Visions of Radical Reform in South Africa: Toward a New Constitutional Economy

Dennis Davis, William E. Forbath, Lucie E. White & Julia Dehm –

This is the first post in a two-part series about law and political economy in the South African context. The second post can be found here. The series reports on a collaboration among leading ‘heterodox’ economists, left-wing sociologists, high level government policymakers, and legal scholars, advocates and activists aimed at “thinking large” about reconstructing the nation’s political economy.

Law and Political Economy is about rekindling radical political economy for the twenty-first century, understanding law’s part in today’s political-economic order and imagining how law may figure in its transformation. While most of the posts on this blog have focused on the domestic U.S. context, law and political economy is a global project. Nowhere is this project more urgent than in South Africa.

It goes without saying that great economic inequality is a longstanding legacy of apartheid.  But Jacob Zuma’s tenure as President has been branded a period of “state capture”; key democratic institutions were hollowed out and repurposed for private enrichment.  So, the present crisis is marked by deepening class antagonism, an ever-growing distrust toward government and political elites, and mounting rage and despair among the poor black majority.  Many distrust the possibilities of democratic politics to make good on the egalitarian promises of the nation’s twenty-one year old Constitution, and the most thoughtful observers of and participants in the nation’s public life doubt that its democratic institutions can endure without radical reform.  Yet, as Cyril Ramaphosa begins his tenure as President, there are some glimmers of hope.

Last May, the four of us invited a group of South Africa’s leading “heterodox” economists, left-wing sociologists and high-level government policymakers, together with prominent social and economic rights advocates, legal scholars and community activists to begin a collaboration in “thinking large” about reconstructing the nation’s political economy.

In this first part of a two-part series, we will briefly sketch the thinking that prompted this effort, and a few initial ideas for institutional reform that have begun to emerge from it. In the second part of this series, we will outline some of visions of redistribution that emerged from our conversation. A longer account of our conversation can be found in a White Paper we prepared for the Open Society Foundation.

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From Form to Reform in Law and Finance: Tammy Lothian

Robert Hockett –

As with most topics having to do with our primary modes of production and distribution – “microeconomics,” “macroeconomics,” “industrial economics,” “labor economics,” … – so with “financial economics” there is a well-entrenched orthodoxy that seems to enjoy pride of place in the academy and on the hustings. Indeed, one often hears “the financial markets” described as that site of economic activity which most closely approximates, in respect of its principal players, constitutive features, and felicitous outcomes, the received Smithian wisdom on decentralized market economies and their virtues.

Financial market participants lack market power, we are told, and the trading mechanism quickly impounds privately held value-pertinent information into publicly observable securities prices. Hence the financial markets can generally be relied upon smoothly to channel investment capital toward its “most valued uses” on a real-time basis. Continuous buying and selling produce informational efficiency, that’s to say, while informational efficiency produces allocative efficiency. Et voila, we are all of us left better off, producing more of what’s most valued and less of what’s least valued than could otherwise be reasonably expected. All thanks to our financial system – like our healthcare system, “the envy of the world.”

If there is any realm, then, in which public intervention should be “light touch” and minimal, orthodoxy tells us that it is the realm of finance. Sure, many a self-styled progressive economist will concede, there are market failures aplenty in some spheres that warrant public intervention. There is “the labor market,” for example, where monopsony power on the part of employers must be counterbalanced by state-sanctioned monopoly power on the part of employees. Or there is “the environment,” in connection with which pollution externalities are an ever-present source of inefficiency that must be made to be re-internalized. But the financial markets are one place where nature is best left to take its beneficent, Scottish Enlightenment course.

It is almost as if the vaunted “Fundamental Theorems” of welfare economics were conceived and derived with the financial markets as their “intended interpretation.”  And maybe they were: note the work done by futures markets, for example, in Hicks’s foundational Value and Capital – work of which Hicks’s intellectual descendants Ken Arrow, Gérard Debreu, and others made similar, and seminal, use later. Surely, then, the financial markets are our most market-like markets – they are markets at their just and efficient best, they are markets par excellence.

Now to anyone who has been paying attention to “real world” economic or even political developments over the past decade or so, the foregoing remarks must ring facetious. Isn’t “Wall Street” the seedbed of all that went wrong in the American and global economies during the lead-up to 2008 and its aftermath? Isn’t Wall Street itself what was accordingly “occupied” once it grew clear that neither Congress nor President Obama were going to do much beyond Dodd-Frank to put things right? And didn’t bank-bashing figure prominently, even if cynically, in certain “AstroTurfed,” pseudo-populist rightwing political movements in 2010 and 2016?

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The Mythical Community Bank

Mehrsa Baradaran — 

It’s not particularly surprising that ten years after the financial crisis, the Senate is poised to pass a deregulatory banking bill. In the world of banking regulation, memories are remarkably short. In fact, armies of lobbyists have been slowly chipping away at Dodd- Frank since its passage. But there is something sinister in the way Democrat and Republican supporters of this bill characterize what they are doing: supporting community banks so that they can serve their communities. They conjure images of George Bailey banks across the country, just waiting to be free of onerous and expensive government regulation in order to help disadvantaged and undeserved communities.

“Main Street businesses and lenders tell me that they need some regulatory relief if we want jobs in rural America,” Democratic Senator Jon Tester of Montana said during a hearing to vet the bill in November. “These folks are not wearing slick suits in downtown New York or Boston. They are farmers, they are small business owners, they are first-time homebuyers.”

But what is it that these “Main Street lenders,” fighting the Henry Potters of the world, want? The bill would exclude from Federal Reserve risk oversight banks with assets between $50 to $250 billion. There is a glaringly obvious problem with this: banks with those kinds of assets are hardly small community banks. In fact, the bill is a Trojan horse, using community banks as cover to deregulate some pretty large regional banks. Many banks that fell into trouble during the last financial crisis are within the proposed size range. This simply isn’t about harmless small banks that are just trying to help the downtrodden mom and pop store or the marginalized borrower seeking a mortgage so she can live the American dream. It’s just another sop to the big banks.

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Weekend Roundup 03.09.18

The week’s posts and the best of what we’ve been reading, for your weekend pleasure.

This week at LPE Blog, reformisms were on the chopping block. We started with the second installment of Sabeel Rahman’s series on structural equality and law, where he argued that structural problems like inequality will not be solved by “meliorist reforms” that may advance some people within a given system if the system itself produces inequality. Instead, legal solutions must tackle “the ways in which law and policy operate in the background to produce structural forms of concentrated private power, patterns of discrimination and segregation, and barriers that exclude access to foundational goods and services.” As he points out, many contemporary social movements have framed their struggles against structural inequality, rather than particular bad actors.

Will Bloom offered an example of one such movement in his piece drawing connections between the Fight for $15 and recent teacher’s strike in West Virginia. In both movements, workers are breaking out of the old model – which enabled adjudication between employers and employees in a particular firm – and organizing to challenge conditions across an entire sector. As the New Deal labor settlement crumbles, Will suggests that the labor movement has a chance to build broader solidarities, and potentially to reset the background conditions for traditional collective bargaining. Here are some more stories about the strike you might like. Ok, one more. And a tweetstorm (worth it!)

Both Sabeel and Will had me thinking about socialist theorist André Gorz’s famous concept of the “non-reformist reform,” a metric he created to help break out of the reform/revolution binary. Unlike “reformist reforms,” which don’t advance structural re-alignment, Gorz’s “non-reformist reforms” bend the arc of justice a little bit at a time. In the gradualist world of American law, it can sometimes be difficult to tell which way the wind is blowing. Are small steps capitulations to an unequal system, or openings for the momentum of larger change? The “non-reformist reform” slows down the imagined pace of change, but not the magnitude of potential transformation.

And then yesterday we published this beautiful piece by Amy Kapczynski and Jedediah Purdy on gun rights and sovereignty in neoliberal times. It’s worth a read for the summary of Reva Siegel’s article about the recent invention of an individual right to bear arms in constitutional law, if you haven’t encountered that before, but Amy and Jed really hit their stride when they draw links between the ways gun rights proponents mobilize race, constitutionalize private violence, and lobby to shield gun manufacturers from ordinary rules of liability. The piece shows the strength of the LPE frame amid an avalanche of hot takes.

There was some great LPE writing in other corners of the internet this week. In the Boston Review, Sam Moyn reviewed Mark Lilla’s The Once and Future Liberal: After Identity Politics. Rather than offer another hate-read of the book (read this one if you read any), Moyn finds something to praise in Lilla’s suggestion that the Democratic Party ditch neoliberalism for economic justice. Without giving Lilla more credit than he is due, Moyn converts the review into an elegant indictment of both liberals eager to scapegoat identity groups for the travails of the left, and the Dems for tacking right even when they had governing power. Aziz Rana also has an LPE-inflected analysis of the 2016 election in the most recent N+1. He calls it the “last election of the cold war,” and argues that the center-right and center-left consensus that has characterized elite politics since Truman has finally buckled under the weight of contemporary social and economic crises. He connects the movements that supported Bernie Sanders and Donald Trump to their historical antecedents in early 20th century American socialism and white nationalism, respectively. For LPE readers, perhaps the most incisive moments come in Rana’s prescription for “overcoming institutional paralysis in our constitutional system” by un-rigging electoral systems, promoting real workplace democracy, and running candidates to the left of the DNC’s chosen few.

Remember to send us your pitches, your questions, and tune in next week for more from LPE Blog. Rumor has it there may be an LPE podcast pending, but you didn’t hear that from me.

-KR

Guns and Privatized Sovereignty

nraAmy Kapczynski and Jedediah Purdy –

Like many of you, we’ve been moved by the voices of the student activists from Marjory Stoneman Douglas High School. With fierce focus and astonishing political savvy, they’ve unleashed an urgent new national debate about gun control.

America today has the highest per capita gun ownership in the world, and evidence suggests that this is substantially why we also lead the world (with Yemen) in mass shootings. How did this come to be? Defenders of the status quo argue that at the core of gun rights claims are timeless constitutional principles and the virtues of hunting. Their touchstone is the Second Amendment, and its purported individual right to bear arms. In truth, the contours of today’s gun rights took shape in the recent past, in an era of racialized attacks on public institutions and the state, and of politically motivated cultivation of fear.

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Building on the Fight For $15: Lessons from the West Virginia Strikers

Will Bloom —

In a week chockful of major news about the American labor movement, no story has captured the imagination of workers and labor activists across the country like the West Virginia teachers’ strike. Despite having no legally protected right to strike or collectively bargain, and despite facing Republican control of both houses of the legislature and a newly Republican governor, teachers and school support staff have been on strike since February 22. They have enough statewide support to keep schools in all 55 counties shut down. The union leadership even cut a deal with Governor Justice in which he pledged to support legislation giving teachers a 5% raise, and still the workers refused to end the strike, holding out until the bill is passed and until the state addresses ballooning costs to workers of PEIA, the state employee health system.

Many have written about what this battle can teach us about the future of American class war. In light of the Supreme Court’s impending decision in Janus v. AFSCME, what happens to teachers in a non-fair-share state like West Virginia is especially significant for public sector workers nationwide. But it also has lessons to teach about a new form of labor organizing previously best exemplified by the Fight for 15 campaign (FF15). Though the two may seems very different in terms of industry and geography, both take a sectoral approach to collective bargaining that breaks out of the traditional employer-employee dyad and enlists public political actors . The West Virginia teachers’ surprising success shows what can happen when that structure is combined with a mass, militant movement of workers expressing their power through direct action.

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Structural Inequality and the Law: part II

K. Sabeel Rahman

In the 2015 case Texas v. Inclusive Communities Project (2014), the Court upheld the application of a disparate impact standard for judging violations of the Fair Housing Act, enabling advocacy groups to challenge urban development policies that (re)produced patterns of racial and economic segregation. In justifying this interpretation of the statute, Justice Kennedy offered in his majority opinion a brief account of the ways in which racial and economic segregation has persisted and been codified by a variety of legal and policy regimes, despite the formal elimination of de jure segregation.  Meanwhile, writing in dissent in the 2013 Shelby County v. Holder case where the Roberts Court struck down the preclearance protections of the Voting Rights Act, Justice Ginsburg provides in her opinion a lengthy exposition of the various “second-order” forms of voter suppression and discrimination, outlining how an apparently well-functioning democratic process in fact was riven by systemic patterns of discrimination and political inequality.

These glimpses are indicative of a growing awareness that social justice must be understood as a structural phenomenon encompassing a complex interplay of economic, racial, gender, and political dimensions. Many different legal and policy choices combine to create systemic forms of inequality and exclusion. As discussed in the previous post, one of the key ways these claims for greater inclusion and equity are precluded is by casting them as products of “natural” economic forces, not subject to human agency and alteration. However, even if structural forces are acknowledged to be within the scope of public redress, how to combat them is often viewed too narrowly. This post suggests that the remedies for structural inequities require a similarly structural approach.

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Structural Inequality and the Law: part I

K. Sabeel Rahman 

In the 2007 school desegregation case, Parents Involved in Community Schools v. Seattle School District No. 1, the Supreme Court struck down the voluntary school desegregation efforts by Louisville, Kentucky, and Seattle, Washington for employing an overly aggressive mode of racial balancing. In his majority opinion, Chief Justice John Roberts argued that de jure segregation—of the sort that marked the Jim Crow South—had been officially eliminated as in the case of Louisville, and had never been employed in Seattle. Thus whatever racial disparities existed in these regions were not the product of law. For such schools, Roberts wrote, “[t]he way to stop discrimination on the basis of race is to stop discriminating on the basis of race.” The systematic racial segregation of modern metro areas, long documented by urban scholars as a result of economic inequalities, racial wealth disparities, and deliberate policies of zoning and urban planning, did not factor into Roberts’ analysis.

A relative lack of concern for what might be termed “structural” inequality has characterized the Roberts Court’s voting rights jurisprudence as well. In Citizens’ United v. FEC, which upheld corporate campaign contributions as political speech, the Court ignored how disparities in economic wealth could skew the otherwise free-flowing marketplace of ideas or the dynamics of political competition. In Shelby County v. Holder, Roberts suggested that the preclearance regime established by the Voting Rights Act of 1964 to oversee voting regulations in many Southern states was no longer needed. In her dissent, Justice Ginsberg castigated Roberts’ argument as, among other things, exhibiting a blindness to more subtle “second-generation” barriers preventing minority groups from exercising their voting rights in full.

These glimpses point to a larger challenge for legal scholarship, analysis, and policymaking. The question of structural inequalities often stump courts and lawmakers alike. What does it mean for inequality to be “systemic”? Can any single actor be held responsible for such systemic or structural disparities? If these disparities are so diffuse, so baked into the background patterns of social and economic activity, how would they even be redressed or counteracted? This two-part series offers a means of conceptualizing both structural inequality and its means of redress.

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There is no necessary trade-off between good work and more work

Frank Pasquale – 

Mainstream economists tend to frame employment policy as a series of tragic trade-offs. If policymakers raise the minimum wage, they are told, employment will inevitably fall, perhaps precipitously. Requirements for vacations, too, might crash the job market. (Never mind that dozens of other prosperous countries mandate paid vacation time.) Technocrats of the center left complain about employer-sponsored insurance as a dreadful distortion of the labor market. Sick pay, family medical leave, maternity and paternity leave—all have been blasted by one economist or another as a drag on economic growth and employment levels. “You are only hurting the people you are trying to help,” labor activists are told, again and again.

Such models are intuitively plausible, thanks to what James Y. Kwak has called “economism:” simplistic perspectives resulting from mechanical applications of supply and demand models to complex social phenomena. In general, the more costly something is, the less consumers will demand it. That reasoning leads, in turn, to more sweeping claims about the need to deregulate labor markets. If there is one policy issue most likely to consolidate bipartisan consensus among economically minded technocrats, it is a suspicion of barriers to entry in the workforce, including occupational licensure and “credentialization.” They lament the former as a paradigmatic example of state power hijacked by private interests to enrich themselves. Credentialization is framed as a market failure: The unjustified preference of bosses for workers educated in ways not directly related to the tasks they will be performing at work.Supply and Demand diagram. Demand has negative slope. Supply has positive slope. further explained below

The bottom line of this economism is grim. To the extent the state requires certain qualifications of workers, or workers themselves demand time off or other entitlements, there will be fewer jobs. Economist Tyler Cowen asks whether “whether workers might not enjoy ‘too much’ tolerance and freedom in the workplace.” While cash wages are taxed, “perks” are not, so employers will be tempted to oversupply perks at the expense of wages (or, even more troublingly to neoclassical diehards, at the expense of shareholders).

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Environmental Trumpism at Bears Ears

Jedediah Purdy – 

The enormities keep coming. The Trump Administration is especially busy in environmental and natural resources law, where the executive branch can get a lot done without Congress.  There’s the elimination of the Clean Power Plan, the revival of offshore drilling, withdrawal from the Paris Agreement on climate change, repeal of rules to protect streams from mountaintop removal and to protect people from mercury, an overall directive to open public lands to mineral extraction wherever possible, and a proposal (scotched by FERC) to finance a giant purchase of coal reserves with utility customers’ fees. The Administration has adopted the slogan “Energy Dominance” for its policies (sub-slogan: “When energy independence isn’t enough”).

Cliff formations at Bears Ears National Monument

Environmental policy pretty well crystallizes two of the Trump Administration’s distinguishing qualities: corruption and ethno-nationalism. On the corruption tip, there’s the positive eagerness to hand over the resources of the public domain to the fossil-fuel industry and give environmental cost breaks to mining companies and everyone else. It’s as likely as not that there will be some scandals in the bidding process and so forth before this is done; but the real thing here is what Zephyr Teachout calls “structural corruption”: This Administration identifies with the extractive industries and their interests, and will happily see the world through their eyes (which is say, in keeping with their bottom lines).

As for nationalism, this Administration’s trick is to turn anything—anything—into a version of right-wing identity politics. When EPA director Scott Pruitt announced the end of the Clean Power Plan, he did it in Hazard, Kentucky, flanked by coal miners, and announced, “The war on coal is over.” The “war on coal” is a story the coal industry has been telling mining communities for a decade now: that they’re under mortal attack by liberals who don’t respect hard work and want to wipe out their way of life. Trump’s has turned extractivism into an icon of his ethno-nationalism.

These themes also intersect in a major fight over western public lands. On December 4th, 2017, Trump announced he was stripping 1.15 million acres of land, about 85% of the total area, from the Bears Ears National Monument in southern Utah. Barack Obama had created the monument just a year earlier. The same day, Trump also announced a major reduction in Grand Staircase-Escalante National Monument, in the neighboring county, which Bill Clinton created in 1996. Coal, uranium, and some oil and gas exist throughout the region, and if the change goes through it will be another symbolic stroke for Energy Dominance against the War on Energy.

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