Regulating by repute

Michigan Law Review

Volumn 110, Issue 6, 2012, Pages 1003-1018

  Zaring, David ^a  

^a UNIVERSITY OF PENNSYLVANIA   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 84859533796     PISSN: 00262234     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (65)

1. Several economic Nobel prizewinners have earned some of their plaudits for the development of this critique. See generally James M. Buchanan & Gordon Tullock, The Calculus of Consent (1962) (providing an exploration of the rules governing legislative decisionmaking based on the assumption that decisionmakers act in their own self-interest)
2. Gary S. Becker, A Theory of Competition Among Pressure Groups for Political Influence, 98 Q.J. Econ. 371 (1983)
3. George J. Stigler, The Theory of Economic Regulation, 2 Bell J. Econ. & Mgmt. Sci. 3 (1971).
4. For an overview, see David A. Skeel, Jr., Public Choice and the Future of Public-Choice-Influenced Legal Scholarship, 50 Vand. L. Rev. 647 (1997) (reviewing Maxwell L. Stearns, Public Choice and Public Law: Readings and Commentary (1997).
5. For a discussion by another economics Nobel prizewinner of why bureaucracies generally will be inefficient, see generally F. A. Hayek, The Road to Serfdom 138-56 (50th ann. ed. 1994).
6. "Ossification, " a geological term, refers to the canonical article in this area. See Thomas O. McGarity, Some Thoughts on "Deossifying" the Rulemaking Process, 41 Duke L.J. 1385, 1453 (1992) (concluding that in complex scientific cases, courts should apply a pass/fail standard to grade the agency rather than the stringent procedural reviews then in vogue)
7. see also Thomas O. McGarity, The Courts and the Ossification of Rulemaking: A Response to Professor Seidenfeld, 75 Tex. L. Rev. 525, 533-36 (1997) (defending the ossification thesis)
8. Richard J. Pierce, Jr., Seven Ways To Deossify Agency Rulemaking, 47 Admin. L. Rev. 59, 65 (1995)
9. ("With the exception of a few agencies, the judicial branch is responsible for most of the ossification of the rulemaking process. "). But see Jason Webb Yackee & Susan Webb Yackee, Administrative Procedures and Bureaucratic Performance: Is Federal Rule-making "Ossified"? 20 J. Pub. Admin. Res. & Theory 261, 261-62 (2010)
10. (Utilizing data that covers all active federal rule-writing agencies from 1983 to 2006, and concluding that the results "largely disconfirm the ossification thesis"). For a broader discussion, see William S. Jordan, III, Ossification Revisited: Does Arbitrary and Capricious Review Significantly Interfere with Agency Ability To Achieve Regulatory Goals Through Informal Rulemaking?, 94 Nw. U. L. Rev. 393, 402 (2000).
11. Or so a number of prominent economists, from both the right and the left, have concluded. See, e.g., Daniel Kaufmann, Governance Redux: The Empirical Challenge (Oct. 2003) (unpublished manuscript), available at http://papers.ssrn.com/sol3/papers.cfm? abstract_id=541322
12. (Noting "a very high correlation between good governance and key development outcomes across countries"). For a discussion of Kaufmann's work from a legal perperspective, see Chantal Thomas, Law and Neoclassical Economic Development in Theory and Practice: Toward an Institutionalist Critique of Institutionalism, 96 Cornell L. Rev. 967, 1010-11 (2011).
13. The so-called "LLSV hypothesis, " named for its authors, also suggests that regulation, or at least good governance and strong legal protections, is an important precondition to prosperity. See Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer & Robert W. Vishny, Law and Finance, 106 J. Pol. Econ. 1113, 1152 (1998).
14. For a discussion of this hypothesis, see Stephen J. Choi, Law, Finance, and Path Dependence: Developing Strong Securities Markets, 80 Tex. L. Rev. 1657, 1727 (2002).
15. Claude Ménard & Bertrand du Marais, Can We Rank Legal Systems According to Their Economic Efficiency?, 26 Wash. U. J.L. & Pol'y 55, 59 (2008) ("[LLSV] explicitly assumes that there is a close relationship between 'good' institutional design and economic development, and that countries with poor investor protections, either because of their legal system or because of the enforcement rules of this system, severely suffer in their economic dynamics. ").
16. This sort of rational choice analysis underlies the elements of positive political theory that have been applied to administrative law. See Matthew D. McCubbins et al., Structure and Process, Politics and Policy: Administrative Arrangements and the Political Control of Agencies, 75 Va. L. Rev. 431, 434-35 (1989) (describing how Congress controls agencies through judicial review or through warning systems designed to facilitate congressional oversight)
17. see also Daniel B. Rodriguez, The Positive Political Dimensions of Regulatory Reform, 72 Wash. U. L.Q. 1, 43 (1994) ("Positive political theory describes regulatory policymaking as a part of a world in which political actors function within institutions rationally and strategically in order to accomplish certain goals. " (footnote omitted).
18. Freed Professor of Government, Harvard University.
19. See James T. O'Reilly, Losing Deference in the FDA's Second Century: Judicial Review, Politics, and a Diminished Legacy of Expertise, 93 Cornell L. Rev. 939, 940 (2008) (describing the long history of judicial deference enjoyed by the FDA).
20. See Richard A. Merrill, The Architecture of Government Regulation of Medical Products, 82 Va. L. Rev. 1753, 1775 n.68 (1996) ("To bring a successful challenge to the terms FDA set the sponsor would have to convince a court that the agency had acted arbitrarily or without factual basis. This has proved nearly impossible. " (citations omitted). Courts have been much less deferential to the FDA's labeling and marketing supervision, to say nothing of the food safety division of the agency. See, e.g., Wash. Legal Found. v. Friedman, 13 F. Supp. 2d 51, 74 (D.D.C. 1998), amended sub nom. Wash. Legal Found. v. Henney, 56 F. Supp. 2d 81, 88 (D.D.C. 1999), vacated in part, 202 F.3d 331 (D.C. Cir. 2000) (invalidating the FDA's effort to restrict pharmaceutical companies from discussing off-label uses of drugs).
21. Chapter 4. The cover of Carpenter's book depicts Frances Kelsey, the FDA official famous for rejecting the application to use the morning sickness drug in the American market.
22. Pp. 410-28. In United States v. Rutherford, 442 U.S. 544, 551 (1979), the Supreme Court ruled that terminal cancer patients had no right to use Laetrile absent FDA approval, a victory for the agency, which had to endure a great deal of public pressure to legalize the drug-including from actor Steve McQueen. McQueen took a course of Laetrile in Mexico and claimed that he was happy with the results; he later died of cancer in 1980. Pp. 424-25.
23. For a discussion of the McQueen case and the Laetrile controversy, see Jerry Menikoff, Beyond Abigail Alliance: The Reality Behind the Right To Get Experimental Drugs, 56 U. Kan. L. Rev. 1045, 1046-47 (2008).
24. According to Carpenter, "In resisting the most popular alterna tive remedy in a generation, the Administration had witnessed its power confirmed in tandem with its reputation. " P. 428.
25. Although I associate the constructivist element of political science mostly with a strand of international relations heterodoxy, see, e.g., James Fearon & Alexander Wendt, Rationalism v. Constructivism: A Skeptical View, in Handbook of International Relations 52.
26. it has found its way into the international legal literature as well, see Ryan Goodman & Derek Jinks, How To Influence States: it has found its way into the international legal literature as well, see Ryan Goodman & Derek Jinks, How To Influence States: Socialization and International Human Rights Law, 54 Duke L.J. 621 (2004).
27. By historiography, I mean the somewhat traditional historical contests between accounts of when an important change occurred. See Buckner F. Melton, Jr., Clio at the Bar: A Guide to Historical Method for Legists and Jurists, 83 Minn. L. Rev. 377, 388 (1998) (defining historiography as "a study of the history of the writing of history").
28. Carpenter argues that the critical moment in the empowerment of the FDA occurred not between 1960 and 1962, when the FDA banned thalidomide and received new authority in the 1962 Kefauver-Harris Amendments to its governing statute, but rather more gradually before then as the agency engaged in increasingly scientific practices for drug evaluations, an evolving postwar trend that stemmed from the critical gatekeeping role for new drugs that it assumed in 1938. Pp. 119-23.
29. P. 87. A staff writer for the FDA suggests that over 100 people died after taking the drug. Carol Ballentine, Taste of Raspberries, Taste of Death: The 1937 Elixir Sulfanilamide Incident, FDA Consumer, June 1981, available at http://www.fda.gov/AboutFDA/ WhatWeDo/History/ProductRegulation/SulfanilamideDisaster/default.htm.
30. 320 U.S. 277 (1943) (upholding strict liability against corporate executives, namely, the president of a firm found to have mislabeled drugs); see also pp. 116-17 (citing Dotterweich, 320 U.S. 277).
31. P. 229. For another discussion of the evolution of the new drug approval system after 1982, Richard A. Merrill, The Architecture of Government Regulation of Medical Products, 82 Va. L. Rev. 1768-1800 n. 68 (1996)
32. For a critical evaluation of the FDA's role in the Vioxx controversy, see David A. Kessler & David C. Vladeck, A Critical Examination of the FDA's Efforts To Preempt Failure-To-Warn Claims, 96 Geo. L.J. 461, 465 (2008) ("Recent regulatory failures, such as the agency's ineffectual response to Vioxx, have demonstrated the FDA's shortcomings.... ").
33. It is worth noting that this gatekeeping function is relatively rare in administrative agencies. The branch of the FDA regulating food does not sit in judgment of novel foodstuffs before they may be marketed to consumers, nor does the medical device supervisor. See Richard A. Merrill, The Architecture of Government Regulation of Medical Products, 82 Va. L. Rev. 1800-35 n. 68 (1996) (discussing the fact that the FDA does not have stringent premarket regulations for medical devices). And financial regulators, to take another example, have no such gatekeeping oversight over new financial products, even after the Dodd-Frank Act's creation of a consumer protection regulator that might, in theory, be able to take on such a job. Schan Duff, Consumer Financial Protection After Dodd-Frank (Dec. 21, 2010) (unpublished manuscript) (on file with author).
34. See generally James Q. Wilson, Bureaucracy: What Government Agencies Do and Why They Do It (1991)
35. Mark Seidenfeld, Why Agencies Act: A Reassessment of the Ossification Critique of Judicial Review, 70 Ohio St. L.J. 251 (2009).
36. P. 66 ("[O]nce recognized, officials with authority in an organization may take measured steps to protect, maintain, and enhance [the organization's reputation]. This reputation-protection imperative has governed and animated the FDA's behavior in pharmaceutical regulation for much of the last half-century. "). For a discussion of how Carpenter's vision of reputation might affect these sorts of internal motivations, see Steven Teles, Brains on Drugs, Wash. Monthly, May/June 2010, at 48-52 (reviewing Reputation and Power). Carpenter made similar arguments in his first book, where he argued that bureaucratic autonomy is "forged" when agency leaders are able to nurture reputations for effectiveness that suggest that they have unique organizational capabilities. Daniel P. Carpenter, The Forging of Bureaucratic Autonomy 353 (2001) (arguing that autonomy arises "when agency leaders build reputations for their organizations-reputations for efficacy, for uniqueness of service, for moral protection, and for expertise").
37. In the aftermath of the Vioxx withdrawal, however, "the U.S. Food and Drug Administration... lost some of its scientific and consumer protection luster. " P. 738.
38. See Andrew T. Guzman, How International Law Works 71-72 (2008).
39. Jeffery R. Lax, Certiorari and Compliance in the Judicial Hierarchy: Discretion, Reputation, and the Rule of Four, 15 J. Theoretical Pol. 61 (2003), available at http:// www.columbia.edu/~jrl2124/Certiorari%20and%20Compliance%20(Lax,%20JTP).pdf.
40. Paul F. Roye, the former director of the SEC Division of Investment Management, argued as follows: A compliance failure can lead to bad publicity and embarrassment, which can permanently damage a firm's reputation and ultimately lead to an erosion of its client base. The end result will be lower profitability and private lawsuits. In short, a weak and ineffective compliance system can spell disaster for an adviser. Paul F. Roye, Meeting the Compliance Challenge, Remarks Before the Investment Counsel Association of America (Apr. 23, 1999), available at ttp://www.sec.gov/news/speech/ speecharchive/1999/spch271.htm.
41. For a discussion of the importance of reputation to the SEC's compliance efforts, see H. Lowell Brown, The Corporate Director's Compliance Oversight Responsibility in the Post Caremark Era, 26 Del. J. Corp. L. 1 (2001)
42. James Rathz, Compliance as the Competitive Differentiator, 12 Duq. Bus. L.J. 13, 24-25 (2009) ("If a particular compliance metric included in the compliance story line were to deteriorate to vulnerability or deficiency status, the public message could be significantly marginalized, thereby introducing increased reputation risk to the firm. " (footnote omitted).
43. Liaquat Ahamed, Lords of Finance: The Bankers Who Broke the World 429-31 (2009).
44. Liaquat Ahamed, Lords of Finance: The Bankers Who Broke the World 506-07 (2009).
45. Liaquat Ahamed, Lords of Finance: The Bankers Who Broke the World 13 (2009).
46. Carpenter tracks the time it took for the agency to render decisions on new drugs, pp. 495-503, counts the references to phased clinical studies in Western medical literature, p. 293, conducts an event study in which he examines changes in pharmaceutical manufacturers' stock prices following news from the FDA, p. 583, and engages in other counting exercises that pack the book with information without resorting to highly complex models, see pp. 675-85.
47. See pp. 302-14 (providing examples of Carpenter's exhaustive detail regarding all relevant stakeholders).
48. E.g., Marcia Angell, FDA: This Agency Can Be Dangerous, N.Y. Rev. Books, Sept. 30, 2010 (reviewing Reputation and Power), available at http://www.nybooks.com/ articles/archives/2010/sep/30/agency-can-be-dangerous/.
49. Pp. 736-38. This would occur if Congress reduced funding to the agency as fee revenue-directed exclusively to approvals-increased, as some observers have suggested might be the case.
50. Dain C. Donelson & David Zaring, Requiem for a Regulator: The Office of Thrift Supervision's Performance During the Financial Crisis, 89 N.C. L. Rev. 1777, 1792 (2011) (noting the critique that financial regulators are "dependent... on fees from charter holders").
51. About the Fed, Fed. Res. Bank of S.F., http://www.frbsf.org/publications/ federalreserve/monetary/structure.html (last visited Nov. 16, 2011).
52. See, e.g., Letter from Giovanni P. Prezioso, Outgoing Chair, Exec. Council of the Fed. Bar Ass'n's Securities Law Cmte., to Members of Congress (June 11, 2010), available at http://www.scribd.com/doc/32916876/Federal-Bar-Association-Letter-on-S-E-C-Funding
53. see also Ronald D. Orol, Five SEC Chairmen and Schumer Push for Self-Funded SEC, Market Watch (Apr. 15, 2010, 3:50 PM), http://www.marketwatch.com/story/five-sec-chairs-andschumer-want-self-funded-sec-2010-04-15.
54. Adam Levitin, The Political Economy of CFPB Funding, Credit Slips (Nov. 29, 2010, 8:06 PM), http://www.creditslips.org/creditslips/2010/11/the-political-economy-of-cfpbfunding. html (noting that Congress adopted the CFPB's financing structure to ensure that political disputes would not financially hobble the agency).
55. See David Zaring, Einhorn and Lewis on the Financial Crisis, The Conglomerate (Jan. 4, 2009), http://www.theconglomerate.org/2009/01/einhorn-and-lew.html (noting these examples).
56. 5 U.S.C. §§ 551-559, 701-706 (2006).
57. See, e.g., NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010) (petitioning for review of an SEC order)
58. Our Children's Earth Found. v. EPA, 527 F.3d 842 (9th Cir. 2008) (alleging that the EPA failed to comply with the Clean Water Act).
59. See, e.g., Richard B. Stewart, Administrative Law in the Twenty-First Century, 78 N.Y.U. L. Rev. 437, 442 (2003) (describing the "interest representation" model that arose in the 1970s).
60. See Barbara L. Bezdeck, Contractual Welfare: Non-Accountability and Diminished Democracy in Local Government Contracts for Welfare-To-Work Services, 28 Fordham Urb. L.J. 1559, 1559 (2001) (discussing the movement of welfare policy to the state and local levels)
61. Tim Iglesias, Housing Impact Assessments: Opening New Doors for State Housing Regulation While Localism Persists, 82 Or. L. Rev. 433, 484 (2003) (discussing the role of local housing movements in influencing HUD policy).
62. See David Zaring, Administration by Treasury, 95 Minn. L. Rev. 187, 193-94, 238 (2010) (discussing how the Treasury Department's administration differs from the strictures of the APA and noting that "older agencies like the Departments of State and Defense" also "do things differently" than APA-regulated agencies).
63. Jerry L. Mashaw & David L. Harfst, Inside the National Highway Traffic Safety Administration: Legal Determinants of Bureaucratic Organization and Performance, 57 U. Chi. L. Rev. 443, 447-48 (1990).
64. Charles J. Walsh & Alissa Pyrich, Rationalizing the Regulation of Prescription Drugs and Medical Devices: Perspectives on Private Certification and Tort Reform, 48 Rutgers L. Rev. 883, 973 (1996).
65. David Zaring, Administration by Treasury, 95 Minn. L. Rev. 238 (2010) ("There are other agencies like Treasury, agencies that play important roles in the government without playing important roles in the judicial (or OMB) administration of the executive branch and administrative state. These departments include the pre-APA agencies, and those whose regulatory mission does not comfortably fit in a model of consumer protection or interest group representation. ")