SOVEREIGNS, SHOPKEEPERS, AND THE SEPARATION OF POWERS.

Author:Michaels, Jon D.
Position::Direct government market participation
 
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INTRODUCTION 862 I. THE THEORY AND PRACTICE OF GOVERNMENT MARKET PARTICIPATION 867 II. THE SOVEREIGN-COMMERCIAL CONFLICT INHERENT IN GOVERNMENT 871 MARKET PARTICIPATION A. Distinguishing Sovereign from Commercial: Terms and 873 Definition B. Analogous Conflicts and Incompatibilities 874 C. The Architecture of the Sovereign--Commercial Conflict 878 1. Separation and Institutional Mismatch 879 2. Separation and Public Self-Dealing 882 3. Separation and Abusive Government 885 D. Washington's Perception of Other Nations' 888 Sovereign-Commercial Conflicts III. STRUCTURAL SEPARATION, REGULATION, AND LEGITIMATION 891 A. Separation as a Foundational Constitutional Commitment 892 B. The Institutional Design of Sovereign-Commercial Separation 895 C. The Logistical and Doctrinal Consequences of 897 Sovereign-Commercial Separation CONCLUSION 899 INTRODUCTION

Federal, state, and municipal governments are pervasive and increasingly relentless market participants. They run businesses, operate banks, own companies, license intellectual property, trade in private securities, and buy and sell goods and services for themselves and for their beneficiary communities. In addition, these governments hire and fire employees and contractors, peddle souvenirs, sell and purchase advertising, privately fundraise, and lease space in office buildings, libraries and museums, laboratories, and even aboard NASA shuttles.

Government market participation spans the exotic (e.g., government-owned venture capital firms, IT startups, and futures markets) and the mundane (e.g., postal delivery and passenger railroad services). It is at once as old as the Republic itself and as novel as the newest wave of brash CEOs arriving on the political stage and pressing to run government more and more like a business. (1) It entails the use of sovereign instruments, commercial tools, and potent combinations of the two. And it infuriates those railing against creeping socialism while electrifying those hailing the very same initiatives as refreshingly entrepreneurial.

Government market participation has, for some time, operated in the shadow of its more prominent and more carefully scrutinized cousin: privatization. For years, policymakers, jurists, and scholars have focused on privatization--the outsourcing of State responsibilities to private, generally commercially oriented actors--seemingly to the neglect of government's own direct and very public market participation. (2) Thus, while privatization has grabbed headlines (3) and become something of a cause celebre in legal circles, (4) direct commercial government action has itself remained in the background, poking out only occasionally--and only then in narrow, discrete contexts. (5)

This Article zeroes in on government market participation. It addresses government market participation broadly and generally, identifying, naming, and beginning to answer one of the big questions that arises regardless whether we are considering the economics of a public postal service, the law of free speech on government passenger trains, the politics of special water districts, the ethics of government ownership of large, multinational businesses, or the architecture of a State-run venture capital firm. Simply stated, how should a government market participant juggle and harmonize its seemingly conflicting responsibilities as both a sovereign and commercial actor? Put slightly differently, how should a government entity--or a particular government official--be both regulatory and entrepreneurial at once? The rather common manifestations of commercialized sovereignty awaken us to a particularly complicated, conflicted, unpredictable, and above all powerful State.

The sovereign-commercial conflicts that I am putting under the microscope differ in degree and kind from the ordinary conflicts that government officials invariably struggle to resolve. Ordinary--let's call them "sovereign-sovereign"--conflicts arise, for example, when government officials have to decide whether to allocate funds for a highway expansion or a new subway line. Likewise, ordinary sovereign-sovereign conflicts crop up when, in the course of establishing workplace safety standards or collective-bargaining codes, government regulators must balance the interests of industry and labor.

Sovereign-commercial conflicts are also different in degree and kind from the everyday conflicts that private actors regularly confront. Ordinary--let's call these "commercial-commercial"--conflicts crystalize when businessmen and women must decide whether to spend more on R&D or marketing, or whether to save those funds for a rainy day.

Generally speaking, sovereign-commercial conflicts show themselves to be different in four ways. First, sovereign-commercial conflicts must be managed by balancing and commingling two distinct perspectives or orientations--namely, a public-interest orientation (broadly defined), and a business orientation (understood in terms of profit maximization). When deciding what supplier to use, ought the government choose the supplier offering the objectively best price or the one who charges more but does so in a manner that advances public aims? That is to say, should the government be willing to pay more to suppliers who operate entirely within the United States, employ only union labor, or are LEED certified?

Second, sovereign-commercial conflicts are exacerbated by the use and commingling of two distinct sets of tools: the sovereign's coercive, lawmaking and law-enforcing tools, and the commercial actor's market powers to buy, sell, and trade. Does the government, for instance, use its controlling equity shares in a bailed-out automaker to maximize the return on its investment; or does the government use those shares to dictate internal corporate governance reforms, evading the "hassles" of regulating via legislation or administrative rulemaking?

Third, sovereign-commercial conflicts spread uneasily across two legal regimes--the regime that attaches to and regulates State personnel, and the regime that regulates those engaged in private commerce. This uneasy straddling prompts one to ask: should a government official abide by constitutional or corporate standards (or both) when, say, disciplining or terminating someone in her employ?

Fourth, sovereign-commercial conflicts entail the traversing of unfamiliar and at times hostile domains. Specifically, the government's branching out into commercial domains may offend classically liberal sensibilities about the proper (that is, limited) role and reach of the State. Similarly, a business's government-like regulatory ambitions--think Google, Facebook, or Uber--may offend democratic sensibilities about the proper (also limited) role and reach of the market, (6) thus making any effort to juggle or harmonize dual commercial and sovereign responsibilities that much more problematic.

Of course, resolving any number of pure public policy (sovereign-sovereign) challenges, or pure private ordering (commercial-commercial) challenges, is often terribly difficult. They involve hard choices, require considerable sacrifice, and invariably alienate those whose positions did not carry the day. Yet those conflicts are an analytical and legal Cakewalk compared to many sovereign-commercial conflicts.

After all, the fusion of the sovereign and commercial creates a seeming institutional mismatch, a misalignment of institutional architecture, programmatic goals, and laws. Government regulatory agencies are ill-suited to be effective instruments of commerce; and government corporations (and other architecturally commercialized government offices) cannot be expected to be particularly democratic instruments of sovereign regulatory policy.

This fusion invites public self-dealing.? Commercially oriented sovereigns might misappropriate sovereign guises, tools, and resources, using the levers of regulation to pursue commercial aims (in a manner that gives the government a considerable market advantage over nongovernmental actors operating in that same commercial space).

And, conversely, this fusion endangers limited, democratic government. Public-regarding commercialized sovereigns might misappropriate commercial tools and resources, using them to regulate businesses and industries more forcefully, expansively, or expediently than could a noncommercialized sovereign entrusted with only democratic and bureaucratic tools.

The study of commercialized, entrepreneurial government is a big and weighty undertaking. This Article starts things off by contending that conflicted sovereign-commercial government should not be understood as a particularly nettlesome subset of public policy or private ordering challenges that we regularly endure, if not eagerly embrace as opportunities to test our leaders' mettle. Rather, sovereign-commercial government should be seen as raising structural constitutional concerns in keeping with those that our multidimensional systems of separation of powers are designed to address. That is to say, our overriding constitutional and normative commitments to the "separations of powers"--not just among the three branches and between the federal and state governments but also across the public-private divide, the church-State divide, and even within agencies (8)--should extend to government market participation. Indeed, viewing the sovereign-commercial conflict through the lens of our separations of powers provides an analytical framework, normative urgency, and set of legal analogies and precedents for studying and policing government market participation. At the very least, insisting on some separation--by, for instance, disaggregating regulatory and commercial duties and power--can help place government market participation on firmer footing at a moment when, seemingly, the practices are becoming more and more expansive.

This Article proceeds in three parts. Part I identifies and discusses...

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