 2007; Kennedy 2001; Metzger 2003; Gilmour and Jensen 1998). Yet, little of this literature has focused on the relationship between outsourcing and taxation. Specifically, it has not examined how the former affects the levying of the latter when delegating to vendors and other third parties the inherently governmental authority to raise fees or tax. There remains an unanswered question. Has outsourcing been used effectively to mask accountability for the levying of fees that are substantively indistinguishable from taxes and thus shift tax burdens?

 Creating Fiscal Illusion through Outsourcing Taxation: The Indianapolis Water Utilities Payments in Lieu of Taxes (PILOT)

The State of Indiana and especially the City of Indianapolis have been among the units of government most enthusiastic about outsourcing and have entered into transactions that highlight the sort of question to which we allude. Indi- ana’s Toll Road contract to lease the Indiana Toll Road to a private consortium for seventy- five years drew criticism for a number of reasons, not the least of which was the ceding of authority to raise tolls to a private vendor; that contract was similar to infrastructure outsour- cing elsewhere (Gilmour 2012). Had the Gover- nor and legislature opted for a bond issue secured by higher toll revenues instead of leasing arrangement, the State’s yield may have been substantially higher. Such a decision would have required the legislature to raise tolls (these tolls fall within the definition of fees, rather than taxes); however, the lease transaction shifted the decision—about raising them from legislators to the private vendors and made it a business rather than a political decision. This insulated elected legislators from the consequences of a potentially unpopular decision. Rates for use on a public property went up, but ‘‘the public’’ did not pay more and ‘‘public officials’’ did not decide to raise the rates—fiscal magic!

Indianapolis Water and Sewer Utility Sale

The subsequent sale of Indianapolis’ water and sewer utilities was a highly sophisticated transaction that raised far more complicated issues. The Indianapolis Water Company had operated as an investor-owned utility for most of its existence. In 2002, during the Peterson Administration, the City of Indianapolis purchased the water company, citing the need to control costs. A number of experts publicly charged that the city paid too much for the utility; whether or not those criticisms were justified, the city found itself facing significant deferred maintenance costs and a lack of employees with the expertise needed to oversee management of the utility. The Peterson administration also negotiated a settlement with the Environmental Protection Agency of a protracted lawsuit over numerous environmental violations caused by an inadequate city-owned sanitary sewer system.

After a new administration was installed, the city’s ability to assume the costs of the deferred maintenance of the water company and the leg- ally required upgrades to the sewer system were further challenged by newly enacted property tax caps in 2008. Those caps reduce the amount of revenue the city can collect by limiting the property tax bill to 1 percent for homestead property, 2 percent for other residential and agricultural property, and 3 percent for the remainder real and personal property of gross assessed value. Effectively, the property tax caps amounted to savings for taxpayers and less revenue for local governments.

Citizens Energy Group Purchase

Faced with mounting costs and recognizing that the operation of utilities requires specialized skills not within the city’s core mission, the city decided to sell the water and sewer utilities to Citizens Energy Group (formerly, Citizens Gas and Coke Utility). Founded in 1887 as Consumers Gas Trust Company, Citizens was established as a public charitable trust, controlled by a self-perpetuating Board of Trustees who appoints the company’s directors. Citizens is widely regarded as a well-run utility management company, and the decision to vest control of all the city’s utilities in a public trust had much to recommend it. Citizens not only had the management depth and expertise to administer the water and sewer systems, its unusual legal status of Charitable Public Trust removed many of the concerns that attend a transfer of public functions to a for-profit third party.

The structure of the transaction, however, raises a number of disquieting questions about transparency, the locus of the tax burden, and the funding of public services generally. The Mayor promoted the sale of the utilities by promising to use the proceeds for needed infra- structure repairs for streets and sidewalks. Two legal documents governed the transfer: a mem- orandum of understanding and the contract of sale. Stripped to the essentials, the agreement called for Citizens to pay for the acquisition of the water and sewer systems by assuming their combined existing liabilities, totaling nearly 3.5 billion dollars. However, a straightforward assumption of liabilities would not have resulted in an ‘‘up front’’ cash windfall that the city hoped to use to repair infrastructure and supplement dwindling tax revenues.

Tax Increase Paid by Ratepayers Pays for Bond Issue

Therefore, the money for the infrastructure repairs was generated through the modification of PILOT amounts payable to the city by Citizens Energy as a not-for-profit entity. PILOT to municipalities for the foregone taxes on real estate or for changes in the taxable status of organizations are common in the United States. As part of the transfer agreement, Citizens ‘‘voluntarily’’ recalculated the amount due annually to the city under the statute requiring a PILOT payment. The city then issued bonds, secured by the PILOT increase, and used the proceeds of those bonds to repave streets and repair other decaying infrastructure. The Mayor, running for reelection, could and did claim credit for completing very visible public improvements ‘‘without raising taxes.’’

The higher PILOT payments by Citizens, meanwhile, become part of the calculation of the utility’s rate base which if increased will be passed on in rates to the utility’s clients. Under Indiana law, had Citizens simply ‘‘overpaid’’ for the water and sewer systems, the amount by which the purchase price exceeded the fair market value of the acquired assets would not have been an allowable basis for calculating the rate. PILOTS, however, are an allowable expense in the rate base.

This highly sophisticated financing scheme for the sale raises both legal and policy issues. The PILOT statute provides that the appropriate maximum payment will be equivalent to the property tax that would be due on tan- gible property owned but for that property’s exempt status. The terms of the sale—a transfer in exchange for assumption of debt—confirmed that both parties assigned a negative value to the tangible property; what Citizens was purchasing was an intangible value—the ongoing income stream of rate payments. It is by no means clear that a PILOT payor can ‘‘voluntarily’’ raise its payment, although when that question was raised to a member of Citizens’ board, the authors were told that the board had obtained and relied upon a legal opinion that the strategy was permissible.

Bifulco et al. (2012) recently addressed the distinction between selling government assets for the purpose of avoiding deficits (or raising additional revenue) and selling government assets that may have more value under private ownership. The problem associated with selling assets to cover current deficits or as a revenue mechanism to cover current costs is that it creates a fiscal illusion by masking the ongoing fiscal burden for which proceeds from the sale of the asset are being used. What occurs in the Indianapolis case is that a not for profit financed the purchase of local government assets by taking on a tax debt with that same local government: the local government is issuing debt against the asset to pay for the purchase of the asset and its maintenance. Eventually, the purchase price will have to be covered in the maintenance and operating costs.

The upshot is that Citizens will need to raise its rates in order to pay both for necessary infrastructure improvements for the utility and the increased PILOT payments. Higher rates to cover the costs of infrastructure repair and maintenance would have been necessary in any event; that is, even if the city had retained control of the utilities, those costs would be fees borne by ratepayers.

The amount by which rates must be raised to cover the additional PILOT, however, is another matter. It shifts the cost of street and infrastruc- ture repair from property taxpayers to utility ratepayers. As a result, the linkage between the tax cost and public benefit of street and sidewalk repair is severed: ratepayers pay the upfront bill for a public good enjoyed by all taxpayers and taxpayers only pay later, if the PILOT payments do not cover the debt to be retired.

Conclusion

To the extent that accountability requires transparency, efforts to pay for public infrastructure but avoid a ‘‘tax increase’’ will increasingly challenge fiscal accountability. Hidden, or insulated, expenditures will feed into unrealistic public expectations about the costs of public services. Despite a rich literature dealing with other aspects of contracting and privatization, however, these sorts of transactions, and their implications for tax policy and public finance, have received inadequate attention. We do not know how widely these strategies are being used, how much control over revenues government agencies are ceding to private actors, the effects of the shifts in tax burden, or the long- term consequences of today’s ‘‘let’s make a deal’’ approach to financing public goods. We need research to answer these and other questions raised by novel approaches to public finance and taxation.

Because accountability requires transparency we need to work on increasing it in practice, too. Whether we call these charges taxes, fees, or penalties, and whether we call these increasingly complicated relationships privatization, public–private partnerships, contracts for services, or outsourcing, one thing is clear: the discretion in the contracting relationship should be open and transparent to inspection by both the participants and the public. It is important to specify and make readily available the actual costs of tax levies or uses changes, bond issues, bond-funded projects, purchase agreements, and asset transfer among many other multisector transactions. One thing that can be done is to require broader financial impact assessments and make these publicly available before deals are made. Another is to ensure that better contracting measures are in place that force costs in the operation and financing of public enterprise to be made public. These sorts of arrangements have potential to change the face of public administration and public finance: fiscal illusion must be dispelled by letting the public in on the trick.

Notes

The recent U.S. Supreme Court decision from the National Federation of Independent Business v. Sebelius, ruled the Affordable Care Act a proper exercise of Congressional authority under the taxing power. That decision highlighted not only the surprisingly contested question of what consti- tutes a tax but equally contested and blurred dis- tinctions between a ‘‘fee,’’ a ‘‘penalty’’ and a tax.

  1. It has been pointed out that ‘‘privatization,’’ prop- erly understood, does not fall in this category. Privatization is the sale of government assets to the private sector. (Thatcher’s sale of steel mills to private interests in Great Britain, for example.) In the United States, however, the term is used

 

 

 

 

interchangeably with outsourcing and contracting to mean the practice of delegating public service delivery to third parties.

 

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Brudney, Jeffrey, Sergio Fernandez, Jay Eungha Ryu, and Deil S. Wright. 2003. ‘‘Exploring and explaining contracting out: Patterns among the American states.’’ Paper presented at the Annual Meeting of the American Political Science Asso- ciation, Philadelphia, PA.

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Chassy, P., and S. Amey. 2011. Bad business: Billions of taxpayer dollars wasted on hiring contractors. Washington DC: Project on Government Oversight.

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Author Biographies

 

Seth B. Payton is an assistant professor of public affairs at the Indiana University School of Public and Environmental Affairs on the Indiana University–Pur- due University, Indianapolis campus. His research is rooted in state and local public policy and finance. He  studies  the  impact  of  institutions  on  local

 

government revenue and the impact of neighborhood dynamics on the ability of local government to deliver public goods.

 

Sheila Suess Kennedy is a professor of law and public policy at the Indiana University School of Public and Environmental Affairs on the Indiana University–Purdue University, Indianapolis campus. Much of her research examines ethics in public admin- istration. She has authored or coauthored multiple books and academic articles examining ethics in public administration. Her most recent book is American Public Service: Constitutional and Ethical Found ations.

Civic Identity, Civic Deficit: The Unanswered Questions

With Heather McCabe, J.D./PhD.            

The current concern over civic education and what might be called our “civic deficit” is founded upon a generally accepted belief that civic knowledge is an important foundation of democratic self-government. There is substantial research linking civic literacy—defined as knowledge of the constitutional and historic bases and current structure of American government–to civic participation and engagement, although definitions of both civic knowledge and civic engagement vary widely. Beyond those connections, however, we are left with a striking absence of empirical research on some very foundational questions: what do we mean by “civic literacy” and “civic knowledge”? Is there some essential, identifiable body of knowledge that civically literate people must know? Do people with and without such knowledge understand America differently, and if so, in what ways? How does informed participation differ from un- or misinformed engagement, and how do the outcomes differ? What evidence do we have to support the widespread belief that civic literacy matters, that there is some irreducible level of civic knowledge critical to the success of the democratic experiment?

There is no dearth of theory on the importance of informed citizenship. In their important book What Americans Know About Politics and Why It Matters, Delli Carpini and Keeter cite Locke’s belief that it is the “obligation of all citizens to act in ways consistent with the public interest.” (p.29). Acting in the public interest requires understanding what the public interest is, and possession of sufficient information to make informed decisions about where it lies. In a letter written by James Madison to W.T.Barry, Madison emphasized the importance of civic knowledge, saying, “A popular government, without popular information or the means of acquiring it, is but a prologue to a farce or tragedy, or perhaps both.” For his part, Alexis de Toqueville believed that “each new generation is a new people that must acquire the knowledge, learn the skills an develop the dispositions or traits of private and public character that undergird a constitutional democracy.” (Branson, 1998).

The emphasis placed on civic competence was one justification for the limited franchise that originally characterized U.S. government. The knowledgeable citizens Madison and de Tocqueville were describing were propertied white males, comparatively privileged and educated men who alone were deemed likely to possess the civic skills necessary to participation in self-governance. Michael Schudson argues that the concept of the “informed citizen” as we know it today did not really emerge until the end of the Progressive Era, with the rise of mass media and the ideal of universal public education. (Schudson, 1999) Prior to the 1890s, voters were handed their ballots by party functionaries, so-called “ticket peddlers,” who provided pre-printed slates of candidates. The voter did not mark the ballot; he simply placed the party’s “ticket” in the ballot box. Beginning in 1888, states began to adopt the “Australian” ballot, which was printed by the government and required a decision by the voter. As Schudson says,

“The Australian ballot shifted the center of political gravity from party to voter. Voting changed from a social and public duty to a private right, from a social obligation to party enforceable by social pressure to a civic obligation or abstract loyalty, enforceable only by private conscience. The new ballot asked voters to make a choice among alternatives rather than to perform an act of affiliation with a group.” (emphasis in original)

If the individual voter was to choose between alternatives, he (and it was still only “he”) needed to be informed, to understand what the alternatives represented and to have the skills needed to evaluate their consistency with American constitutional premises and the common good.

This belief in the importance of informed citizens—whether founded on Lockean philosophy or derived from the growing power vested in the voters—is now virtually universal. It has become an accepted axiom of political culture. While a few hardy souls dispute the nature and amount of knowledge needed for informed democratic participation (Levine, 2013), most political commentators accept the premise and profess their distress when faced with overwhelming evidence that large numbers of voters are woefully uninformed. As former Representative Lee Hamilton recently wrote,

The truth is, for our democracy to work, it needs not just an engaged citizenry, but an informed one. We’ve known this since the nation’s earliest days. The creators of the Massachusetts Constitution of 1780 thought the notion important enough to enshrine it in the state’s founding document: “Wisdom and knowledge, as well as virtue, iffused generally among the body of the people,” they wrote, are “necessary for the preservation of rights and liberties.” (Center on Congress, 2003)

If democratic theory is correct, and a civically literate population is essential to liberal democratic self-governance, the concerns raised by available data are understandable and appropriate.  Research from a multitude of sources gives evidence of a widespread lack of constitutional competence and civic literacy in the United States. Only 36 percent of Americans can correctly name the three branches of government (Annenberg Public Policy Center Judicial Survey, 2007). Fewer than half of 12th grade students can describe the meaning of federalism (National Assessment of Educational Progress, 2006). Only 35.5% of teenagers can correctly identify “We the People” as the first three words of the Constitution (1998 National Constitution Center Survey). The National Assessment of Education Progress (NAEP) 2006 report on civics competencies indicates that barely a quarter of the nation’s 4th, 8th and 12th graders are proficient in civics, with only five percent of seniors able to identify and explain checks on presidential power.

These and many similar research findings clearly demonstrate that those surveyed are woefully ignorant of the subject matter on which they were being tested. What they do not show, however, is the materiality of that subject matter; that is, we have no empirical research that identifies a body of knowledge acquisition of which is essential to informed citizenship. We can certainly speculate: knowing the three branches of government and their respective duties, for example, certainly seems like the sort of civic information citizens need in order to cast an informed vote or otherwise participate in the political process. On the other hand, knowing the composition of the Supreme Court or the names of particular Justices, while desirable, is probably less critical. If we are going to engage in collective hand-wringing over the state of the democratic enterprise, it would seem prudent to identify those elements of civic knowledge that are demonstrably linked to informed citizenship.

It isn’t only the absence of empirical research on that question and many others that erects barriers to reasoned debate about our civic deficit. National efforts to improve civics education and civic literacy are also limited by the widespread belief that knowledge about our history and governing structures is of importance only in the political arena. There is less recognition of its theoretical and practical importance in other areas. In the age of the administrative state, anyone concerned with policy—from business enterprises regulated by the state, to medical researchers dependent upon government grants, to science teachers under pressure to teach religious doctrine in the classroom—quickly finds that knowledge of the nature and extent of the rules to which they are subject and the mechanisms that are available to them is a critical element of disciplinary competence. Increasingly, civic information and civic skills are required for effectiveness in arenas far removed from the political.

An example can be found in the field of social work.  Social workers frequently work with clients from vulnerable populations.  As a part of their work, social workers must advocate within institutions and systems (governmental agencies, regulated organizations) in order to assist their clients in obtaining needed services.  In addition, social justice is a guiding principle of social work (Swenson, 1998; Breton et al, 2003; NASW, 1999) and social workers are expected to advocate within the policy arena when existing policies are not meeting their clients’ needs.   If social workers need to address a policy, either at an individual client level or a system level, they must have the requisite civic knowledge to do so.  They must understand the difference between a legislative statute and an administrative policy.  Additionally, they need to be able to identify whether the policy is a federal, state, or local issue.  If social workers do not have the basic civic knowledge needed to parse out these details, they are unable to appropriately advocate on behalf of their clients.  The same need for civic understanding applies to any enterprise that interacts with government at any level, or is subject to government regulation. Civic competency is necessary for any person, industry or organization seeking to have an impact on the policy environment within which it operates.

Beyond the underappreciated practical importance of civic knowledge to professional practices and business operations of various kinds, beyond the more widely recognized concerns about connections between civic literacy and democratic stability, the sociological literature suggests that the existence of a common body of civic knowledge may play an even more vital role in promoting civic cohesion, due to its function in promoting social capital and its centrality to what has been called “civic religion.” Work done in these areas has considerable relevance to questions about the role of civic literacy in a diverse polity.

References in the United States to social capital can be traced back to 1916 (Putnam, 2000), but widespread interest in the concept did not arise until the mid 1980s with Bourdieu (1986).  The concept was popularized in sociology by James Coleman (1988); it was introduced into general political discourse by Robert Putnam, primarily with the publication of Bowling Alone: The Collapse and Revival of American Community (2000). While there are numerous definitions of social capital, there is general agreement that social capital develops and rests upon norms of trust and reciprocity (both specific and generalized), which develop between people in social networks. Social capital can also build solidarity, which develops as a product of common group fate. Social capital has been defined as either “bridging” or “bonding,” depending upon the “thickness” of the connections involved. Social capital is understood to facilitate coordination, reduce transaction costs, and enhance the flow of information. Civic engagement has been demonstrated to build social capital. (MacGillivray & Walker, 2000).

The term “civil religion” was first coined in 1967 by Robert N. Bellah, in an article for Daedalus that remains the standard reference for the concept. While the proper content of a civic religion has been and remains the subject of heated debate, the purpose of such an overarching value structure is to provide citizens with a sense of common purpose and identity. (Despite the claims of some conservative Christians, Christianity does not provide that social glue; the United States is not and never has been an officially Christian country, although it has been culturally Protestant, and the dramatic increase in religious and cultural diversity over recent decades makes Christian doctrine even less suited to such a task.) The importance of a common value structure, and its relevance to civic literacy, has been explained by one scholar thusly:

The U.S. Constitution contains no reference to deity, and specifically rejects the use of any religious test for citizenship or public office. In order to be consistent with the Constitution, any civil religion must respect the nation’s commitment to individual autonomy in matters of belief, while still providing an overarching value structure to which most, if not all, citizens can subscribe. This is no small task in a nation founded upon the principle that government must be neutral among belief systems. This constitutionally-required state neutrality has long been a source of considerable political tension between citizens intent upon imposing their religious beliefs on their neighbors and those who reject efforts to enforce religious hegemony. Thus far, no proposed value system or theorized civil religion has been entirely able to resolve that conflict. To the extent that Americans do endorse an overarching ideology or civil religion, it is a belief system based upon the values of individual liberty and equal rights enshrined in the U.S. Constitution and Bill of Rights. (emphasis added) (Kennedy, 2011)

We do have ample research showing that greater civic knowledge leads to greater civic engagement. (Galston, 2001; Galston, 2004; Milner, 2002) Civic engagement generates social capital, which connects Americans to each other with bonds of trust and reciprocity. While we have little empirical research on the role of civil religion, it is also believed to forge bonds between citizens and to facilitate the collective civic enterprise. Given America’s growing diversity, such a civic value structure necessarily rests upon our common constitutional values. Civic literacy –knowledge of American history, constitutional premises and governing structures—is thus a necessary component of civil religion, and to the extent that it fosters civic engagement, a generator of social capital.

                                                CONCLUSION

We have ample research about what Americans do and do not know. What we need is research into the causes and consequences of that civic deficit. At a minimum, we need sound empirical investigation into the following questions:

  • What are the essential elements of civic literacy? That is, what is the content of a minimal level of civic knowledge necessary to effective citizenship?
  • What aspects of civic knowledge are most predictive of civic engagement, defined as regular voting, and political activism (work on a campaign, attendance at public meetings, and other indicators of civic involvement)?
  • With respect to those who are civically and politically active, are there measurable, meaningful differences between those who are civically-literate and those who are not?
  • Why have former efforts to improve citizenship education failed to have a lasting effect? What can we do differently in the future to make and sustain improvements?
  • Are there measurable differences in levels of civic literacy between identifiable groups? For example, are scientists more or less civically literate than lawyers? Are members of certain religions more or less literate than others? Are people who harbor homophobic or anti-immigrant or anti-Muslim opinions less civically literate than those who are more accepting of diversity?
  • What are the connections between civic literacy and mass media? How has the dramatic “morphing” of media, and the accompanying changes in the ways in which Americans access information affected levels of civic knowledge?

There are many other research areas we might suggest. These examples only begin to scratch the surface of a pressing research agenda that needs to be “operationalized” and pursued. But the answers to these and similar questions are an essential precondition to thoughtful action to address our civic deficit, and finding the scholars to address them and the resources to support those scholars is an increasingly critical task.

There is widespread recognition that our government institutions are broken. We will not fix them with exhortations alone. Doctors rely on accurate diagnoses in order to prescribe the right medicines; similarly, academics and concerned citizens must base our recommendations on credible empirical evidence. We can’t fix our systems—biological or political—until we really understand what has gone wrong and why.

 

 

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