Georgetown Law Journal
101 Geo. L.J. 1023
JON D. MICHAELS *
* Assistant Professor of Law, UCLA School of Law. (c) 2013, Jon D. Michaels.
… Hardly a repudiation of that which motivates government service contracting, these emergent alternatives serve as monuments to the very effectiveness of the privatization agenda–an agenda ably served by marketization’s dismantling of the civil service and government by bounty’s high-risk, high-reward market partnerships. … I explain how, in enhancing the privatization agenda, marketized bureaucracy and government by bounty challenge the administrative state, streamlining and reorienting public programs, reversing long-standing practices, and forcing courts to recalibrate core administrative law doctrines. … They hired contractors precisely because private-sector workers lacked the civil servants’ employment protections –and thus had greater incentive to follow the Administration’s lead. … Using social-impact bonds as an illustrative case study, I examine the specific ways in which this government bet has the potential to outperform traditional service contracting vis-à-vis efficiency, cost savings, and political payout. … The availability of performance-based bonuses for exceptional work gives now-marketized government employees some of the same incentives enjoyed by bounty seekers and traditional service contractors. … And, if we are inclined to agree with Justice Scalia, who predicted that Mead creates incentives for agencies to engage in more rulemaking–thereby securing refuge in Chevron’s highly deferential safe harbor –marketization’s widening the gap between Chevron and Skidmore deference would only intensify agencies’ preference for rulemaking over less formal approaches. … Unlike traditional service contracts, bounties shift costs and responsibilities to would-be bounty seekers. … To maximize the desirability of the bounty, governments might therefore work to ameliorate other types of risk, specifically those beyond the bounty seeker’s control. … First, it affirmed that, among privatization’s proponents, service contracting seemingly remains an especially viable approach for boosting efficiency, conserving budgetary resources, maximizing unitary executive control, and scoring political points with the electorate.
HIGHLIGHT: Privatization’s proponents are branching out. They have traditionally relied on government service contracting to boost efficiency, maximize budgetary savings, enhance unitary control over the administrative state, and reap political dividends. Now, however, these proponents are also blazing newer, bolder paths. They are experimenting with more powerful instruments that offer surer, quicker routes to promote privatization’s aims.
This Article explores how these new instruments uniquely challenge the administrative state, reorienting public programs, reversing longstanding practices, and forcing courts to recalibrate core administrative law doctrines. Specifically, these new instruments enable school districts to “teach to the test,” states to barter away sovereign authority, and presidents to politicize the bureaucracy. They also test the robustness of foundational legal precepts under-girding hard-look review, Chevron and Skidmore deference, and constitutional due process. Ultimately, the emergence of these new instruments reflects the extent to which government today is commingling political and businesslike agendas in ways both liberating and threatening.
These ought to be heady times for government service contracting. n1 Once a controversial hobbyhorse of libertarian policy wonks and conservative ideologues, service contracting is now mainstream, championed by leading officials across the political spectrum. n2 Once the target of serious legal challenges, contracting emerged from those early courtroom battles not only unscathed, but also emboldened by the judiciary’s tacit endorsement. n3 And, once believed too dangerous to be introduced in contexts calling for the exercise of sovereign power, service contracting is now ubiquitous in military combat, n4 municipal policing, n5 rule promulgation, n6 environmental policymaking, n7 prison administration, n8 and public-benefits determinations. n9
[*1026] But times are changing. Privatization’s proponents have always relied on government service contracting n10 to promote its four-fold agenda: boosting efficiency, maximizing budgetary savings, enhancing unitary control over the administrative state, and reaping political dividends. n11 Now, however, these proponents are also branching out. They are experimenting with newer, more compelling instruments that provide surer, quicker routes to promote privatization’s fiscal, political, and programmatic aims. In short, they are empowering a new generation poised to advance the privatization agenda in ways traditional service contracting never has. They are empowering privatization’s progeny.
The first of privatization’s progeny is the marketization of bureaucracy. Much of traditional service contracting’s perceived payoff has come from the private sector’s superior ability to discipline its workforce and to keep labor costs down. n12 Unlike most business executives, government agency heads have long been (as some see it) saddled with above-market labor costs, powerful collective-bargaining units, and civil-service laws that effectively tenure government employees. n13 For decades, those frustrated with government labor policy have turned instead to service contracting. Far easier to contract around the civil service than to uproot its legal foundation, contracting proved a palatable (if insidious) means of infusing market principles into government services without actually having to tear apart the bureaucracy.
Today, however, there is less of a need to conceal privatization’s true purposes. Across the United States, elected officials as conservative as Wisconsin’s Scott Walker and as liberal as California’s Jerry Brown are taking direct aim at the bureaucracy. n14 We see evidence already that public-sector compensation is being slashed, that government workers’ collective-bargaining rights are being curtailed, that civil-service jobs are being converted into at-will employment positions, and–most importantly–that even more drastic changes are forthcoming. n15
[*1027] In short, we no longer need service contracts to mask the bitter taste of radical reform. Now that overhauling the civil service and refashioning the government workforce in the private-sector’s image is a much easier pill to swallow, privatization’s proponents need not rely as much on service contractors. By cutting out the contractor-middleman, they can instead funnel previously outsourced responsibilities into a “marketized” bureaucracy that provides new, in-house opportunities to reap efficiency and cost-savings gains, and to achieve greater unitary executive control over the administrative state.
The second of privatization’s progeny is government by bounty. Although privatization’s proponents hail the successes of government contracting, they also recognize that the traditional service contract is not a perfect instrument. n16 Their disillusionment with the traditional contractual form does not, however, imply wholesale disillusionment with privatization’s core objectives. Rather, it simply means that those proponents might well be seeking surer ways to align principal-agent incentives, spur innovation in public administration, save money, and drum up political support. In these respects, even a purely marketized bureaucracy might not be the answer, regardless how closely it now resembles service contracting. Instead, dissatisfaction with traditional contracts might lead policymakers even further away, as it were, from government control, toward bounties that accord greater autonomy and assign greater risk to private actors.
In effect, bounties are government-sponsored bets or prizes. Unlike traditional contractors, bounty seekers invest their own resources to advance public aims. And, unlike traditional contractors, bounty seekers get reimbursed and rewarded only if they successfully carry out their specified tasks. Thus, the thinking goes, bounty seekers will be highly motivated to serve the government well. Innovations such as social-impact bonds, FDA priority-review vouchers, R&D prize competitions, prediction markets, and the leasing of toll roads to the private sector exemplify the breadth and depth of bounty arrangements starting to crop up across the administrative state.
There are also non-technocratic reasons for jumping off the traditional service contracting bandwagon (while remaining faithful to the privatization agenda). [*1028] Reminiscent, perhaps, of Yogi Berra’s famous quip, traditional contracting might be so popular today that no one does it anymore. n17 Government service contracting’s overwhelming appeal is a double-edged sword. As much as it neutralizes political opposition, allowing contracting to proceed with fewer hiccups, this popularity also makes contracting less worthwhile to pursue. It is less politically remunerative to elected officials seeking to distinguish themselves as bold, iconoclastic reformers. And, it might be less intoxicating to the ever-growing contingent of free-market stalwarts and Tea Party activists, n18 who have become desensitized to the apparent ubiquity and ease of contracting and now crave more drastic reform. For these reasons, we would also expect politically opportunistic proponents to seek new approaches to restructuring or downsizing government. That’s exactly what government by bounty offers.
Accordingly, with privatization converting government bureaucracies and colonizing new markets, we find ourselves on the brink of a great expansion, an expansion both faithful to the principles underlying the push to privatize and apostatic to its conventional form. This Article marks this important moment. It identifies the forces beginning to sap (still-popular) traditional service government contracting of its unique utility and luster. It explains the generational expansion from privatization being virtually coextensive with service contracting to privatization now beginning to operate across a broader range of platforms. n19 And, it grapples with the institutional fragmentation and legal de-stabilization hastened by the emergence of privatization’s progeny.
In the course of charting this terrain, big, important questions will invariably come up. They come up precisely because privatization’s progeny operate on the front lines of many of today’s normative battlegrounds. Privatization’s progeny influence (and are influenced by) our assessment of the proper size, scope, and orientation of the State vis-à-vis the Market, our prioritization of politically accountable public administration, and our enthusiasm for distributive justice and participatory democracy.
I have a set of normative preferences that generally align with the State being a decidedly non-market sphere that functions best, and most legitimately, when politically insulated experts and politically responsive managers team up to [*1029] carry out public policy. Those preferences inevitably inform parts of this Article. But propounding (or defending) those preferences is not–and cannot be–the central aim of this project. The task at hand is an agenda-setting one. That is to say, the positive account of the nascent generational expansion we are witnessing must come first. We must understand where we have been, where we are now, and where we seem to be going. We must understand this not only with respect to the privatization agenda but also with respect to the administrative state writ large. Doing so will only enrich the broader normative inquiries that I reserve for another day.
This Article proceeds in three parts. Part I describes the privatization agenda’s chief objectives–namely, to increase efficiency, save money, circumvent an obstinate bureaucracy, and score points with the electorate–and shows how traditional service contracting promises to advance those objectives.
Part II then explains why, despite signs seemingly pointing in the direction of an even greater surge in traditional government service contracting, we might expect such contracting to decline in importance. Here I present my affirmative account of privatization’s generational expansion. Simply put, there is nothing talismanic about the traditional government service contract per se. The contract has served as a convenient vehicle, advancing distinct, sometimes subversive, substantive, procedural, budgetary, political, and organizational objectives. Now, however, the nascent marketization of the bureaucracy and the newfound momentum driving bounty schemes lessen the need and enthusiasm for traditional service contracting. Hardly a repudiation of that which motivates government service contracting, these emergent alternatives serve as monuments to the very effectiveness of the privatization agenda–an agenda ably served by marketization’s dismantling of the civil service and government by bounty’s high-risk, high-reward market partnerships.
Whereas Part II plants the flag announcing the arrival of privatization’s progeny, Part III follows their development and discusses their impact. I consider these new offsprings’ growing pains, their sibling rivalries, and even their moments of adolescent rebellion. I explain how, in enhancing the privatization agenda, marketized bureaucracy and government by bounty challenge the administrative state, streamlining and reorienting public programs, reversing long-standing practices, and forcing courts to recalibrate core administrative law doctrines. It is in this last Part where we see privatization’s progeny implicating policy considerations as far-reaching as school districts “teaching to the test,” states bartering away sovereign authority, and federal agencies using government employment as a stealth engine of socioeconomic empowerment. It is also in this last Part where we see privatization’s progeny test the robustness and durability of foundational legal precepts undergirding hard-look review, Chevron and Skidmore deference, state-action doctrine, and constitutional due process. Looking at marketization and government by bounty through these institutional, programmatic, and doctrinal lenses allows us to appreciate their wide-ranging effects, to gauge how these instruments are changing the administrative [*1030] state, and to begin to write the postmortem of the traditional, contracting-monopolized world we are slowly leaving behind.
I. PRIVATIZATION’S PAST
Much like a paper clip in the hands of MacGyver, traditional service contracting is a surprisingly versatile and powerful tool. For decades, privatization’s proponents have harnessed this versatility and power to (1) boost government efficiency, (2) maximize budgetary savings, (3) enhance unitary control over the administrative state, and (4) score political points with the electorate. n20
This Part tells the story of where we have been–with privatization’s proponents relying heavily on service contracting to advance their four-fold agenda. It also sets the stage for the discussions that follow. It sets the stage, first, for understanding the generational expansion that is presently upon us–with privatization’s proponents turning additionally to newer, bolder instruments to advance their agenda. And, it sets the stage, second, for understanding where these new instruments are poised to take us–with marketization and government by bounty challenging the administrate state in ways service contracting never has.
1. Long-Standing Efficiency Rationale
Privatization’s proponents consider government agencies and government workers insufficiently attentive to efficiency considerations. They believe bureaucracies lack the requisite incentives to provide the highest quality services at the lowest cost possible. By contrast, they view government service contractors as possessing those incentives in spades. n21
At the organizational level, contracting firms are moved by profits and by the threat of ouster–that is, of being replaced by a more responsive, responsible competitor. Simply stated, they want to win (and keep) contracts and thus are driven to perform exceptionally well. n22
[*1031] This drive trickles down to the employees of contracting firms. Corporate managers know that their firms’ success pivots on the productivity and creativity of their workforce. Thus, they take steps to align corporate interests (for example, profits and the fear of being replaced) with employee interests. They do so by rewarding diligent work, n23 and by punishing unsatisfactory performance. n24
As suggested, privatization’s proponents view government agencies as less motivated to “maximize value.” n25 There are no profits for which to strive, and bureaucracies generally do not face the threat that poor performance will result in their being replaced. Unmoved by profits and possibly lulled into complacency by the absence of competitive rivals, government agencies might–so privatization’s proponents fear–operate at a less dogged pace; n26 or, they might pursue objectives at odds with their legislative mandate. n27 In such instances, efficiency suffers.
Even if we were to assume that government managers were as driven to perform as their contractor counterparts, they historically have not been equipped with the necessary arsenal of carrots and sticks to ensure that their employees also embrace the efficiency imperative. Civil-service laws sharply reduce at-will government employment–and, with it, the threat of termination. n28 The same [*1032] civil-service safeguards, put in place principally to prevent the politicization of the bureaucracy, n29 also restrict opportunities for agency heads to reward industrious workers (through rapid advancement or monetary bonuses). n30
For these reasons, privatization’s proponents view the administrative state’s legal architecture as “weaken[ing] public sector employees’ extrinsic incentives to be responsive and energetic in pursuing their duties.” n31 Hence service contracting’s attractiveness.
2. Heightened Contemporary Rationale for Efficiency
From an efficiency standpoint, these ought to be bullish times to contract. This is so for two reasons. First, the market for would-be service contractors vying to carry out government responsibilities is more robust–and competitive–than ever before. n32 More competition (as greater numbers of firms battle for primacy) correlates intuitively and empirically with more efficient contracting. Intuitively, competition drives down prices, puts pressure on the chosen contractor to perform well, and gives the government viable alternatives should that initially chosen contractor flop. n33 Empirically, studies show that governments do [*1033] indeed contract out more frequently in “the presence of well-developed markets with large numbers of competent private providers.” n34
Second, government experience with administering contracts is at an all-time high. This is important because contracting is not easy. It requires careful drafting of the terms specifying the service contractor’s responsibilities, selection of the “right” contractor, and monitoring to ensure the contractor is satisfying the terms of the agreement. n35 But practice should make perfect–or, at least, better. With each subsequent round, those overseeing contracts gain experience. They learn what went right, and what went wrong. n36 And, they incorporate those lessons into the next round of contracts. n37 Greater contract-management experience ought to lower the marginal costs associated with future iterations of contracting–making those future contracts that much more efficient. n38
Though often overlooked, these government-side costs of contracting are critical in determining whether contracting out a particular responsibility makes [*1034] economic sense. n39 It is therefore hardly surprising that those agencies possessing good contract-management resources are, as an empirical matter, more apt to contract. n40 Accordingly, the passage of time plays into the hands of greater contracting. As agencies continue gaining expertise, they are likely to contract with greater frequency.
B. BUDGETARY SAVINGS
1. Long-Standing Budgetary Savings Rationale
Another reason privatization’s proponents have viewed service contracting as so attractive for so long is that hiring contractors can result in considerable budgetary savings. Rank-and-file government workers are viewed as receiving higher base pay and more generous benefits n41 than their private-sector counterparts. n42 Actually reducing public-sector wages and benefits–and bringing them closer in line with the going market rate n43 –has historically been a political non-starter. n44 Thus, those looking to lower government expenditures (by slashing labor costs) have instead hired service contractors.
[*1035] Note that notwithstanding the rhetoric of the market being more efficient, n45 it might well be the case that much of the “value” from service contracting derives from labor arbitrage–specifically, agencies exploiting the private-public wage differential. n46 If the goal is to reduce expenditures, the contractors need not perform better, faster, or even as well as government workers. They need only cost less. n47
2. Heightened Contemporary Rationale for Budget Savings
Cost savings are not just popular any more. They are deemed imperative. This past decade has been marked by tough budgetary times. The costs imposed by the War on Terror, skyrocketing public-health expenditures, and, most recently, the global economic recession have contributed to soaring federal deficits. n48 States, in turn, cannot run budgetary deficits, n49 and thus feel the fiscal effects of recessions even more acutely. n50 After all, states have to get by with lower tax revenues, greater demand on government services, and–new to this past decade–added homeland-security obligations. n51 As employers of large workforces, states also have to contend with the rising costs of employee health insurance as well as the looming crisis over the solvency of government pension funds. n52
Studies show that governments are particularly aggressive service contractors during times of fiscal duress. n53 These accounts make sense insofar as service [*1036] contracting is believed to help shed labor costs. n54 These accounts also suggest contracting ought to continue surging so long as we remain fiscally compromised. n55
C. UNITARY CONTROL OVER THE ADMINISTRATIVE STATE
1. Long-Standing Unitary Control Rationale
Civilservice laws have long been bulwarks against efforts to politicize the bureaucracy. These laws effectively tenure government workers, n56 enabling them to speak truth to power–that is, to provide expert, unfiltered advice without fear of being fired for doing so. n57
Political insulation of this sort n58 limits the degree to which the Chief Executive has complete control over the Executive Branch. n59 Secure in their jobs, civil servants may obstruct the Administration’s policy aims. n60 Their reasons for [*1037] obstructing might be noble: civil servants resisting political pressure when the public is ill-informed or demands action that contravenes agencies’ statutory mandates. n61 Or their reasons might be base: civil servants pushing their own policy priorities over those of the duly elected Administration. n62 Either way, those who prize political accountability and organizational hierarchy might well lament the ways in which hard-to-fire civil servants can frustrate government policy.
Service contractors do not have such job security. n63 As such, they are motivated to perform diligently. n64 They also have strong reasons for toeing the Administration’s party line. n65 After all, agencies dissatisfied with a service contractor’s independent streak can deny that firm future work; and, firms, intent on remaining in an agency’s good graces, can readily fire individual employees who rock the boat. Accordingly, for those seeking to maximize political control over career civil servants, service contractors are the way to go. n66
2. Heightened Imperative to Maximize Unitary Control Today
For decades, presidents have labored to maximize unitary control over the administrative state. n67 Of late, they’ve been redoubling their efforts. n68 We find [*1038] ourselves today in an increasingly partisan and dysfunctional political climate. n69 Because passing legislation is especially arduous, n70 administrative policymaking takes on heightened importance. n71 Naturally, so does unitary control–which ensures that the agencies devising such policies fully embrace the Administration’s priorities. n72 Accordingly, we might well expect political administrations today to take aggressive steps to promote bureaucratic loyalty by, among other means, contracting out to sideline independent-minded civil servants. n73
D. POLITICAL DIVIDENDS
1. Long-Standing Political-Dividends Rationale
Last but not least: championing service contracting is smart politics. n74 Those who have long promoted privatization have successfully tapped into a powerful political subculture that prizes free enterprise, n75 is leery of big government, n76 and–in a brash display of cognitive dissonance–demands leaner public administration while simultaneously resisting any reductions in its services, benefits, [*1039] or entitlements. n77 Service contracting has pitch-perfect resonance with this influential constituency.
2. Heightened Political Rationale Today
Service contracting has, by now, won the war of attrition. It has outlasted its opponents, both legal and political. But its victory was not foreordained. In earlier decades, uncertainty existed over whether service contracting would survive court challenges or spell electoral doom for those who endorsed it. Given the air of uncertainty, such contracting had to proceed somewhat tentatively.
With the benefit of hindsight, the obstacles placed in the way of government contracting now seem glaringly inadequate. They proved to be nothing more than Maginot Lines, painstakingly constructed but easily sidestepped. As those obstacles have been bypassed, so should any hesitance to contract out.
First, legal challenges alleging that service contracting threatens constitutional values n78 have failed to gain much traction. n79 If anything, the judiciary’s apparent indifference to these challenges seems to confer greater legitimacy on the privatization agenda. No longer hedging against the possibility that courts might invalidate contractual arrangements, proponents increasingly have the green light to surge forward.
Second, politically speaking, we are all privatizers now. But this too has not always been the case. Service contracting used to be much more ideologically divisive. While conservatives and libertarians touted contracting from the very beginning, n80 liberals and progressives opposed the turn to the marketplace. n81 [*1040] With passions running high on both sides, supporters encountered resistance on the hustings. The expected political backlash no doubt limited the size and scope of early initiatives. More recently, however, contracting has become “less ideological, less partisan,” n82 and “less controversial.” n83 It now commands bipartisan support, with centrists and Democrats counting themselves among the politicians most closely associated with service contracting. n84
Given these changed legal and political circumstances, those who champion greater service contracting are no longer taking risks. They’re simply spouting what has become conventional wisdom. n85
II. PRIVATIZATION’S GENERATIONAL EXPANSION
Based on the preceding analysis, service contracting should continue surging forward. For privatization’s proponents, opportunities and imperatives to contract are seemingly greater today than ever before. Yet, at the very moment that service contracting appears poised to gain even greater momentum, one must appreciate that other, more subtle forces are also at work. These forces seemingly reduce, if not altogether negate, the impulse to contract. n86
Simply put, privatization’s popularity enables it to branch out from service [*1041] contracting–to convert and colonize previously inhospitable realms, refashioning them as better, more potent versions of government contracting. The forces fueling this conversion and colonization funnel some government responsibilities centripetally inward, that is, into the bureaucracy. Other responsibilities are pushed centrifugally outward, deeper into the private sector, where the government encourages the market to decide which private actors will advance public programs (and in what ways).
In effect, we’re witnessing a generational expansion. Though service contracting remains a staple feature of contemporary public administration, new upstarts are poised to supplement traditional contracting, advancing the privatization agenda in ways that contracting never has.
The first upstart is the newly marketized bureaucracy. For decades, the government offered its employees generous base compensation and considerable job security. During that time, many of privatization’s proponents found these public-sector arrangements anathema. But rather than tear down the still-prized civil-service framework, they simply circumvented it–replacing what they viewed as costly and insufficiently motivated government workers with service contractors.
Of late, however, the tide has turned against the civil service. n87 We are on the cusp of an all-out assault on the bureaucracy, as evidenced by efforts across the country to reduce wages and benefits, reclassify tenured civil servants as at-will [*1042] employees, and introduce performance-based bonuses to better motivate government workers. These efforts have made government bureaucracy far more like the private sector, thus reducing the need to contract out. Hardly a rejection of the privatization agenda, the marketization of bureaucracy reflects privatization’s evangelical success.
The second upstart is government by bounty. Government by bounty stands on the shoulders of traditional service contracting. Whereas traditional contracting gives preselected private actors a foot-in-the-door, government by bounty kicks that door wide open. Exemplified by such diverse arrangements as regulatory vouchers, prediction markets, qui tam suits, R&D prizes, and social-impact bonds, bounty initiatives abandon the conventional contractual form. n88 In its stead are high-risk, high-reward bets that shift financial and programmatic responsibility onto bounty seekers. Unlike traditional, fee-for-service contractors, bounty seekers get paid only if they win the bet–that is, only if they successfully carry out their given tasks. As a result, the bounty seekers are, in theory, highly motivated and far less susceptible to slack, abuse, and fraud. n89
Moreover, traditional service contracts are old news. They are old news precisely because they have become increasingly commonplace. For political entrepreneurs seeking to garner media attention and to play to an electoral base hungry for the next big thing, government by bounty might provide the same boost that traditional service contracting once gave to those championing that then-novel cause in the 1970s and early 1980s.
This Part sizes up privatization’s progeny. In doing so, it examines the centripetal and centrifugal forces capable of funneling responsibilities inward, into the bureaucracy, and further outward, into unchartered and seemingly less regulated frontiers of commercial enterprise. n90
A. MARKETIZATION OF THE BUREAUCRACY
Among those frustrated by what they see as costly, unresponsive bureaucracy, it has long been apparent that the civil service needed to be transformed. Because overhauling the civil service would be time-consuming and politically treacherous, these critics quickly realized that the better way to restructure the civil service was to bypass it. This was true regardless whether their underlying frustration with bureaucracy sounded in efficiency, budgetary constraints, or political control.
Recently, however, opportunities presented themselves to attack bureaucracy [*1043] head-on. n91 Across the nation, governments began revising their employment policies, chipping away at both the compensation and legal protections government workers long enjoyed. n92 Given today’s efforts to dismantle the civil service (led by, among others, libertarians, Tea Party activists, and even politically moderate elected officials hamstrung by spiraling budget deficits), marketization is poised to make even greater inroads going forward. n93 Thus, what once was done through circumventing the civil service one contract at a time can now be achieved not only more directly, but also more comprehensively–as the government workforce increasingly is made to resemble what we would encounter in the private sector. n94
This section captures the nascent marketization of the bureaucracy, as evidenced by unprecedented revisions to civil servants’ collective-bargaining rights, wages and benefits, and job security. n95 These revisions speak precisely to how successful the privatization movement has been. The quest for greater efficiencies, budgetary savings, and more complete unitary control over the administrative state has become so strong that it is converting parts of the bureaucracy into [*1044] a near-facsimile of a private workforce–and, with it, lessening the need to contract.
1. Diminution of Collective-Bargaining Rights
It is open season on government workers. n96 It has been so even before Governor Scott Walker captured the nation’s attention by taking aim at Wisconsin’s public employees. n97 The current movement to weaken public-sector collective-bargaining rights dates back nearly a decade and spans party lines. Those early reductions in bargaining rights were modest, but paved the way for more drastic cutbacks today. n98
Widespread hostility to public-sector unions is a relatively new phenomenon. During much of the post-WWII era, collective-bargaining rights of government workers enjoyed broad support. n99 Only today, amid this wholesale refashioning [*1045] of government labor policy, are we having “the first serious debates about the appropriateness of collective bargaining in the public sector since the Depression. n100
Government employees have fared far better than their counterparts in the private sector, where effective unionization has long been in a state of free fall. n101 But the gap between the two workforces is shrinking. Labor scholars urge observers not to be misled by the comparatively rosy picture that stable public-sector union membership seems to paint. They tell us that the stable headcount “masks a very narrow [s]cope of bargaining and collective bargaining ‘rights’ that, increasingly, may be exercised only at the discretion of the employer.” n102
Some predict that the nascent efforts to curtail public-sector employees’ collective-bargaining rights will serve as the “‘prototype for the rest of government in the coming years.'” n103 But the realization of that prediction, however likely, n104 is of little moment. Those employees who retain collective-bargaining rights will nonetheless be reluctant to assert them. n105 Doing so might prompt a more aggressive scaling back of those rights n106 (if not altogether spur agency heads to outsource their jobs). n107
[*1046] The weakened bargaining units are especially susceptible to being steam-rolled by the forces of marketization. n108 These employees cannot effectively oppose wage and benefit reductions. Nor can they successfully resist efforts to convert civil-service jobs into at-will employment positions. n109
2. Base Pay and Benefit Reductions
Government jobs, even low-skilled ones, have long served as a gateway to the middle class. n110 Above-market wages and benefits have been hallmark features of public-sector employment. n111 Similar opportunities for socioeconomic advancement were once a reality within the private sector too. n112 Over the past few decades, however, private-sector base compensation has lagged behind government pay for all but the most highly skilled. n113
Of late, popular opinion has turned against government workers’ apparent above-market base pay. Politicians across the ideological spectrum have taken steps to limit or reduce government workers’ salaries and benefits. n114 At least [*1047] forty-four states and countless cities and counties have, in just the past few years, slashed government wages. n115 Perhaps most dramatically, the State of California and cities in Pennsylvania have sought to lower government pay to the minimum wage. n116
Equally significant, a substantial number of civil-service jobs are being casualized–that is, converted from full-time to part-time employment. n117 Long a reality in the private sector, n118 casualization translates to less generous pay, fewer, if any, benefits, fewer opportunities to rise within the ranks, and greater job vulnerability. n119
The fact that the government is increasingly mirroring private-sector employment practices supports the claim that, indeed, we are experiencing a marketization of the bureaucracy. More to the point, it suggests that the gap between [*1048] private- and public-sector labor costs is shrinking. (Given the substantial transaction costs associated with service contracting, n120 complete equalization is, of course, unnecessary for labor arbitrage.) With this narrowing gap, n121 those elected officials and agency heads who have traditionally turned to service contracting now have a more direct path to budgetary savings. n122
3. Incentive-Based Compensation
Another long-standing, efficiency-based critique of public-sector labor policy zeroes in on government’s inability to provide civil servants with the requisite incentives to perform exceptionally. n123 This perceived shortcoming is becoming less and less acute. Over the past few years, governments at every level have expanded eligibility for monetary performance bonuses n124 and for off-scale, merit-based promotions. n125
Undoubtedly an effort to better align principal-agent interests, n126 in this respect too the public sector is embracing the logic and custom of the market. n127 [*1049] Like the cutbacks to public-sector base compensation, these newly introduced market practices lessen the imperative to contract out.
4. Job (In)security
The last piece to the marketization puzzle is job (in)security. Historically, government workers enjoyed protection against adverse employment actions absent cause. n128 A safeguard against efforts to overly politicize the bureaucracy, n129 for-cause protection nevertheless encouraged greater service contracting. Specifically, over the past few decades, some of those agencies frustrated with civil servants’ employment protections (which they viewed as enabling bureaucratic slack n130 and obstruction n131 ) preferred to hire service contractors. n132 They hired contractors precisely because private-sector workers lacked the civil servants’ employment protections n133 –and thus had greater incentive to follow the Administration’s lead.
Today, this arbitraging opportunity is all but vanishing. Many states have reclassified substantial numbers of civil-service jobs as at-will employment n134 –so [*1050] much so that a majority of state employees across the country now report that their job security has lessened considerably. n135 Similar, though to date more modest, employment conversions are occurring at the federal level. n136 Scholars taking stock of these trends observe a “discernable drift (and in some cases a tidal wave) in the direction of at-will employment.” n137
As this marketization drift continues, government workers increasingly shorn of tenure protections will more closely resemble their private-sector counterparts. n138 And, the more these workers resemble their private-sector counterparts, the less the agencies will find reason to contract around them.
B. GOVERNMENT BY BOUNTY
Privatization is not just converting the government workforce into a carbon copy of what we would find in the private sector. It is also opening new frontiers, pushing public responsibilities further and deeper into the marketplace. Policy entrepreneurs have, of late, experimented more aggressively with what I call government by bounty. Championed by those who prize efficiency, who want to cut costs, and who seek to score political points, these government gambles do not conform to the traditional government service contract either in form or substance. Yet they are entirely faithful to the underlying principles that motivate such contracting. That is to say, they are borne out of the belief that though profits and competition encourage excellence in public administration, traditional service contracts do not fully exploit these market advantages. n139
Bounty initiatives depart from traditional service contracting in three significant ways. First, bounty initiatives are high-risk, high-reward. Unlike fee-for-service government contractors, n140 bounty participants receive valuable awards only if they carry out government programs successfully; where they fail, [*1051] bounty participants are on the hook for most, if not all, of their expenditures. n141 Second, bounty initiatives shift monitoring costs from the government to private participants. n142 They do so precisely because, unlike traditional contracting, the high-risk, high-reward schemes place the onus on private participants to strive for success and, at the same time, limit the government’s financial responsibility for programmatic failure. n143 Hence agent slacking becomes a problem for the private provider, not the government. Third, bounty initiatives entail greater participatory independence. The government either does not select the specific private participants to advance public aims n144 –or, it does not determine the actual payment or payment rate. n145 Rather, market forces and sometimes government-appointed third parties determine which individuals and firms participate–or, they determine the payment amount or rate.
Appreciating government by bounty requires envisioning a very big tent. As a matter of substance, bounty initiatives span the administrative horizon. As a matter of structure, some bounty arrangements take the form of quasi-options, others are open offers, and still others resemble standard contracts, albeit with forms of consideration largely foreign to traditional contracting. And, as a matter of vintage, many are newly conceived; n146 but some date back hundreds of years–and are now being revived after decades, if not centuries, of relative dormancy. n147
This subject-matter, structural, and historical diversity among bounty instruments is itself quite interesting. But any such inquiry that charts and classifies bounties must be put to the side. After all, dividing and subdividing bounties into separate categories risks obscuring the fact that each and every one of these instruments is a government bet tethered to the private advancement of public responsibilities. Moreover, dividing and subdividing bounties into separate categories diminishes recognition of the way these instruments combine to mark a robust, alternative approach to privatization–an approach quite distinct from traditional service contracting. Thus, for present purposes, it is enough to acknowledge bounties’ breadth and focus instead on their points of convergence.
Using social-impact bonds as an illustrative case study, I examine the specific ways in which this government bet has the potential to outperform traditional service contracting vis-à-vis efficiency, cost savings, and political payout. Given how relatively poorly understood bounty initiatives are, drilling down on one case study permits me to combine structural analyses of how bounties generally work with more granular consideration of a specific bounty vehicle. Subsequent [*1052] discussions of, among other things, FDA voucher programs and transportation-lease arrangements provide a fuller sense of the range of bounty initiatives. n148
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Social-impact bonds n149 are one of the newest bounty initiatives. Largely unheard of just a few years ago, today these bonds are sparking interest and programming across the United States. In addition to projects in the works at the federal level, New York (City and State), Massachusetts, Minnesota, Connecticut, and Cuyahoga County (Cleveland) are currently designing social-impact bond programs of their own. n150 These programs combat, among other things, homelessness and criminal recidivism. n151
Social-impact bonds work as follows: Government agencies enter into agreements with private “bond organizations.” Bond organizations in turn screen, select, and finance private providers to design and administer social-service programs. n152 With the bond organization serving as a go-between, the providers are further removed from government control than we are accustomed to when either government workers or traditional service contractors carry out public responsibilities. Moreover, it is the private bond organization–not the government–that bears most of the start-up and operational costs. n153 If, after a [*1053] predetermined number of years, the program achieves agreed-upon benchmarks of success, the government reimburses the organization for the costs incurred–and awards additional bonuses too. n154 But, if the program does not meet the benchmarks, the bond organization recoups either none of its expenditures or only a fraction of what it initially invested. This means that the government does not subsidize the private provider’s lack of success, and that the onus is on the bond organization to police the provider’s progress. n155
In what follows, I describe how bounty initiatives are structured to advance three of privatization’s principal objectives–efficiency, cost savings, and political dividends to those who champion market-based public administration.
Social-impact bonds promise to be more efficient than both government service contracting and marketized bureaucracy. The government does not pay most of the expenses associated with sustaining the program unless and until that program is successfully completed. n156 This arrangement distinguishes government by bounty from traditional service contracting and even from marketized bureaucratic governance. As a matter of efficiency, service contractors might well have the same “carrots” as bondholders–namely, if they perform well they will profit. n157 But they are not subject to the same “sticks.” An unsuccessful bondholder loses much, if not all, of its investment. By contrast, a traditional service contractor that doesn’t perform well is, at worst, less likely to have its contract renewed. Absent serious malfeasance, that contractor still gets paid for the work already completed. n158 It goes without saying that the contractor would like to have its contracts renewed and win additional contracts. But losing out on future assignments is hardly the same as losing one’s shirt–precisely the fate that awaits the unsuccessful social-impact bond organization. n159 [*1054] Thus, on paper, we should expect bounty arrangements to offer greater efficiencies than traditional service contracting affords.
Similar comparative-efficiency reasoning applies with respect to marketized bureaucracy. The availability of performance-based bonuses for exceptional work gives now-marketized government employees some of the same incentives enjoyed by bounty seekers and traditional service contractors. n160 But, the government agency cannot, itself, reap profits. Thus, at the organizational level, there aren’t the same efficiency-promoting incentives. n161 Moreover, neither the agency nor its employees are threatened with the same sticks that discipline the social-impact bond organization and its chosen provider. Sure, under marketization, government workers are now more easily fired for dissatisfactory work. n162 But neither those workers nor the agency heads risk their own financial capital. n163 They therefore have comparatively weaker incentives to avoid failure.
2. Budgetary Savings
Even if social-impact bonds were not viewed as especially efficient, privatization’s proponents would still have reason to promote them. For those focused on budgetary savings, social-impact bonds seem highly attractive–certainly more attractive than traditional service contracts.
First, the government saves money by shifting oversight costs to the private sector. Customarily, the government expends, or at least is expected to expend, significant resources on monitoring. n164 This is true regardless whether traditional service contractors or government employees administer public programs. In those cases, the political leadership (the “principal”) that runs the agency and sets the agency’s substantive agenda needs also to oversee the personnel (the “agents”) tasked with carrying out that agenda. Oversight is necessary because conflicts invariably arise between principals and agents. n165 Sometimes, the conflict is motivational. Government personnel or contractors might slack. Sometimes, the conflict is ideological. The agents might not share the current leadership’s policy commitments. n166 If so, they would not be especially eager to [*1055] advance those commitments. n167 For both of these reasons, the agency’s principals (not to mention Congress n168 and the White House n169 ) invest in oversight to ensure agency personnel are doing their jobs.
The ability to offer performance-based bonuses and to readily terminate marketized workers (or to refuse to renew government contracts) undoubtedly helps align principal-agent interests. But that alignment depends critically on the government’s effective use of carrots and sticks–which itself depends critically on the government’s ability to monitor its agents and to know when and how to dangle the carrots and brandish the sticks. n170 With high-risk, high-reward social-impact bonds, many monitoring responsibilities shift to the bond organization. That organization stands to lose big if its chosen provider fails in its assignment. n171 Accordingly, it takes the place of the government qua principal. Acting as the principal, the organization devotes resources to ensure its provider (its agent) strives to meet the agreed-upon benchmarks. n172
This is not, of course, to say that the government sheds all monitoring responsibilities; n173 rather, just that it retains fewer. It is also not to say that displacing the monitoring costs onto the private sector is necessarily more efficient. The bond organization might be quite effective at oversight. But it need not be. The organization might have to expend more resources than the government would find necessary to do an equivalent amount of monitoring. Regardless, the government does not directly bear those costs, and the organization has incentive to improve its monitoring capabilities.
Second, with social-impact bonds, there can be temporal budgetary savings [*1056] too. The shifting of expenses is not just from the government to the private sector, but also from the incumbent government to future ones. In a world of budgetary constraints and frequent, contested elections, a deferral of payment into the perhaps-distant future serves as a valuable de facto loan. n174
When the government proceeds via social-impact bonds, rather than through traditional service contracts or in-house resources, there are immediate and sizable (albeit temporary) budgetary savings. n175 Assuming the social-impact program succeeds, payment of the provider’s expenses (plus the performance bonuses) will not be due for some time. And, responsibility for those payments is likely to fall on a successor government. n176 In the meantime, the current Administration receives the provider’s services at little or no cost. The Administration can thus either reduce the total amount of current expenditures (while not cutting services) or reallocate those funds elsewhere, effectively leveraging present-day resources to provide additional services.
For example, in Britain, where social-impact bonds have a longer track record than in the United States, n177 the government’s signature social-impact program targeting criminal recidivism runs for seven years. n178 Seven years–the time from commencement of the program until any government payment is due–represents a political lifetime for most high-ranking U.S. Executive Branch officials. Because these officials overwhelmingly serve short tenures, n179 they are unlikely to be in office when it comes time for the bond organization to collect (which would, of course, cut into their departmental budgets). n180
Legislators have similar incentives to defer payments. Term-limited state and local representatives are unlikely to be in office when payments are due. n181 Thus they enjoy all the benefits while bearing none of the subsequent fiscal [*1057] pain. But even in jurisdictions where term limits do not apply, n182 legislators enjoy the present value associated with being able to deliver similar or expanded services while keeping the budget in check today. By the time the payments are due, these legislators will have survived one, if not more, reelection campaigns. Given the electoral advantages associated with the accrual of seniority, n183 having to cut services or raise taxes many years out–to make the deferred payment–will be less politically costly than if these legislators cut services or raised taxes right now. n184
The choice of proceeding via social-impact bonds therefore offers a budgetary boon to political incumbents, irrespective of the arrangement’s overall efficiency or ultimate price tag.
3. Political Windfalls
Bounties speak to audiences broader than those animated by efficiency gains or budgetary savings. They speak also to political entrepreneurs. Those looking to make political hay by railing against the State and by promoting market-based agendas might find that contracting does not pack the political punch it once did. n185
If familiarity does not breed outright contempt, it at the very least has a desensitizing effect. This is often true with respect, say, to a painkiller taken for years but that’s no longer working its magic. It is also true with a once-taboo vulgarity, now repeated so frequently that its shock value has all but worn off. This desensitizing effect drives the long-suffering to seek out more powerful narcotics, and the racy comedian to employ even more colorful language.
The same seemingly applies to voters. Today’s electorate looking to rally behind a visionary leader is apt to have a tepid response to someone simply advocating more of the same. n186 More of the same, at this late date, includes service contracting. n187 What might get voters more excited would be a leader pushing the envelope: championing initiatives newer and bolder than traditional service contracting.
The incentive to adopt increasingly innovative or extreme policy positions is [*1058] a standard feature of contemporary electoral politics. n188 It no doubt is consistent with the strategic calculations made in the 1970s and 1980s by early proponents of modern service contracting. At that time, relatively little controversy existed over the professional bureaucracy and its dominant role in public administration. n189 Calls for service contracting therefore seemed radical and exciting. n190 These calls constituted an unmistakable form of political “product differentiation” n191 likely to endear contracting’s proponents to critical constituencies of party activists n192 and primary voters. n193 In many jurisdictions and in many races, these constituencies swing the outcome of elections. n194
To the extent service contracting became so popular that, now, politicians of all stripes endorse it, n195 the twenty-first century descendants of privatization’s pioneers have reason to branch out to the next big thing. n196 Still committed to market approaches to public administration, yet unwilling to be lumped alongside more moderate electoral rivals who have since jumped on the service contracting bandwagon, n197 these descendants are now more likely to invoke novel schemes. At this early stage, political sloganeering has yet to fully develop around bounties. But given bounties’ emphasis on market freedom and on the government paying only for successful private engagements, the potential is clearly there.
Social-impact bonds are hardly alone. Government-by-bounty initiatives are surfacing across the administrative state. They include regulatory vouchers, n198 prediction markets, n199 homeland-security information-sharing arrangements, n200 [*1059] private attorneys hired by state and local governments on contingency-fee bases, n201 and the leasing of fee-generating public transportation conduits. n202 Moreover, vintage bounty initiatives, including qui tam suits n203 and government-sponsored prizes, n204 are experiencing a contemporary renaissance.
[*1060] III. PRIVATIZATION’S FUTURE
Like a game of telephone, where the conveyors of the original message embellish its content and heighten its tonal inflections, the transmission of privatization’s agenda from one vessel to others leaves us with a similarly transformed end product. Coming to terms with this transformed end product clues us in to the ambition, the reach, and the broader impact privatization’s progeny are likely to have on the administrative state.
This Part explores the collateral effects of the shift from service contracting to bureaucratic marketization and government by bounty. It shows how privatization’s progeny are poised to reverse longstanding public priorities, renegotiate the relationship between the Market and the State, and dictate changes to how the government allocates political and fiscal risk. Moreover, this Part forces us to take stock of the underappreciated virtues and vices of both the old regime (populated primarily by civil servants and traditional service contractors) and the new one (inhabited also by marketized government workers and bounty seekers).
Invariably, these explorations invite us to wrestle with some of the key legal, political, and normative debates of our time: how we balance political responsiveness and independent expertise in public administration; how we assign tangible value to abstract concepts such as participatory democracy, intergenerational sovereignty, and distributive justice; and, how we respond to the synthesis of Market and State practices. These are, of course, significant and relevant questions. They highlight the salience of this inquiry. And, they add texture to the illustrations and case studies.
But most importantly, they raise the stakes of the project. With so much riding on this nascent generational expansion, we must make sure we truly understand the forces propelling privatization’s progeny, the topography of the new terrain, and the rules by which marketized bureaucracy and government by bounty seem to play. It is for this very reason that I avoid venturing too far into the normative briar patch. To be sure, I harbor reservations about the politicization and commodification of the administrative state and about market principles crowding out consideration of civic values and welfarist goals. While those reservations cannot help but inform these discussions, I nevertheless do not allow them to hijack this project. Accordingly, this project remains principally a positive account that conceptualizes privatization’s progeny as instruments critical not just to the future of the privatization agenda but also to the future of the administrate state writ large. Cementing this strong, positive [*1061] account provides a foundation upon which to develop the corresponding normative theory (which I reserve for another day).
A. MARKETIZED BUREAUCRACY’S PRIVATIZATION AGENDA–AND BEYOND
Marketized bureaucracy is not a cloned offspring. It differs from its service-contracting forebearer in important ways. First, marketization represents a wholesale restructuring of government labor policy. n205 Service contracting, by contrast, is a piecemeal process. Contracting might be ubiquitous, but still must be performed surgically, one discrete responsibility at a time. n206 This distinction proves crucial in marketization influencing administrative law and policy in ways service contracting simply has not.
Second, marketization represents privatization’s conversion of the bureaucracy. Market values are imposed on the administrative state, thereby crowding out public-sector norms. Service contracting, by contrast, involves the market annexing a jettisoned government responsibility. By allowing the market to annex discrete responsibilities, the outsourcing government is able to ensure its internal, public norms remain unrivaled. Indeed, if anything, because contracts are often conditioned on government-mandated fair-wage and preferential-hiring requirements, n207 contracting acculturates the market–exporting public-sector values and imposing them on service contractors. This distinction, too, proves crucial in marketization influencing legal doctrines and institutional [*1062] practices in ways service contracting never has. n208
These differences matter. In what follows, I discuss how marketization’s wholesale restructuring of government labor policy threatens to, among other things, normalize a “teach-to-the-test” mentality among government workers. I consider how marketization’s conversion of the bureaucracy–that is, the market’s refashioning the government workforce in its own image–threatens to crowd out redistributive government employment practices. Finally, I explore how a marketized bureaucracy threatens to unsettle canonical legal doctrines.
1. Marketization’s Wholesale Restructuring of Government Labor Policy
One of the signature features of marketization is its promotion of businesslike performance evaluations for government employees. n209 At first blush, this feature appears to do little to distinguish marketization from service contracting. Service contracts, after all, popularized incentive-based pay in modern public administration.
But marketization, unlike contracting, is no sniper’s bullet. Contracting hits one target, thus minimizing collateral effects. Precise targeting enables contracting agencies to distinguish between commercial and inherently governmental responsibilities. By law, inherently governmental responsibilities, which constitute forty percent of all federal tasks, n210 must be kept in-house. n211 They include jobs held by, among others, policymakers, investigators, and prosecutors whose work is not only central to an agency’s mission but also difficult to evaluate and “price” based on weekly, quarterly, or yearly performance. n212
Responsibilities deemed commercial may be contracted out. n213 Such responsibilities include custodial, clerical, and maintenance work. Each commercial responsibility is assessed individually to determine whether it is suitable for [*1063] contracting. n214 A recent study suggests that federal agencies are actually highly selective contractors. They put up only thirteen percent of all commercially designated activities for private-public competition. n215
Marketization eviscerates that commercial-noncommercial distinction, eliminating opportunities for such individual assessment. If service contracting is a sniper’s bullet, marketization is grapeshot, indiscriminately blanketing everything in sight. What that means is that where marketization has taken root both commercial and inherently governmental work responsibilities are automatically subject to similar job insecurities and performance-based incentives. n216
Given the complexity and sensitivity of inherently governmental responsibilities, it is likely that marketization’s indiscriminate imposition of performance-based rewards and sanctions on government employees will not accurately track effort. Indeed, that’s the primary reason why, even in the absence of legal prohibitions, careful agencies would not contract out inherently governmental responsibilities. Those agencies recognize that service contacting’s effectiveness is not just a function of competition among bidding contractors; it also turns critically on whether the government can evaluate–and put a price tag on–how well the contractor is performing. n217 (Importantly, when governments do contract out inherently governmental work, it might be because they are promoting ends unrelated to efficiency or cost savings and thus do not care about such evaluations.) n218
Accordingly, many marketized personnel subject to performance-based incentives might become frustrated by the potentially tenuous relationship between [*1064] effort and compensation. n219 These personnel might refocus their mission (or be directed to refocus their mission), reframing their tasks around the pursuit of goals that are readily obtainable and easily measured. This response to marketization might rationalize their work and pay–albeit at the risk of contravening the agency’s best practices, if not its legislative mandate.
Contemporary debates surrounding public education come immediately to mind. A recent trend in education policy is to evaluate teacher and school quality–and to reward or punish employees and districts accordingly. n220 Many experts concede that it is exceedingly difficult to measure educational quality. n221 But what’s really easy to measure is student performance on standardized tests. n222 These tests offer precise, objective data, which can be used to rank students and teachers alike.
Perhaps not surprisingly, many school districts around the country have effectively reoriented their educational missions around “teaching to the test.” n223 While some celebrate this approach, others voice skepticism. Critics contend that test scores are a poor proxy for measuring educational quality (and for assessing teachers and schools). n224 If their concern holds true, then performance metrics neither reward the right teachers nor promote educational goals.
[*1065] In light of the marketization movement, perhaps the reformulation of educational missions is just the tip of the iceberg. It might be entirely rational for environmental agencies, occupational safety and health divisions, and perhaps even prosecutorial offices to follow suit n225 –taking adaptive measures to avoid being at the mercy of otherwise-arbitrary performance evaluations. Imagine, for instance, environmental or workplace-safety investigators who have always emphasized preventative measures, working (in hard-to-measure ways) with regulated firms to help them comply with the relevant laws and regulations. n226 Now, post-marketization, those investigators might focus instead on meeting enforcement-sanction quotas. Workers’ emphasis on fines might introduce objective evaluation standards, but lying in wait for finable violations to occur is not necessarily the best (or even a better) approach to public regulation.
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There are virtues and dangers inherent in marketization’s encouraging government units to “teach to the test.” Such pressures might well distort agency practices, if not entire missions. But there is another side to this debate. For those frustrated with what they see as otherwise inadequately motivated or politically obstinate (pre-marketized) government bureaucracies, marketization’s potential performance mismatch and its potential to engender policy distortions in some, discrete sectors might be a small price to pay to keep every government worker on her toes.
That is why, in essence, this aspect of marketization raises important normative and policy questions. What do we want from our government workforce? What do we fear? And, what costs are we willing to bear both to promote those values we want to encourage and to stamp out those practices that alarm us? Traditionally, we have been more afraid of potentially misaligned performance incentives than we have been about employee slack and bureaucratic obstructionism. Perhaps we have overestimated those traditional fears. Perhaps larger concerns have now risen to the fore. Or, possibly, we simply have not given these questions enough thought. In any event, marketization–for good or ill–switches the default, leaving us to sort out the practical effects and normative implications of this new administrative orientation.
2. Marketization’s Conversion of the Bureaucracy
Marketization’s overhaul of government labor policy does not just switch the default in favor of greater emphasis on performance-based incentives. It also [*1066] seemingly crowds out opportunities to route ancillary, socioeconomic programs through government labor policy. Perhaps the most famous example of socioeconomic goals being channeled through government personnel practices involves President Truman’s Executive Order 9,981 desegregating the military. n227 Truman’s order constituted a groundbreaking social-justice precedent that helped spur desegregation efforts in other pockets of our civil, social, and political economy. n228 It also played a role in helping to neutralize Soviet propaganda casting the United States as a racist nation. n229
That said, Truman’s order, at least initially, complicated defense planning and budgeting in profound ways. Critics believed that interracial distrust and prejudice would jeopardize military efficiency n230 and undermine the United States’ war-fighting capacity. n231 They argued that the military was not an appropriate venue for social experimentation.
Truman’s desegregation order cut against the dominant practices of the day, which were largely inimical to the active promotion of racial integration. n232 In many respects, the desegregation order served as a forerunner to modern-day uses of government labor policies to promote socioeconomic empowerment–policies that now seem inimical to the marketization movement. Because marketization involves wage cuts and other personnel actions making government service more like private-sector employment, it invariably marginalizes labor policies that strive to do more than simply promote maximum output at minimum cost. n233 That is to say, marketization does more than negate longstanding features of public-employment law. It also negates the substantive (redistributive) vision of the State reflected in those features. n234
[*1067] This is in keeping with marketization’s conversion of the bureaucracy. Traditional service contracting involves the government exporting public services for the market to annex. By allowing outsourced responsibilities to be annexed, the government ensures its internal, non-market norms remain unchallenged. And, by insisting contractors pay prevailing wages n235 and hire from underrepresented or disadvantaged communities, n236 the government actually extends its non-market norms into the marketplace.
Marketization involves the converse dynamic. It forces the government sector to adopt and embrace market values. Thus, instead of the government telling contractors how to act, the market tells the government how to act. n237 In this case, the market tells the government to abandon policies that artificially inflate labor costs. This puts marketization at odds with government labor policies that promote the socioeconomic welfare of its employees.
We might lament marketization’s hostility to these embedded socioeconomic programs. Or, we might celebrate marketization’s elimination of thinly veiled, special-interest set-asides. Either way, the shift to marketization brings to the fore questions whether ancillary policy aims can–and should–perdure notwithstanding the civil-service overhaul.
Consider the U.S. Postal Service. The Postal Service is not just about delivering mail. In the post-WWII era, it, like most conventional government agencies, n238 has served also as an implicit anti-poverty and affirmative-action program. n239 It is doubtful that the Postal Service would have been successful in [*1068] advancing civil rights or elevating families if–as many today are advocating–we treated the Service as nothing more than a quasi-commercial enterprise expected to operate in the black. n240 For many Americans, and particularly for Americans of color with limited educational and private-sector opportunities, a job with the Postal Service served as their ticket into the middle, class and as a springboard for their kids to go to college.
Indeed, an argument could be made that the Postal Service has been a more successful anti-poverty program than the landmark, but much maligned, AFDC/TANF programs. n241 Daniel Patrick Moynihan suggested as much. In the 1960s, Moynihan argued that for less than the price of federal subsistence programs, the Postal Service could hire a person “who raises a family, pays his taxes, . . . and delivers the mail.” n242 Moynihan indicated that we should not hold it against the Postal Service that its labor costs are high. Rather, he urged, we should recognize the positive externalities (which aren’t readily credited to the Postal Service) generated by helping employees ascend into the middle class. n243
Moynihan’s view is, of course, a selective one. Others might look at the exact same program through the lens of special-interest set-asides. For starters, the comparatively generous pay awarded to government workers raises the price of mail delivery. It also engenders inequalities between federal postal workers and [*1069] similarly situated private-sector workers. n244 Ought, for example, FedEx and UPS employees with similar training and similar work responsibilities lag so far behind? Where is their entree to the middle class? What about their kids’ education? These disparities between federal employees and everyone else are made worse if the inflated government labor costs divert funds away from means-tested, anti-poverty programs.
Calls for cutting wages, benefits, and the overall number of letter carriers are now ubiquitous in our highly marketized political climate. n245 Excoriated for awarding high salaries and generous pensions to low-skilled workers, the Postal Service is starting to heed these calls. n246 (By contrast, Moynihan once recommended that the Postal Service provide twice-daily mail service–seemingly inefficient as a purely commercial consideration and unnecessary as a matter of promoting democratic engagement but perhaps an effective means of employing and empowering many more, otherwise-struggling families.) n247
While it is certainly clear that the “mission” of private competitors UPS and FedEx is to turn a profit, n248 the Postal Service has traditionally had a broader set of objectives. n249 For better or worse, the forces of marketization are seemingly and summarily changing that–not just within the Postal Service but also all across the administrative state. n250
3. Marketization’s Doctrinal Feedback Loops
The above two discussions emphasized the ways in which marketization [*1070] affects public policy, distributive-justice considerations, and how we evaluate and reward government workers. But just as importantly, marketization’s civil-service overhaul might well prompt courts to recalibrate core constitutional and administrative law doctrines. Any such recalibration would principally be in response to marketization’s politicization of the bureaucracy.
This section addresses how federal courts, based on their current doctrinal positions and the reasoning that underlie them, might well respond to marketization. Of course, the fact that courts can respond to marketization does not necessarily mean that they should, that doing so won’t prompt the political branches to counter in unanticipated ways, or that the costs of responding to these judicial recalibrations are worth the candle.
a. Judicial Review of Questions of Fact and Policy. Courts have been especially sensitive to the ways in which political considerations can unduly influence an agency’s finding of fact or an agency’s policy determination. Working to ensure agencies are rigorous and comprehensive in their fact-finding and policy determinations, the Supreme Court requires reasoned analysis rather than politics to guide agency decision making. n251 Scholars characterize this judicial scrutiny (which they call hard-look review) as “expertise-forcing” n252 and as hostile to “political considerations [serving] as rational justifications for agency action.” n253
To the extent courts insist that agencies provide detailed explanations justifying their actions, n254 invariably it falls on career personnel to generate much of the supporting documentation. n255 These career personnel have been members of [*1071] the politically insulated civil service. n256 Thus, they have served as an important check against, among other things, excessive politicization of agency rulemaking. When the political leadership discounts, distorts, or disregards the civil servants’ findings, it does so at its own peril. n257
So long as it is implicitly understood that the independent bureaucracy plays a critical role within the black box of administrative agencies, n258 hard-look review need not be more demanding than it currently is. But, by removing government workers’ civil-service protections, marketization politicizes the bureaucracy. n259 Concerned now that the underlying support for agency action is itself politicized (by the at-will employees staffing marketized administrative agencies), n260 courts might become more skeptical of agency justifications. n261 That is, they might make hard-look review even harder, specifically requiring agencies to more thoroughly consider alternatives and otherwise justify their ultimate choices. n262
[*1072] That kind of judicial response makes sense if courts are right to be wary of, if not hostile to, politicized fact-finding. But perhaps courts should tack in the opposite direction–because harder-look review discounts (and seemingly penalizes) politically accountable administrative governance, n263 because it raises the costs of administrative action, n264 and because it might simply prompt marketized agencies to eschew rulemaking n265 in favor of information bulletins, voluntary safety recalls, and other informal approaches not subject to the same degree of judicial scrutiny. n266
b. Judicial Review of Questions of Law. Turning to judicial review of questions of law, for the nearly two decades leading up to United States v. Mead, n267 many scholars, judges, and agency officials treated the Chevron doctrine n268 as the first, last, and only word. n269 Under Chevron, where statutory language is ambiguous, courts uphold agencies’ legal interpretations provided those interpretations are reasonable. n270 But this reasonableness is very different from that employed vis-à-vis questions of fact and policy. Here politics may inform reasonableness. As Chevron states: “[A]n agency . . . may . . . properly rely upon the incumbent administration’s views of wise policy to inform its judgments.
[*1073] While agencies are not directly accountable to the people, the Chief Executive is, and it is entirely appropriate for this political branch . . . to make such policy choices.” n271
Expertise, to be sure, is not banished from the Chevron calculus. n272 But it plays only a supporting role on a stage where political control shines the brightest. n273 Thus, given Chevron’s emphasis on political accountability, the politicization associated with marketization would seemingly only increase the degree to which courts defer on questions of law. n274
Mead, however, presents additional wrinkles. n275 Mead insists upon the limited reach of Chevron, n276 underscoring that Chevron applies only in situations where agencies are authorized to act with the “force of law”–principally, where they “engage in the process of rulemaking or adjudication.” n277 In contexts where Chevron does not apply, courts often employ Skidmore deference. n278 Skidmore scrutiny, which is less deferential than Chevron, “depend[s] upon the thoroughness evident in [the agency’s] consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.” n279
Thoroughness, strength of reasoning, and consistency over time all place an [*1074] apparent premium on expert, rational, professional administration. n280 Skidmore thus seems decidedly anti-political, and correspondingly favorably disposed to the efforts of politically insulated, n281 professional civil servants. n282 To the extent this is true, n283 then presumably courts applying Skidmore deference to marketized decisions n284 would find themselves deferring to a lesser extent than they would pre-marketization. n285
Some scholars have suggested Mead has had little practical effect. n286 They’ve argued that regardless whether courts apply Skidmore or Chevron, reversal rates do not differ substantially. n287 If these scholars are correct, and if marketization [*1075] produces the effects suggested above, we might finally see a sharper division between reversal rates under Skidmore and Chevron. This would be so because marketization ought to heighten courts’ (roughly, pro-political) Chevron deference and lessen courts’ (roughly, anti-political) Skidmore deference. That is to say, post-marketization reversal rates under Chevron should decline and rise under Skidmore. n288
And, if we are inclined to agree with Justice Scalia, who predicted that Mead creates incentives for agencies to engage in more rulemaking–thereby securing refuge in Chevron’s highly deferential safe harbor n289 –marketization’s widening the gap between Chevron and Skidmore deference would only intensify agencies’ preference for rulemaking over less formal approaches. Whether that is good, bad, or simply an unanticipated cost that diminishes marketization’s purported fiscal windfall will have to be sorted out as marketization takes firmer root, as courts become more attuned to marketization’s effects, and as we evaluate the post-marketization case law.
c. Due Process. Finally, and briefly, marketization might also implicate constitutional due process considerations. Over the years, the Supreme Court has expressed unease when politicized decision makers act in adjudicatory capacities. This is especially true when politicized decision makers tasked with assessing fines have a personal or institutional incentive to favor one adjudicatory outcome over another. For example, the Court has found it unconstitutional for an adjudicator to pocket (as compensation) a percentage of the fines she awards, under the theory that she’ll be tempted to favor guilty verdicts. n290 The Court has found it similarly troubling when a statutory scheme directs a political decision maker to assess fines if that decision maker then exercises some control over how her institution later spends that money. n291
Courts usually do not worry about administrative assessments of fines, in part because the pre-marketized administrative state has largely insulated agency adjudicators from political control and performance-based pay. n292 To the extent [*1076] marketization reaches far enough to chip away at those forms of insulation, courts might look more skeptically at a larger percentage of agency adjudications. Conceivably, they might, for example, intensify their review of adjudications under the Administrative Procedure Act’s substantial-evidence standard; n293 or, they might even go so far as to invalidate those adjudicators’ holdings on due process grounds. n294 Again, here too, we have to think about the interplay of marketization and the courts: will the courts respond–and, if so, will they impede the marketization movement, steer marketized agencies away from adjudication, or simply raise the costs of administrative practice?
B. GOVERNMENT BY BOUNTY’S PRIVATIZATION AGENDA–AND BEYOND
Challenges seemingly arise, too, as we move outward from traditional contracting’s orbit. These challenges are, in large part, a function both of bounties’ defining characteristics and of the need to sweeten the bounty proposal to encourage private participation. After all, there is a reason why pro-privatization governments might find bounties attractive. Unlike traditional service contracts, bounties shift costs and responsibilities to would-be bounty seekers. Those shifted costs and responsibilities might, however, lead many private actors to prefer the financial security of fee-for-service contracts. n295
To overcome private actors’ relative lack of enthusiasm, the government can increase the bounty award, offset the shifting of risk over which the bounty seeker has control by removing risks that the bounty seeker cannot control, or permit greater bounty-seeker autonomy. n296 These sweeteners do more, however, than simply encourage participation. They also introduce challenges to the theory and practice of administrative law. In what follows, I consider the ways [*1077] in which these sweeteners transform government by bounty’s ostensibly voluntary, open-market invitations into de facto compulsory mandates (section 1); render participatory democracy and intergenerational sovereignty alienable assets over which the government may barter (section 2); and, influence courts’ decisions whether to ascribe civil and constitutional liability to bounty seekers furthering government aims (section 3).
1. Coercive Bounties
Because of the risks incurred by bounty seekers, governments must offer sufficiently valuable bounties. Valuable bounties can take the form of monetary awards or in-kind benefits. For obvious reasons, legislatures and agencies might well prefer the latter kinds, particularly where such awards are relatively costless to the government but prized commercially. n297 The government can be especially lavish with those in-kind enticements–ensuring highly motivated participation without having to raise taxes or cut spending elsewhere. n298
Combining lavish bounties with risk shifting might be a win-win scenario for the government and the willing bounty seeker. But not for everyone. This potent combination threatens to give bounties a coercive quality–shattering the conventional understanding of market-oriented government as less intrusive on the private sector. n299
Consider, as one such example, the Food and Drug Administration’s (FDA) priority-review voucher program. Treating certain diseases, especially diseases disproportionately afflicting people in the developing world, is not necessarily beyond the technical capacity of drug manufacturers. The chief obstacle is financial. Most suffering from malaria, dengue fever, and other tropical diseases do not have the purchasing power to secure new, expensive treatments. Pharmaceutical manufacturers thus lack the requisite incentives to invest in research and clinical development. n300
Given the apparent market vacuum, and in light of the fact that successful, [*1078] accessible treatments would further U.S. foreign-policy and humanitarian aims, n301 the federal government has reason to fill the void. The government could, of course, direct its own employees (or hire new ones) to design the medical treatments in-house. n302 Or, it could enter into contracts with private companies, paying those contractors (a flat fee or on a cost-plus schedule) to develop the drugs. n303
Instead, it announces a bounty. Pursuant to the FDA Amendments Act of 2007, n304 the government awards a transferrable priority-review voucher to pharmaceutical companies that successfully bring to market new drugs targeting tropical and other neglected diseases. n305 Priority review enables manufacturers seeking FDA approval for a new drug to have that regulatory process fast-tracked. Those receiving a voucher–estimated to be worth $ 300 million n306 –may use it for any of the blockbuster drugs they are developing. Or, they may sell the voucher to another company that values priority review more highly. n307
The government’s bounty is likely to have its intended result: stimulating greater interest in bringing otherwise less-remunerative treatments to market. n308 From the government’s perspective, the program is practically costless. With or without vouchers, FDA personnel spend their days reviewing manufacturers’ requests to have their drugs approved. Vouchers simply reorder the queue.
The program is ostensibly efficient too. The $ 300 million windfall serves as an incentive to develop a drug–and to develop it properly. Unlike traditional contractors, the voucher seeker bears considerable risk. If it does not secure [*1079] FDA approval, it loses its entire investment. n309
Finally, the program ought to be politically popular given the urge for the government to be a force for social good in the world–and to do so in a way that keeps the government’s footprint small, market incentives in the foreground, and the Treasury’s wallet closed. n310
So far, this discussion has emphasized the voucher program’s cost and risk shifting from the government to the bounty seeker. But those shifted costs and risks do not fall exclusively on the bounty seeker. Third parties also bear them. In the FDA case, the voucher program affects rival, but non-participating, pharmaceutical companies. n311
Pharmaceutical firms choosing not to pursue tropical-disease treatments (or incapable of pursuing them) risk being placed at a competitive disadvantage. A voucher-holding competitor will jump to the front of the FDA queue, bringing its drug to market first. In the struggle for pharmaceutical primacy, positioning matters greatly. n312 Manufacturers bypassed in the queue can–and perhaps must–take steps to overcome that disadvantage. Specifically, if the loss associated with being bypassed is significant enough, firms will find themselves obligated to join the government’s efforts in combating diseases of the developing world. n313 Otherwise, they will have to pay what amounts to a “tax,” namely the cost of purchasing a priority-review voucher on the open market. n314 When this happens, government by bounty no longer looks like the open, voluntary market exchange it purports to be. Rather, it takes the surprising form of a seemingly coercive, effectively mandatory program, penalizing those who cannot [*1080] or will not participate. n315
2. Bartering Sovereignty
For privatization’s proponents, the shifting of risks that are within a private actor’s control makes perfect sense. Such a shift promotes efficiency. n316 But this risk shifting is not necessarily advantageous to private actors, many of whom prefer the financial security that fee-for-service contracting affords. To maximize the desirability of the bounty, governments might therefore work to ameliorate other types of risk, specifically those beyond the bounty seeker’s control. n317 In so doing, governments might choose to sign away future policymaking discretion–discretion of the sort that, when left in public hands, could compromise the bounty seeker’s ability to secure its reward. Such risk-removing decisions are fraught ones, at least for those alarmed by a government’s willingness to enter into long-term political pre-commitments that bind–to the point of disenfranchising–future generations of citizens. n318
Consider, for example, the recent spate of transportation-infrastructure arrangements that operate as bounties. These arrangements involve states and cities transferring operational control over roads, bridges, and parking facilities to private firms. n319 Firms lease the facilities, paying the government for the right to collect and keep user fees. Leases for the likes of the Chicago Skyway and the Indiana Toll Road (both entered into in the mid-2000s) run between seventy-five and ninety-nine years–and have already netted governments billions of dollars. n320 By design, the lease payments are heavily front-loaded. n321 [*1081] Such payment structures provide an immediate windfall to fiscally beleaguered governments. n322 For example, Chicago’s Skyway lease enabled the city to set up a $ 500 million rainy-day fund, which “raised the city’s credit rating and lowered its borrowing costs.” n323 (It is for this reason that many jurisdictions are attracted to such leases’ temporal cost savings, which take the form of de facto loans. n324 )
These lease arrangements depart from traditional practices. Usually governments direct their civil servants to collect tolls or parking fees and to perform whatever repairs and maintenance are necessary. Alternatively, they hire service contractors (on a cost-plus or flat-fee basis) to perform maintenance and collect user fees–user fees that are then turned over to the government. n325
With transportation-infrastructure leases, though they are superficially structured differently from social-impact bonds and FDA vouchers, they nevertheless possess the telltale attributes of a high-risk, high-reward bounty. The private party antes up by committing to a long-term lease. It then works to ensure revenue collection (which it keeps) exceeds the combined costs of the lease payments, management, and maintenance. Unlike social-impact bonds but like FDA vouchers, it is not the government but rather the market that determines the value of the leaseholder’s bounty. Successful–and lucky–leaseholders will profit handsomely. n326
But risks abound. First, some risks are within the control of the leaseholder. Leaseholders must invest in infrastructure maintenance and improvement. Otherwise, drivers will favor alternative roads and parking facilities. If close substitutes aren’t readily available, would-be users might, over the course of the lease, switch to mass transit, walking, or bicycling. n327
Second, some risks are beyond the control of the leaseholder and the government. [*1082] Environmental upheaval from, among other things, earthquakes or floods could damage the infrastructure, lowering the value of the lease. Moreover, given that these leases run for nearly a century, technological breakthroughs could conceivably render toll roadways and parking lots obsolete. (Imagine if, in the year 1870, one were to enter into a 99-year lease for a government-owned stagecoach line. With the expansion of railroad service and, later, the invention of the automobile, that lease would have become worthless in a matter of decades. A toll-road lease of comparable duration signed today might suffer a similar fate if in fifty years we’re all traveling around like the Jetsons.)
The third set of risks remains within the government’s control. The value of the lease could be greatly diminished if the government later decides to mandate lower user-fee rates, to compete with the leased infrastructure by constructing new, alternative transportation options, or to increase the cost of continued maintenance by ratcheting up environmental regulations requiring leaseholder compliance. n328
Whereas prospective leaseholders can negotiate with the government over what risk premium is warranted given the possibility of environmental upheaval or technological breakthrough, at the end of the day neither party can actually diminish that risk. n329 This is not true with respect to those risks within the government’s control. n330 The more the government is willing to tie its own hands regarding incidentally related public policymaking, the less risky (and more valuable) the lease becomes to private bidders. Fiscally strapped governments thus have strong incentives to pre-commit to allowing the lessee to set parking and toll rates and refraining from subsequent policy interventions–such as building new roads, bridges, or parking structures–that lessen demand for the lessee’s infrastructure. n331
All else being equal, governments might want to lower user fees during times of economic dislocation. n332 Or, if traffic congestion or pollution becomes intractable, governments might want to charge particularly high rates, effectively [*1083] (and purposely) discouraging car use. n333 Finally, if changes in labor, housing, transportation, or environmental policy so demand, governments might want to respond by building new transportation conduits. But under what we might call “sovereignty-abdicating” provisions to bounty agreements, governments promise not to compete against the leaseholder’s services by offering new public transportation and parking options. n334 They also promise not to adjust user fees, thus denying themselves–and successor governments–opportunities to subsidize or tax certain transportation choices. n335
Such sovereignty-abdicating provisions are already in operation. n336 This is surprising if only because we traditionally have not treated sovereignty as just another bargaining chip. n337 That might have been for good reason. After all, doing so systematically disenfranchises members of the public–both today and into the future. Once policy decisions are signed away, citizens are forced to use market power, rather than the political process, to voice concerns. n338
But perhaps the historical reluctance to barter sovereignty has greater rhetorical purchase than real-world utility. For all we know, citizens might well prefer a money-for-sovereignty tradeoff. Citizens might arrive at that preference because of their own financial troubles, because they do not especially value (or even engage in) democratic exercises, or because even if they do prize such participation, they have come to doubt whether their input registers.
Justice Scalia makes a not-dissimilar point in an otherwise unrelated case. His Webster v. Doe dissent criticizes the Court’s apparent prioritization of constitutional rights above all others. n339 He offers the simple hypothetical of a plaintiff suing the government for $ 100,000 based on a contractual violation, and $ 100 based on the denial of constitutional equal protection. n340 Scalia thinks that prevailing on the contract is “much more important to [the plaintiff]–both financially and, I suspect, in the sense of injustice that he feels–than [any [*1084] constitutional vindication].” n341 Scalia’s argument might sound jarring to those schooled to reflexively revere the Constitution and cherish democratic engagement. But governments that offer bounties containing sovereignty-abdicating provisions seemingly confirm Scalia’s intuition. More to the point, they put a price tag on that reverence, raising normative and legal questions about whether sovereignty should be alienable–and more practical ones such as whether bartering governments are properly pricing it.
3. Government by Bounty’s Doctrinal Feedback Loops
Lastly, autonomy from government micromanagement is another deal sweetener to entice bounty-seeker participation. But this autonomy raises important administrative law questions. Among them, we might want to know how heightened autonomy factors into bounty-seeker liability for civil and constitutional violations. This section examines the government-contractor defense and the state-action doctrine. The former pertains to suits alleging civil damages. The latter, in turn, pertains to alleged constitutional violations. Seemingly, at least based on current doctrinal practices and judicial reasoning, courts will distinguish bounty seekers from traditional contractors as well as from government employees. In drawing these distinctions, the courts will be more likely to subject bounty seekers to civil liability–but less likely to ascribe constitutional liability.
a. The Government-Contractor Defense. The government-contractor defense immunizes closely supervised contractors from civil liability. In Boyle v. United Technologies Corp., the Supreme Court held that military-hardware contractors are immune from civil lawsuits alleging damages provided those contractors produce goods pursuant to (and in conformance with) government specifications. n342 Federal courts have since extended Boyle along two dimensions. First, the government-contractor defense now generally applies to manufacturers of civilian goods. n343 And, second–and of much greater relevance to this inquiry–the defense now also covers service contractors, civilian and military alike. n344
In crafting the government-contractor defense, the Supreme Court equalized [*1085] conditions between private contractors and government officials. n345 The Federal Tort Claims Act, n346 though generally subjecting government workers to civil liability, expressly exempts personnel carrying out “discretionary function[s]” n347 similar to those undertaken by contractors. The government-contractor defense simply levels the playing field. n348
But the emergence of bounty arrangements threatens to introduce a new measure of doctrinal uncertainty. Given the courts’ apparent dedication to equalizing immunity between contractors and government workers for damages inflicted, it is an open question whether the government-contractor defense also covers–or will be extended to cover–bounty seekers.
As it is currently constituted, the government-contractor defense does not seem to protect bounty seekers. Unlike with contractors, the government does not prescribe how bounty seekers should proceed, a necessary condition for immunity. n349 It appears unlikely, too, that courts would expand the doctrine to cover an analogous bounty defense. Confining the immunity doctrine to its present boundaries (namely, only where contractors are given direct orders and are themselves closely monitored) preserves an important check on bounty seekers and contractors alike. The “price” traditional contractors pay for civil immunity cashes out in terms of their ceding autonomy and submitting to close supervision. The “price” bounty seekers pay to enjoy broad programmatic discretion is exacted in terms of their remaining liable for civil damages. n350
The courts’ likely refusal to immunize bounty seekers poses challenges for the government and bounty seekers alike. Consistent with government by bounty’s commitment to risk shifting, bounty seekers should be expected to bear these liability risks. But not all would-be bounty seekers are equally [*1086] sensitive to liability risks. The best-case scenario for the government involves the threat of lawsuits deterring irresponsible aspirants, skewing the composition of the pool of bounty seekers in favor of those who are careful (and thus unlikely to engage in tortious activities). Self-selection might, however, run in the opposite direction. Cautious, would-be bounty seekers will opt out, leaving only risk-seeking, perhaps judgment-proof, parties vying for bounties. n351 These risk-seeking parties are not only less deterred by the threat of suit, but also far more likely to prize the autonomy the government gives to bounty seekers. Presumably, the government could, again, simply raise the value of the bounty award, thus blunting the pool-skewing effect of this doctrine. But where the bounty cannot be made sufficiently high to offset the risk of future lawsuits, n352 we will likely see fewer–or simply riskier–bounty arrangements than government agencies might otherwise prefer.
b. State-Action Doctrine. State-action doctrine ascribes liability to those who commit constitutional violations while acting under color of State law. n353 Because government agencies delegate so many public responsibilities to private actors, state-action doctrine has become messy at the margins. As the Supreme Court concedes: “It is fair to say that ‘our cases deciding when private action might be deemed that of the state have not been a model of consistency.'” n354
To determine whether state action applies, courts functionally assess the relationship between the government and a private actor. n355 They focus on, among other things, how closely the government directs and controls the [*1087] private actor, n356 and how closely the private actor is entwined with the government. n357 As already discussed, bounty seekers generally operate with greater autonomy than traditional service contractors. Bounty seekers are therefore less likely to be deemed state actors. What this means is that bounty seekers have the capacity to infringe upon constitutional rights, certainly with far greater impunity than government personnel–and likely with greater impunity than at least some, if not many, service contractors. n358 For a political administration frustrated by the constitutional constraints imposed on its personnel, the use of bounty seekers might be especially enticing. n359 They might enable, for example, more intrusive law-enforcement searches than the Fourth Amendment permits government personnel and many contractors to conduct. n360 They might also enable governments to more thoroughly infuse religious programming into social-welfare programs. n361
Two conclusions follow from this admittedly speculative treatment of how courts might apply civil and constitutional immunity to bounty seekers. First, the doctrinal distinctions likely to be drawn among government employees, service contractors, and bounty seekers mark the otherness of bounties. Marketization, as discussed, pushes courts to adjust pre-existing doctrines to reflect the nascent changes to bureaucratic governance. With bounties, courts are apt to hold the line, preserving–but not expanding–pre-existing doctrines. This makes sense: whereas marketization transforms an existing institution around which case law has already developed, government by bounty introduces something relatively new, and largely external to the judicial ken. Second, just because courts do not seem likely to refashion pre-existing doctrines in light of [*1088] bounties, nor to treat bounty arrangements as covered by those pre-existing doctrines, it does not necessarily follow that those decisions are correct, as a normative or legal matter. Nor does it mean that this predicted judicial approach won’t trigger responses from the political branches–responses the likes of which pose even greater challenges to the administrative state. Indeed, if it is the case that bounty seekers will be subject to greater civil liability, but lesser constitutional liability, one possible response is that bounties will be disproportionately used as a tool of Executive aggrandizement and constitutional subversion.
This Article has advanced three aims. First, it affirmed that, among privatization’s proponents, service contracting seemingly remains an especially viable approach for boosting efficiency, conserving budgetary resources, maximizing unitary executive control, and scoring political points with the electorate. Second, it identified dramatic changes currently transforming our bureaucracies, markets, and contemporary political culture; and, it suggested that these changes are opening new pathways that offer surer, quicker routes to promote the very objectives that have long-motivated service contracting. Third, it addressed challenges we are likely to encounter as these new pathways become more heavily trafficked.
While monumental in their own right, marketization and government by bounty bespeak something potentially even bigger. They bespeak yet more evidence that this century’s administrative state will be increasingly guided by very different principles from those that long drove the modern welfare state. They bespeak the fact that government today really is commingling political and businesslike agendas in ways both liberating and threatening.
For related research and practice materials, see the following legal topics:
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n1 For purposes of this Article, I focus on the contracting out of government service responsibilities.
I do so largely to the exclusion of other types of government contracts, such as procurement contracts for goods. See, e.g., KEVIN R. KOSAR, CONG. RESEARCH SERV., RL33777, PRIVATIZATION AND THE FEDERAL GOVERNMENT: AN INTRODUCTION 3 (2006), available at http://www.fas.org/sgp/crs/misc/RL33777.pdf; Jody Freeman, The Contracting State, 28 FLA. ST. U. L. REV. 155, 161 (2000).
n2 See Jody Freeman & Martha Minow, Introduction: Reframing the Outsourcing Debates, in GOVERNMENT BY CONTRACT: OUTSOURCING AND AMERICAN DEMOCRACY 1, 8 (Jody Freeman & Martha Minow eds., 2009) (finding bipartisan support for government service contracting); see also infra notes 82-84 and accompanying text.
n3 See infra section I.D.2.
n4 See, e.g., P.W. SINGER, CORPORATE WARRIORS: THE RISE OF THE PRIVATIZED MILITARY INDUSTRY (2003); Jon D. Michaels, Beyond Accountability: The Constitutional, Democratic, and Strategic Problems with Privatizing War, 82 WASH. U. L. Q. 1001 (2004); Martha Minow, Outsourcing Power: How Privatizing Military Efforts Challenges Accountability, Professionalism, and Democracy, 46 B.C. L. REV. 989 (2005).
n5 See David A. Sklansky, The Private Police, 46 UCLA L. REV. 1165, 1173 (1999).
n6 See, e.g., 4 WILLIAM H. RODGERS, JR., ENVIRONMENTAL LAW: HAZARDOUS WASTES AND SUBSTANCES § 8.9 & n.139 (1992) (describing EPA contractors “prepar[ing] options, draft[ing] rules, review[ing] public comments, prepar[ing] the final drafts . . . and provid[ing] interpretive guidance”) (quoting Letter from David Pryor, U.S. Senator, to William Reilly, Adm’r, Envtl. Protection Agency (Feb. 13, 1990)); Paul R. Verkuil, The Wait Is Over: Chevron as the Stealth Vermont Yankee II, 75 GEO. WASH. L. REV. 921, 928 (2007) (“[Contractors] summarize the comments submitted to agencies during rulemaking, write the agencies’ analyses and statements of basis and purpose, and present complete rulemaking records to the agency officials.”).
n7 See, e.g., OFFICE OF TECH. ASSESSMENT, OTA-BP-ITE-51, ASSESSING CONTRACTOR USE IN SUPERFUND 2 (1989) (describing government contractors’ “major role in conceiving, analyzing, and structuring the policies and tasks which make up the Superfund program”).
n8 See Sharon Dolovich, State Punishment and Private Prisons, 55 DUKE L.J. 437, 457-59 (2005).
n9 See Matthew Diller, The Revolution in Welfare Administration: Rules, Discretion, and Entrepreneurial Government, 75 N.Y.U. L. REV. 1121, 1166-72, 1182-83 (2000).
n10 See John D. Donahue, The Transformation of Government Work: Causes, Consequences, and Distortions, in GOVERNMENT BY CONTRACT, supra note 2, at 41, 60 (describing service contracting as now “enthroned as managerial orthodoxy”); Gillian E. Metzger, Privatization as Delegation, 103 COLUM. L. REV. 1367, 1369 (2003) (calling service contracting a “national obsession”); Scott Shane & Ron Nixon, In Washington, Contractors Take On Biggest Role Ever, N.Y. TIMES (Feb. 4, 2007), http://www.nytimes.com/2007/02/04/washington/04contract.html?pagewanted=all&_r=0 (characterizing service contracting as “the government’s reflexive answer to almost every problem”).
Though government contracting and privatization are often treated synonymously, see, for example, KOSAR, supra note 1, at 2-3; Freeman, supra note 1, at 161, this Article treats government contracting as one specific instrument that advances the privatization agenda. See Ronald A. Cass, Privatization: Politics, Law, and Theory, 71 MARQ. L. REV. 449, 466-69 (1988); see also Daphne Barak-Erez, Three Questions of Privatization, in COMPARATIVE ADMINISTRATIVE LAW 493, 495-97 (Susan Rose-Ackerman & Peter L. Lindseth eds., 2010) (describing nine forms of privatization, only one of which is government service contracting).
n11 See infra Part I.
n12 See infra section I.B.
n13 See infra sections I.B; I.C.
n14 See infra section II.B.
n15 See infra notes 96-138 and accompanying text.
n16 Among other things, traditional service contracts are costly to monitor; and, poor performance is often difficult to sanction. See infra notes 35-37, 164 and accompanying text.
Because of the unique risk-shifting arrangements associated with government by bounty (where the private partner assumes the financial risks associated with programmatic failures), these turns away from traditional service contracting promise greater efficiency gains and cost savings. Put simply, government by bounty is a fee-for-success relationship. Bounty seekers get paid only if they successfully carry out their assigned tasks. By contrast, traditional service contracting is a fee-for-service relationship. Contractors, by and large, get paid regardless of their success in accomplishing assigned tasks. RALPH C. NASH, JR., STEVEN L. SCHOONER & KAREN R. O’BRIEN, THE GOVERNMENT CONTRACTS REFERENCE BOOK 525 (2d. ed. 1998) (“[Government] [c]ontracts are of two basic types: fixed-price contracts and cost-reimbursement contracts . . . . Under a fixed-price contract, the contractor agrees to perform the work called for by the contract for the firm-fixed-price stated in the contract . . . . Under a cost-reimbursement contract, the Government agrees to reimburse the contractor for the costs it incurs in performing the contract and, usually, to pay a fee representing the contractor’s profit for performing the contract.”).
n17 See ALLEN BARRA, YOGI BERRA: ETERNAL YANKEE, at xxxiv (2009) (quoting the legendary Yankee as reportedly having said, with regard to a popular restaurant, “[i]t’s so crowded. No one goes there anymore”).
n18 See, e.g., ARTHUR C. BROOKS, THE BATTLE: HOW THE FIGHT BETWEEN FREE ENTERPRISE AND BIG GOVERNMENT WILL SHAPE AMERICA’S FUTURE (2010); Richard Albert, The Constitutional Politics of the Tea Party Movement, 105 Nw. U. L. REV. COLLOQUY 267, 267-68 (2011) (describing the anti-big-government Tea Party as having recently transformed itself from a “fleeting faction into a formidable force in American politics”); Amy J. Cohen & Michael Alberstein, Progressive Constitutionalism and Alternative Movements in Law, 72 OHIO ST. L.J. 1083, 1105 (2011) (noting the emergence of the Tea Party and its opposition to big government); infra note 87 and accompanying text.
n19 This Article does not discuss developments prior to the advent of the modern administrative state. For discussions of various forms of bureaucratic marketization and government by bounty in earlier times, see, for example, NICHOLAS R. PARRILLO, AGAINST THE PROFIT MOTIVE (forthcoming Oct. 2013); Arnold W. Knauth, Prize Law Reconsidered, 46 COLUM. L. REV. 69 (1946).
n20 There are, of course, other reasons to contract out, including the desire to funnel sweetheart deals to cronies. For purposes of this discussion, I leave corruption considerations to the side.
n21 For discussions of the efficiency argument in favor of contracting, see, for example, KOSAR, supra note 1, at 4; E.S. SAVAS, PRIVATIZATION: THE KEY TO BETTER GOVERNMENT 4-6, 119-230, 288 (1987); Cass, supra note 10, at 466-69. Cf. Alexander Volokh, Privatization and the Elusive Employee-Contractor Distinction, 46 U.C. DAVIS L. REV. 133 (2013) (contending that there is no inherent difference between contractors and public-sector employees and that the ostensible differences between the two groups are contingent ones that turn on disparities in how public employees and contractors are directed and compensated).
n22 See DAVID OSBORNE & TED GAEBLER, REINVENTING GOVERNMENT: How THE ENTREPRENEURIAL SPIRIT IS TRANSFORMING THE PUBLIC SECTOR 83-84 (1992) (noting that contractors who deliver high-quality, low-cost services thrive, while those who charge too much or perform poorly “are gradually eliminated”); Armen A. Alchian & Harold Demsetz, Production, Information Costs, and Economic Organization, 62 AM. ECON. REV. 777, 779-82 (1972). Specifically, less efficient contractors might be passed over for the initial contract or, if chosen, soon replaced by one of their more-efficient rivals. Donahue, supra note 10, at 45 (“[C]ompetition eliminates, or at least narrows, the opportunities to survive without being efficient. Competitive markets weed out the laggards and keep the winners in a state of healthy anxiety.”).
Needless to add, where little competition exists, the ostensible efficiency benefits of contracting diminish considerably. JOHN D. DONAHUE, THE PRIVATIZATION DECISION: PUBLIC ENDS, PRIVATE MEANS 147 (1989); Donahue, supra note 10, at 45 (“Without competition much of [contracting’s] rationale collapses. When external providers are comfortable, not spurred on by rivals, privatization offers far fewer benefits and far greater hazards.”); Jonas Prager, Contracting Out Government Services: Lessons from the Private Sector, 54 PUB. ADMIN. REV. 176, 178 (1994) (similar).
n23 See Saul Levmore, Commissions and Conflicts in Agency Arrangements: Lawyers, Real Estate Brokers, Underwriters, and Other Agents’ Rewards, 36 J.L. & ECON. 503, 503 (1993) (indicating that performance-based “rewards are an important means of reducing agency costs”); Susan Rose-Ackerman, Reforming Public Bureaucracy Through Economic Incentives?, 2 J.L. ECON. & ORG. 131, 132 (1986) (advocating for “direct financial incentives to induce good performance”).
n24 See Daniel Guttman, Public Purpose and Private Service: The Twentieth Century Culture of Contracting Out and the Evolving Law of Diffused Sovereignty, 52 ADMIN. L. REV. 859, 916-917 (2000) (explaining that contractors are easier to fire than are government workers); Jon D. Michaels, The (Willingly) Fettered Executive: Presidential Spinoffs in National Security Domains and Beyond, 97 VA. L. REV. 801, 837 (2011); Katherine V.W. Stone, Revisiting the At-Will Employment Doctrine: Imposed Terms, Implied Terms, and the Normative World of the Workplace, 36 INDUS. L.J. 84, 84 (2007) (“In the United States, the dominant form of [private] employment contract is at-will . . . . [T]he employer can fire [an employee] without giving warning or incurring any post-employment obligations.”).
n25 Michael J. Trebilcock & Edward M. Iacobucci, Privatization and Accountability, 116 HARV. L. REV. 1422, 1426 (2003); see also JOHN D. DONAHUE, THE WARPING OF GOVERNMENT WORK 31 (2008); Cass, supra note 10, at 466-69.
n26 See Alchian & Demsetz, supra note 22, at 779-82; Elena Kagan, Presidential Administration, 114 HARV. L. REV. 2245, 2263-64 (2000).
n27 WILLIAM A. NISKANEN, JR., BUREAUCRACY AND REPRESENTATIVE GOVERNMENT 24-42 (1971); Michaels, supra note 24, at 865-66 (describing agencies as often motivated to pursue their own institutional agendas, possibly at variance with the preferences of the Chief Executive).
n28 Richard Michael Fischl, “Running the Government Like a Business”: Wisconsin and the Assault on Workplace Democracy, 121 YALE L.J. ONLINE 39, 49-50 (2011); Gerald E. Frug, Does the Constitution Prevent the Discharge of Civil Service Employees?, 124 U. PA. L. REV. 942, 945 (1976) (“The civil service system has provided the equivalent of life tenure . . . absent what the government considers a serious act of misconduct.”); Joseph E. Slater, The “American Rule” That Swallows the Exceptions, 11 EMP. RTS. & EMP. POL’Y J. 53, 89-90 (2007); see also STEVEN KELMAN, UNLEASHING CHANGE: A STUDY OF ORGANIZATIONAL RENEWAL IN GOVERNMENT 28 (2005) (“[D]ismissing or reassigning recalcitrant employees is considerably more difficult in government than in most business firms . . . .”); Richard A. Merrill, Procedures for Adverse Actions Against Federal Employees, 59 VA. L. REV. 196, 198 (1973) (finding that approximately ninety-three percent of the federal civilian workforce in the 1970s was entitled to procedural safeguards against any adverse action).
n29 See infra section I.C.
n30 See SILVIA MONTOYA & JOHN D. GRAHAM, RAND OCCASIONAL PAPER, MODERNIZING THE FEDERAL GOVERNMENT: PAYING FOR PERFORMANCE, at xi, 14 (2007), www.dtic.mil/dtic/tr/fulltext/u2/a477613.pdf (characterizing the current federal system as a “seniority-based civil-servant culture” and a “tenure-based civil service pay system”); Eric A. Posner & Adrian Vermeule, The Credible Executive, 74 U. CHI. L. REV. 865, 880-81 (2007).
n31 Sean Gailmard & John W. Patty, Slackers and Zealots: Civil Service, Policy Discretion, and Bureaucratic Expertise, 51 AM. J. POL. SCI. 873, 873 (2007); see also Richardson v. McKnight, 521 U.S. 399, 421 (1997) (Scalia, J., dissenting) (“[O]ne of the principal economic benefits of… ‘out-sourcing’ [is] the avoidance of civil-service salary and tenure encrustations . . . .”); Steven L. Schooner & Daniel S. Greenspahn, Too Dependent on Contractors?: Minimum Standards for Responsible Governance, 8 J. CONT. MGMT. 9, 10 (2008) (describing the government’s “heavily constrained promotion and bonus regime and an impenetrable de facto tenure system”); Dru Stevenson, Privatization of State Administrative Services, 68 LA. L. REV. 1285, 1291 (2008).
n32 Over the past few decades, opportunities to contract for government services–and profit from such contracting–have grown considerably. See, e.g., Metzger, supra note 10, at 1380-94. Quite naturally, those expanded opportunities have enticed additional firms to join the fray. See Donahue, supra note 10, at 56; Shane & Nixon, supra note 10.
n33 DONAHUE, supra note 22, at 147; Trevor L. Brown & Matthew Potoski, Managing the Public Service Market, 64 PUB. ADMIN. REV. 656, 658 (2004); Donahue, supra note 10, at 42, 45; Sergio Fernandez et al., Exploring Variations in Contracting for Services Among American Local Governments: Do Politics Still Matter?, 38 AM. REV. PUB. ADMIN. 439, 447 (2008) (“Competition among providers enhances efficiency by keeping bidders honest and compelling them to minimize their price; it also encourages providers to deliver the best quality of service possible.”); Violeta Kavaliauskaite & Robertas Jucevičius, Readiness of Public Institutions for Contracting, 15 ECON. & MGMT. 587, 587 (2010).
n34 Jeffrey L. Brudney et al., Exploring and Explaining Contracting Out: Patterns Among the American States, 15 J. PUB. ADMIN. RES. & THEORY 393, 412 (2005); see also MILDRED WARNER & AMIR HAFETZ, ECON. POL’Y INST., PRIVATIZATION AND THE MARKET ROLE OF LOCAL GOVERNMENT 4, 6 (2001) (finding less contracting in jurisdictions where government officials have identified insufficient contractor competition); Chung-An Chen, Antecedents of Contracting-Back-In: A View Beyond the Economic Paradigm, 41 ADMIN. & SOC. 101, 108 (2009); Margaret Warner et al., Contracting Back In: When Privatization Fails, in MUNICIPAL YEAR BOOK 2003, at 30-36 (2003).
n35 See, e.g., DONAHUE, supra note 22; Kavaliauskaite & Jučevicius, supra note 33, at 592 (“Deciding whether contracting is needed and whether there is a market from which to buy requires the public institution to be a smart buyer, being able to make a successful bid, negotiate and conclude a contract requires the public institution to be a smart manager, and knowing how to monitor and control the service delivery process after the contract has been made requires the public institution to be a comprehensive inspector.”) (citations omitted).
n36 DONAHUE, supra note 22; Sergio Fernandez et al., Privatization and Its Implications for Human Resources Management, in PUBLIC PERSONNEL MANAGEMENT: CURRENT CONCERNS, FUTURE CHALLENGES 206 (Norma M. Riccucci ed., 4th ed. 2006) (“[T]he chief irony of privatization is that proponents tout it as a cure for bad government, but it takes excellent government to make it work.”) (citation and internal quotation marks omitted).
n37 Brudney et al., supra note 34, at 411 (finding that “[a]gencies that have experienced past success with contracting” are more eager and “better prepared to undertake additional and even larger privatization initiatives”).
n38 By the same token, too much outsourcing might overwhelm staff. Insufficient resources to handle an increased number of contracts can negate whatever advantage contract-management personnel obtain through experience. See Steven L. Schooner, Competitive Sourcing Policy: More Sail Than Rudder?, 33 PUB. CONT. L.J. 263, 283, 287 (2004) [hereinafter Schooner, Competitive Sourcing Policy]; see also Steven L. Schooner, Contractor Atrocities at Abu Ghraib: Compromised Accountability in a Streamlined, Outsourced Government, 16 STAN. L. & POL’Y REV. 549, 558-59 (2005) [hereinafter Schooner, Contractor Atrocities] (“The federal government currently lacks sufficient numbers of qualified acquisition professionals to conduct appropriate market research, properly plan acquisitions, maximize competition, comply with a plethora of congressionally imposed social policies, administer contracts to assure quality control and guarantee contract compliance, resolve pending protests and disputes, and close out contracts.”).
n39 See, e.g., Schooner, Competitive Sourcing Policy, supra note 38, at 272.
n40 Brudney et al., supra note 34, at 410-11 (describing agencies that have had positive experiences managing contracts as more likely to contract more aggressively going forward); Donahue, supra note 10, at 42, 45 (noting that having effective contract-management resources in place makes contracting a more attractive choice going forward); Fernandez et al., supra note 33, at 452 (finding jurisdictions with strong contract-management “capacity” as engaging in more contracting); see also Jonathan Levin & Steven Tadelis, Contracting for Government Services: Theory and Evidence from U.S. Cities, 58 J. INDUS. ECON. 507, 509 (2010) (reporting that governments that have difficulty administering contracts also contract less).
n41 CONG. BUDGET OFFICE, MEASURING DIFFERENCES BETWEEN FEDERAL AND PRIVATE PAY 1 (2002), available at http://www.cbo.gov/ftpdocs/39xx/doc3992/11-22-PayDifferences.pdf; Fischl, supra note 28, at 49-50; Dennis Cauchon, Federal Workers Earning Double Their Private Counterparts, USA TODAY (Aug. 13, 2010), http://usatoday30.usatoday.com/money/economy/income/2010-08-10-1Afedpay10_ST_N.htm.
n42 For challenges to this conventional wisdom, see, for example, JEFFREY KEEFE, ECON. POLICY INST., BRIEFING PAPER NO. 276, DEBUNKING THE MYTH OF THE OVERCOMPENSATED PUBLIC EMPLOYEE: THE EVIDENCE 10 (2010); Annie Lowrey, Federal Pay Versus Private Sector Compensation, N.Y. TIMES ECONOMIX BLOG (Jan. 30, 2012, 6:36 AM), http://economix.blogs.nytimes.com/2012/01/30/federal-pay-vs-private-sector-compensation/.
n43 At the federal level, the Service Contract Act requires service-contracting firms to pay their employees, at a minimum, locally prevailing wages. See The McNamara-O’Hara Service Contract Act of 1965, 41 U.S.C. §§ 6702-07 (2006 & Supp. V 2011); 48 C.F.R. § 22.1001-1026.
n44 See, e.g., Michael A. Fletcher, Government Workers’ Pensions No Longer Sacred, WASH. POST (Oct. 6, 2010), http://www.washingtonpost.com/wp-dyn/content/article/2010/10/05/AR2010100506640.html (“Mayors, governors and other political leaders have long avoided cutting the benefits of government workers, whom they often rely on for political support. But now the benefits are often seen as overly generous in a time of scarce resources.”); (Government) Workers of the World Unite!, ECONOMIST (Jan. 6, 2011), http://www.economist.com/node/17849199 (noting the power of government workers historically to resist efforts aimed at reducing their compensation); Peter Whoriskey & Amy Gardner, Ohio, Wisconsin Shine Spotlight on New Union Battle: Government Workers Versus Taxpayers, WASH. POST (Feb. 28, 2011), http://www.washingtonpost.com/wp-dyn/content/article/2011/02/27/AR2011022704038.html (“Many public-sector unions won compensation increases during the booming 1990s. These days, with the tea party movement and broader anti-tax sentiment, those pay packages have come under attack.”).
n45 See supra section I.A.1. There is also the very real possibility that contracts appear more efficient than they actually are because of the ways contractor units are defined, or because of the time horizons within which we measure contractor costs and performance.
n46 See DONAHUE, supra note 22, at 144 (describing studies suggesting that lower contractor wages constitute “a major part of the contractor cost edge”).
n47 See id.
n48 Throughout the 2000s, federal deficits (controlling for inflation) far outpaced anything the United States experienced since the early 1990s. See Stephen Bloch, U.S. Federal Deficits, Presidents, and Congress, ADELPHI UNIV., http://home.adelphi.edu/sbloch/deficits.html (last updated Nov. 12, 2012).
n49 NAT’L CONFERENCE OF STATE LEGISLATURES, NCSL FISCAL BRIEF: STATE BALANCED BUDGET PROVISIONS 3-6 (2010), available at http://www.ncsl.org/documents/fiscal/StateBalancedBudgetProvisions2010.pdf; David A. Super, Rethinking Fiscal Federalism, 118 HARV. L. REV. 2544, 2592, 2609 (2005) (noting every state save Vermont and Wyoming requires its legislature to pass balanced budgets and that even Wyoming has a dutifully followed practice of balancing its budget).
n50 See, e.g., NICHOLAS JOHNSON ET AL., CTR. ON BUDGET & POLICY PRIORITIES, AN UPDATE ON STATE BUDGET CUTS: AT LEAST FORTY-SIX STATES HAVE IMPOSED CUTS THAT HURT VULNERABLE RESIDENTS AND CAUSE JOB LOSS 3 (2011), available at http://www.cbpp.org/files/3-13-08sfp.pdf.
n51 See Matthew C. Waxman, Police and National Security: American Local Law Enforcement and Counterterrorism After 9/11, 3 J. NAT’L SECURITY L. & POL’Y 377, 393 (2009).
n52 See Steven L. Schwarcz, A Minimalist Approach to State “Bankruptcy,” 59 UCLA L. REV. 322, 343 (2011); Steven Malanga, How Retirement Benefits May Sink the States, WALL ST. J. (Apr. 27, 2012), http://online.wsj.com/article/SB10001424052702303592404577361891800868180.html.
n53 See WARNER & HAFETZ, supra note 34, at 4 (observing that fiscal stress is correlated with greater local-level service contracting); Brudney et al., supra note 34, at 407-08 (noting that states contract out more aggressively during times of fiscal duress); see also Yolanda K. Kodrzycki, Privatization of Local Public Services: Lessons for New England, NEW ENG. ECON. REV., May/June 1994, at 40 (suggesting that the outsourcing of government services might be especially popular in communities where residents express an unwillingness to pay for government services).
n54 This apparent enthusiasm does not seem to depend upon service contracting actually delivering true cost savings. Many governments report that although they have not found contracting to save money, they nevertheless remain devoted to the practice and optimistic regarding its cost-savings potential. Keon S. Chi et al., Privatization in State Government: Trends and Issues, SPECTRUM: J. ST. GOV’T, Fall 2003, at 13, 20, http://www.csg.org/knowledgecenter/docs/spec_fa03Privatization.pdf; see also Brudney et al., supra note 34, at 412 (concluding that governments continue to contract in times of fiscal difficulties notwithstanding the “sobering empirical evidence” attesting to a lack of cost savings in many instances).
n55 To the extent the currently popular anti-tax movements continue influencing legislative agendas across the country, jurisdictions might find themselves perpetually in states of fiscal crisis.
n56 See supra note 28 and accompanying text.
n57 See 5 U.S.C. § 2301(b)(8) (2006) (“[Federal e]mployees should be . . . protected against arbitrary action, personal favoritism, or coercion for partisan political purposes. . . .”); Bush v. Lucas, 462 U.S. 367, 381-84 & n.18 (1983) (describing federal law as protecting civil servants from overly politicized work assignments); Patricia Wallace Ingraham, Building Bridges Over Troubled Waters: Merit as a Guide, 66 PUB. ADMIN. REV. 486, 490 (2006) (“The career civil service, whose legitimacy hinges on its members’ competence and expertise . . . permits questioning political directives if they are questionable or unsound . . . .”); Donald F. Kettl, Bureaucracy, in UNDERSTANDING AMERICA: THE ANATOMY OF AN EXCEPTIONAL NATION 27, 36-38 (Peter H. Schuck & James Q. Wilson eds., 2008).
n58 As discussed, insulation also raises efficiency concerns. See supra section I.A.1.
n59 Inspector General Legislation, 1 Op. O.L.C. 16, 17 (1977) (stating that “[t]he President’s power of control extends to the entire executive branch”); STEVEN G. CALABRESI & CHRISTOPHER S. YOO, THE UNITARY EXECUTIVE: PRESIDENTIAL POWER FROM WASHINGTON TO BUSH 4 (2008); Steven G. Calabresi & Saikrishna B. Prakash, The President’s Power to Execute the Laws, 104 YALE L.J. 541, 546, 652-53 (1994).
n60 Carver v. Foerster, 102 F.3d 96, 108 (3d Cir. 1996) (Becker, J., concurring) (“Anyone with experience in government knows that officials of lower rank can undermine the policies of an administration just as effectively as higher ranking persons.”); Ronald N. Johnson & Gary D. Libecap, Courts, a Protected Bureaucracy, and Reinventing Government, 37 ARIZ. L. REV. 791, 820-21 (1995) (“Highly protected career bureaucrats, who have strong ideological attachments to political causes or policies[,] may also be motivated by partisan objectives, and these objectives can be inconsistent with the goals of elected officials.”); Elizabeth Magill & Adrian Vermeule, Allocating Power Within Agencies, 120 YALE L.J. 1032, 1037-38 (2011) (“The conflicts between political appointees and the ‘bureaucracy’–usually taken to refer to well-insulated-from-termination members of the professional civil service–are legion.”); Nina A. Mendelson, Agency Burrowing: Entrenching Policies and Personnel Before a New President Arrives, 78 N.Y.U. L. REV. 557, 612-14 (2003) (describing ways in which civil servants can obstruct presidential policy agendas).
n61 See, e.g., Gillian E. Metzger, The Interdependent Relationship Between Internal and External Separation of Powers, 59 EMORY L.J. 423, 445 (2009) (“[Civil servants] are committed to enforcing the governing statutory regime that sets out the parameters of their authority and regulatory responsibilities.”); Richard Simon & Janet Wilson, EPA Staff Turned to Former Chief on Warming, L.A. TIMES (Feb. 27, 2008), http://articles.latimes.com/2008/feb/27/nation/na-waiver27 (describing EPA career staff’s efforts to outflank the Administrator after the Administrator “acted against the advice of his legal and scientific advisors” regarding global warming).
n62 See infra notes 166-67 and accompanying text.
n63 See supra note 31 and accompanying text.
n64 See supra section I.A. 1.
n65 See Jon D. Michaels, Privatization’s Pretensions, 77 U. CHI. L. REV. 717, 748-50 (2010).
n66 Id. As in the case of contracting to exploit wage differentials, it is not obvious that contracting to circumvent the civil service’s political insularity is efficiency-promoting. After all, agencies might prefer contractors because of their expected docility, rather than their expertise or technical sophistication. Indeed, if the political administration cares principally about adherence to the party line, such unwavering fidelity might come at the expense of competence or thoughtfulness. See Canice Prender-gast, A Theory of “Yes Men,” 83 AM. ECON. REV. 757, 759 (1993) (discussing the pressure placed on easily removable subordinates to embrace their bosses’ positions).
n67 See DAVID E. LEWIS, PRESIDENTS AND THE POLITICS OF AGENCY DESIGN 24-29 (2003); Magill & Vermeule, supra note 60, at 1057-58; Richard H. Pildes & Cass R. Sunstein, Reinventing the Regulatory State, 62 U. CHI. L. REV. 1, 11 (1995). Among other things, presidents have increased political “layering” atop each agency. See PAUL C. LIGHT, THICKENING GOVERNMENT: FEDERAL HIERARCHY AND THE DIFFUSION OF RESPONSIBILITY 7-13 (1995); Mariano-Florentino Cuéllar, “Securing” the Nation: Law, Politics, and Organization at the Federal Security Agency, 1939-1953, 76 U. CHI. L. REV. 587, 595-96, 660-63 (2009). And, they have enlarged and enhanced the Office of Management and Budget, which among other things, aligns agency priorities with those of the White House. See Exec. Order No. 12,291, 3 C.F.R. 127 (1981) (revised by Exec. Order. No. 12,866, 3 C.F.R. 638 (1994)); DAVID E. LEWIS, THE POLITICS OF PRESIDENTIAL APPOINTMENTS: POLITICAL CONTROL AND BUREAUCRATIC APPOINTMENTS 35-36 (2008); Terry M. Moe & Scott A. Wilson, Presidents and the Politics of Structure, 57 LAW & CONTEMP. PROBS. 1, 18, 34-39 (1994).
n68 See Exec. Order No. 13,579, 3 C.F.R. 256 (2012) (directing independent agencies to follow OMB protocols); David J. Barron, From Takeover to Merger: Reforming Administrative Law in an Age of Agency Politicization, 76 GEO. WASH. L. REV. 1095, 1128 (2008); Aaron J. Saiger, Obama’s “Czars” for Domestic Policy and the Law of the White House Staff, 79 FORDHAM L. REV. 2577 (2011).
n69 See William A. Galston & Pietro S. Nivola, Delineating the Problem, in 1 RED AND BLUE NATION? CHARACTERISTICS AND CAUSES OF AMERICA’S POLARIZED POLITICS 1, 1-8 (Pietro S. Nivola & David W. Brady eds., 2006); Richard H. Pildes, Why the Center Does Not Hold: The Causes of Hyperpolarized Democracy in America, 99 CALIF. L. REV. 273, 276 (2011). See generally Mark Brewer, The Rise of Partisanship and the Expansion of Partisan Conflict Within the American Electorate, 58 POL. RES. Q. 219(2005).
n70 See generally Tom Udall, The Constitutional Option: Reforming the Rules of the Senate to Restore Accountability and Reduce Gridlock, 5 HARV. L. & POL’Y REV. 115 (2011) (describing contemporary legislative gridlock).
n71 See WILLIAM G. HOWELL, POWER WITHOUT PERSUASION: THE POLITICS OF DIRECT PRESIDENTIAL ACTION (2003); Kagan, supra note 26 (illustrating how and why presidents seize control over regulatory policymaking); Gillian E. Metzger, Embracing Administrative Common Law, 80 GEO. WASH. L. REV. 1293, 1322-23 (2012) (describing legislative gridlock as leading to the delegation of broader policymaking authority to administrative agencies).
n72 See Neal Devins & David E. Lewis, Not-So Independent Agencies: Party Polarization and the Limits of Institutional Design, 88 B.U. L. REV. 459, 485 (2008) (“When the parties are polarized and the White House and Congress are divided, Presidents have strong incentives to pursue unilateral policymaking through loyal appointees.”); Kagan, supra note 26, at 2248-50 (describing the benefits of regulatory policymaking particularly in times of divided, obstructionist government).
n73 See PAUL R. VERKUIL, OUTSOURCING SOVEREIGNTY: WHY PRIVATIZATION OF GOVERNMENT FUNCTIONS THREATENS DEMOCRACY AND WHAT WE CAN DO ABOUT IT 166-67 (2007) (“[P]olitical appointees are often selected to challenge the bureaucracy, especially when a change in administration occurs. In this situation, the temptation is to rely on outsiders, not insiders.”); Kagan, supra note 26; Michaels, supra note 65, at 745-49; Michaels, supra note 24, at 858-60.
n74 See Alfred C. Aman, Jr., The Globalizing State: A Future-Oriented Perspective on the Public/Private Distinction, Federalism, and Democracy, 31 VAND. J. TRANSNAT’L L. 769, 847 (1998).
n75 See, e.g., BROOKS, supra note 18, at 1-2 (claiming that “free enterprise is an expression of the core values of a large majority of Americans”).
n76 See Jeffrey R. Henig, Privatization in the United States: Theory and Practice, 104 POL. SCI. Q. 649, 653 (1989-1990) (noting the connection between the privatization and anti-big-government agendas).
n77 See DONAHUE, supra note 22, at 32; U.S. GEN. ACCOUNTING OFFICE, FPCD-81-54, IMPROVING THE CREDIBILITY AND MANAGEMENT OF THE FEDERAL WORKFORCE THROUGH BETTER PLANNING AND BUDGETARY CONTROLS 5 (1981) (“The use of personnel ceilings reinforces the misconception that containing the staffing level of the direct Federal work force controls the cost of Government.”); Dan Guttman, Inherently Governmental Functions and the New Millennium, in MAKING GOVERNMENT MANAGEABLE 40, 41 (Thomas H. Stanton & Benjamin Ginsberg eds., 2004); Michaels, supra note 65, at 752-53; Schooner, Competitive Sourcing Policy, supra note 38, at 278.
n78 For due process challenges, see VERKUIL, supra note 73, at 102-14; Paul R. Verkuil, Public Law Limitations on Privatization of Government Functions, 84 N.C. L. REV. 397, 449-54 (2006). For non-delegation challenges, see Kenneth A. Bamberger, Regulation as Delegation: Private Firms, Decisionmaking, and Accountability in the Administrative State, 56 DUKE L.J. 377 (2006); Metzger, supra note 10, at 1400-06. And, for Appointments Clause challenges, see VERKUIL, supra note 73, at 106-09; Jack M. Beermann, Privatization and Political Accountability, 28 FORDHAM URB. L.J. 1507, 1511 (2001); Michaels, supra note 4, at 1070-73.
n79 See, e.g., Cospito v. Heckler, 742 F.2d 72, 89-94 (3d Cir. 1984) (Becker, J., dissenting). For discussions characterizing the widespread practice of ignoring the prohibition on personal-services contracting, see Michael K. Grimaldi, Abolishing the Prohibition on Personal Service Contracts, 38 J. LEGIS. 71, 74-75 (2012); Collin D. Swan, Note, Dead Letter Prohibitions and Policy Failures: Applying Government Ethics Standards to Personal Services Contractors, 80 GEO. WASH. L. REV. 668, 677-80 (2012).
n80 See Sergio Fernandez et al., Employment, Privatization, and Managerial Choice: Does Contracting Out Reduce Public Sector Employment?, 26 J. POL’Y ANALYSIS & MGMT. 57, 59 (2006) (noting that political arguments supporting privatization have traditionally included statements to the effect that service contracting is “a means for countering the power of the encroaching state, protecting individual rights, and unleashing human enterprise”); Fernandez et al., supra note 33, at 440 (describing government contracting in the 1970s and 1980s as driven by “conservative political movements”).
n81 See, e.g., STUART S. NAGEL & SARAH ECKART, HANDBOOK OF WIN-WIN POLICY ANALYSIS: BASIC CONCEPTS OF WIN-WIN ANALYSIS 103 (2001); Deborah A. Auger, Privatization, Contracting, and the States: Lessons from State Government Experience, 22 PUB. PRODUCTIVITY & MGMT. REV. 435, 435 (1999); see also Oliver Hart et al., The Proper Scope of Government: Theory and an Application to Prisons, 112 Q.J. ECON. 1127, 1146 (1997) (describing “vocal opposition” from public-sector unions).
n82 Chi et al., supra note 54, at 20.
n83 Brudney et al., supra note 34, at 414.
n84 See JACK GODWIN, CLINTONOMICS: How BILL CLINTON REENGINEERED THE REAGAN REVOLUTION 137-41 (2009); see also THE N.J. PRIVATIZATION TASK FORCE, REPORT TO GOVERNOR CHRIS CHRISTIE 3 (2010), available at http://slic.njstatelib.org/slic_files/digidocs/r424/r4242010t.pdf (describing Democrats Ed Rendell and Richard Daley as leading champions of government contracting); E.S. SAVAS, PRIVATIZATION IN THE CITY: SUCCESSES, FAILURES, LESSONS (2005) (describing centrist New York City Mayor Rudolph Giuliani’s contracting efforts); Jon Michaels, Deforming Welfare: How the Dominant Narratives of Devolution and Privatization Subverted Federal Welfare Reform, 34 SETON HALL L. REV. 573, 590 n.42 (2004) (describing Democrat Al Gore’s support for government contracting).
It is worth underscoring that today’s bipartisan support ought not to be understood as reflecting a change in the practice of service contracting. Service contracting has not been defanged. Rather, the political tides have simply shifted in a pro-market direction–meaning larger segments of the political spectrum are embracing this still-sharply-fanged instrument.
n85 See Donahue, supra note 10, at 62; Steven J. Kelman, Contracting, in THE TOOLS OF GOVERNMENT: A GUIDE TO THE NEW GOVERNANCE 282, 315-16 (Lester M. Salamon ed., 2002).
n86 Some studies gesture at (though do not explain) a recent decline in traditional service contracting. For one such survey of local dynamics, see MILDRED E. WARNER & AMIR HEFETZ, REASON FOUND., POLICY BRIEF NO. 80, TRENDS IN PUBLIC AND CONTRACTED GOVERNMENT SERVICES: 2002-2007, at 1-2 (2009), available at http://reason.org/files/pb80_privatization_trends.pdf. For state trends, see Chi et al., supra note 54, at 12-13. For federal, non-defense trends, see PAUL C. LIGHT, ROBERT F. WAGNER GRADUATE SCH. OF PUB. SERV. ORGANIZATIONAL PERFORMANCE INITIATIVE, RESEARCH BRIEF NO. 2, THE NEW TRUE SIZE OF GOVERNMENT 1-7 (2006), available at http://wagner.nyu.edu/performance/files/True_Size.pdf.
n87 See Dennis Byrne, Op-Ed., Chop the Salaries of ‘Public Servants,’ CHI. TRIB. (Apr. 6, 2010), http://articles.chicagotribune.com/2010-04-06/news/ct-oped-0406-byme-20100406_1_public-servants-pension-private-sector; Lisa Colangelo, In Search of Civil Service Givebacks, N.Y. DAILY NEWS (Jan. 13, 2010), http://www.nydailynews.com/new-york/civil-service-jobs-envy-private-sector-article-l.462391 (“Hardly a week passes without an angry screed by an editorial board, think tank[,] or business-backed organization about the ‘oversized’ pension and health care benefits provided to city workers.”); Stephen Goldsmith, Op-Ed., Progressive Government Is Obsolete, WALL ST. J. (Mar. 18, 2011), http://online.wsj.com/article/SB10001424052748703560404576189011057064084.html; Craig Harris, Public Pensions: A Soaring Burden, ARIZ. REPUBLIC. (NOV. 14, 2010), http://www.azcentral.com/news/20101112arizona-pension-funds; Baird Helgeson, Public Pay, Benefits Set off New “Civil War,” STAR TRIB. (Minn.) (Mar. 22, 2011), http://www.startribune.com/politics/statelocal/116090204.html?refer=y;Ren6e Loth, Op-Ed., Going Postal on Public Workers, Bos. GLOBE (Feb. 19, 2011), http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2011/02/19/going_postal_on_public_workers/; Editorial, Pension Reform Goes to Washington, WALL ST. J. (June 6, 2011), http://online.wsj.com/article/SB10001424052748703421204576331531370098682.html; Michael Powell, Public Workers Facing Outrage as Budget Crises Grow, N.Y. TIMES (Jan. 1, 2011), http://www.nytimes.com/2011/01/02/business/02showdown.html?pagewanted=all; Lisa Rein, Federal Workers Becoming a Flash Point in Midterm Elections, WASH. POST (Sept. 25, 2010), http://www.washingtonpost.com/wp-dyn/content/article/2010/09/24/AR2010092406370.html; Karen Tumulty & Ed O’Keefe, Public Servants Feeling Sting of Budget Rancor, WASH. POST (Dec. 21, 2010), http://www.washingtonpost.com/wp-dyn/content/article/2010/12/20/AR2010122005951.html (suggesting that “politicians talk about government employees . . . with the kind of umbrage ordinarily aimed at Wall Street financiers and convenience store bandits”); cf. Joe Davidson, Federal-Worker Flag Salute Won’t Fly, WASH. POST (Sept. 13, 2011), http://www.washingtonpost.com/politics/column/feddiary/federal-worker-flag-salute-wont-fly/2011/09/13/gIQAHI2mQK_story.html (noting strong opposition to legislation honoring federal civilian workers killed in the line of duty, in part because the honor “becomes just another trapping of power from the federal government available to all those people in the ever expanding federal bureaucracy”) (quoting critic of the legislation).
n88 See infra notes 195-98 and accompanying text.
n89 See supra notes 36-39 and accompanying text; see infra note 156 and accompanying text.
n90 This Part does not focus on how effective these new instruments will be. Instead, because this Article’s chief aims are to mark the rise of privatization’s progeny and examine how these new instruments uniquely challenge the administrative state, this Part simply emphasizes what these new instruments look like and why privatization’s proponents might view them as potentially more effective than government service contracting in promoting their agenda.
n91 See DONALD F. KETTL, THE GLOBAL PUBLIC MANAGEMENT REVOLUTION 19-40 (2d ed. 2005) (describing increasing receptivity to the rhetoric and practice of market-based governance). For additional discussions of the rising popularity of businesslike approaches to governing, see, for example, Richard C. Box, Running Government Like a Business: Implications for Public Administration Theory and Practice, 29 AM. REV. PUB. ADMIN. 19 (1999); James P. Pfiffner, The First MBA President: George W. Bush as Public Administrator, 67 PUB. ADMIN. REV. 6 (2007); John Solomon, Bush, Harvard Business School, and the Makings of a President, N.Y. TIMES (June 18, 2000), http://www.nytimes.com/2000/06/18/business/bush-harvard-business-school-and-the-makings-of-a-president.html?pagewanted=all&src=pm.
n92 James S. Bowman & Jonathan P. West, Ending Civil Service Protections in Florida Government: Experiences in State Agencies, 26 REV. PUB. PERSONNEL ADMIN. 139, 141-42 (2006) (describing political leaders’ attacks on the bureaucracy); Stephen E. Condrey, Reinventing State Civil Service Systems: The Georgia Experience, 22 REV. PUB. PERSONNEL ADMIN. 114 (2002); Lloyd G. Nigro & J. Edward Kellough, Personnel Reform in the States: A Look at Progress Fifteen Years After the Winter Commission, 68 PUB. ADMIN REV. S50, S53, S55 (2008).
n93 See supra note 87 and accompanying text.
n94 Stephen E. Condrey & R. Paul Battaglio, Jr., A Return to Spoils? Revisiting Radical Civil Service Reform in the United States, 67 PUB. ADMIN. REV. 425, 431 (2007) (describing the “blurring of public and private sector employment”); Elizabeth Fredericksen, When the Music Stops: Succession Is More Than Filling Seats, 42 ST. & LOC. GOV’T REV. 50, 52 (2010); Stephen W. Hays & Jessica E. Sowa, A Broader Look at the “Accountability” Movement, 26 REV. PUB. PERSONNEL ADMIN. 102, 111 (2006) (“[M]any public servants today work in settings that are not too different from their private sector counterparts.”); James R. Thompson, The Federal Civil Service: The Demise of an Institution, 66 PUB. ADMIN. REV. 496, 499 (2006) (noting that the logic of the market is “increasingly supplant[ing] notions of citizenship and civic duty in society at large”) (citation and internal quotation marks omitted); Sally Coleman Selden & Gene A. Brewer, Rolling Back State Civil Service Systems: Assessing the Erosion of Employee Rights and Protections, and Their Impacts 8 (Aug. 30, 2011) (unpublished study), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1919624 (“[T]he public sector is conforming more and more to the normal disciplines of the private sector.”).
n95 To be sure, the creation of, among other things, a Senior Executive Service, see Civil Service Reform Act of 1978, Pub. L. No. 95-454, 92 Stat. 1111, and the insertion of additional layers of political appointees on top of the rank-and-file civil servants, see supra note 67, serve as forerunners to the current marketization movement. Though still in its infancy, the current marketization movement has the potential to sweep in (and politicize) much broader swaths of government employees.
n96 Helgeson, supra note 87; Powell, supra note 87; Rein, supra note 87; Richard Simon, Anti-Union Push Gains Steam Nationwide, L.A. TIMES (Apr. 2, 2011), http://articles.latimes.com/2011/apr/02/nation/la-na-unions-20110402 (noting “an explosion of 744 bills that largely target public-sector unions, introduced in virtually every state”); Bill Steiden, Debate Over Unions Hits Fever Pitch Across Nation, ATL. J.-CONST., Feb. 27, 2011, at A4; Selden & Brewer, supra note 94, at 3; Tumulty & O’Keefe, supra note 87.
n97 Monica Davey & Steven Greenhouse, Wisconsin May Take an Ax to State Workers’ Benefits and Their Unions, N.Y. TIMES (Feb. 11, 2011), http://www.nytimes.com/2011/02/12/us/12unions.html; Steven Greenhouse, A Watershed Moment for Public-Sector Unions, N.Y. TIMES (Feb. 18, 2011), http://www.nytimes.com/2011/02/19/us/19union.html?_r=0; Karen Tumulty, Wisconsin Governor Wins His Battle With Unions on Collective Bargaining, WASH. POST (Mar. 11, 2011), http://www.washington-post.com/wp-dyn/content/article/2011/03/10/AR2011031005903.html.
n98 See, e.g., Donald S. Wasserman, Collective Bargaining Rights in the Public Sector: Promises and Reality, in JUSTICE ON THE JOB: PERSPECTIVES ON THE EROSION OF COLLECTIVE BARGAINING IN THE UNITED STATES 57-59, 77 (Richard N. Block et al. eds., 2006) (describing Kentucky, Indiana, and Missouri restricting government employees’ collective-bargaining rights in the early and mid-2000s); News Release, Office of the Governor, Governor Daniels Signs Executive Orders to Create Department of Child Services, Rescind Collective Bargaining Agreements (Jan. 11, 2005), available at http://www.in.gov/apps/utils/calendar/presscal?PF%2520=gov2&Clist=196&Elist=82563 (describing the rescission of Indiana state employees’ rights); see also Ind. Exec. Order 05-14 (Jan. 11, 2005), available at http://www.in.gov/governorhistory/mitchdaniels/files/EO_05-14_Complaint_State_Employees.pdf; Donald P. Moynihan, The New Architecture of State Government Administration: Key Questions and Preliminary Answers, PAQ Summer 2009, 164, 181-82, http://priyosudibyo.staff.fisip.uns.ac.id/files/2010/06/2009-AdmRef_new-architecture-Moynihan.pdf [hereinafter Moynihan, Architecture].
Federal efforts picked up steam in the early 2000s. See Donald P. Moynihan, Homeland Security and the U.S. Public Management Policy Agenda, 18 GOVERNANCE 171, 172 (2005) [hereinafter Moynihan, Homeland Security]; Wasserman, supra at 60; see also Joseph Slater, Homeland Security vs. Workers’ Rights?: What the Federal Government Should Learn from History and Experience, and Why, 6 U. PA. J. LAB. & EMP. L. 295, 297, 316 (2004) (describing restrictions placed on collective bargaining in, among other agencies, the Department of Homeland Security, the Justice Department, and the Social Security Administration). See generally Luther F. Carter & Kenneth D. Kitts, Managing Public Personnel: A Turn-of-the-Century Perspective, in HANDBOOK OF PUBLIC ADMINISTRATION 381, 396 (Jack Rabin et al. eds., 3d ed. 2007) (“The future of unions in the public sector has become even more uncertain in the wake of the September 2001 terrorist attacks.”).
n99 Even conservative presidents such as Richard Nixon and Ronald Reagan contributed to this bipartisan consensus. JOSEPH A. MCCARTIN, COLLISION COURSE: RONALD REAGAN, THE AIR TRAFFIC CONTROLLERS, AND THE STRIKE THAT CHANGED AMERICA (2011) (suggesting that President Reagan was generally supportive of government unions notwithstanding the dramatic termination of striking air-traffic controllers during his presidency); Joseph McCartin, What’s Really Going on in Wisconsin?, NEW REPUBLIC (Feb. 19, 2011), http://www.tnr.com/article/politics/83829/wisconsin-public-employees-walker-negotiate# (contending that the current wave of state-level opposition to public-sector collective-bargaining rights “would turn back the clock to the early 1950s,” when public-sector workers lacked broad collective-bargaining protections, and thus “undo 50 years of legal precedent on labor issues”); Wasserman, supra note 98, at 58; (Government) Workers of the World Unite!, supra note 44.
n100 Maria O’Brien Hylton, Combating Moral Hazard: The Case for Rationalizing Public Employee Benefits, 45 IND. L. REV. 413, 442 (2012); see also Gary Chaison, A Turning Point in Labor History, N.Y. TIMES ROOM FOR DEBATE (Feb. 19, 2011), http://www.nytimes.com/roomfordebate/2011/02/18/the-first-blow-against-public-employees/a-turning-point-in-labor-history.
n101 Wasserman, supra note 98, at 59 (describing the rapid decline in private-sector union power).
n102 Id. at 63.
n103 Moynihan, Homeland Security, supra note 98, at 171 (quoting Ivo H. DAALDER ET AL., ASSESSING THE DEPARTMENT OF HOMELAND SECURITY 34 (2002)).
n104 See Joe Davidson, Wis. Slashing of Collective-Bargaining Rights Jars Federal Unions, WASH. POST (Mar. 16, 2011), http://www.washingtonpost.com/wp-dyn/content/article/2011/03/14/AR2011031403980.html; David A. Lieb & Sam Hananel, Newly Elected Republicans in State Capitols Launching Strongest Challenge to Unions in Decades, STAR TRIB. (Feb. 18, 2011), http://www.startribune.com/templates/Print_This_Story?sid=116463198.
n105 See, e.g., MICHAEL GOLDFIELD, THE DECLINE OF ORGANIZED LABOR IN THE UNITED STATES 43 (1987) (discussing concession bargaining); Thomas Miner, Concession Bargaining, 59 CHI.-KENT L. REV. 981, 981 (1983) (discussing effects of concession bargaining on wages and benefits).
n106 Cf. Mitchell v. Robert DeMario Jewelry, Inc., 361 U.S. 288, 292 (1960) (acknowledging as self-evident that the “fear of economic retaliation might often operate to induce aggrieved employees quietly to accept substandard conditions”).
n107 Cf. Cynthia L. Estlund, Economic Rationality and Union Avoidance: Misunderstanding the National Labor Relations Act, 71 TEX. L. REV. 921, 931-33 (1993) (noting that employers’ ability to avoid unionized workplaces gives credence to managerial threats that worker-unionization efforts might result in job losses); Steven Greenhouse, Labor Board Tells Boeing New Factory Breaks Law, N.Y. TIMES (Apr. 20, 2011), http://www.nytimes.com/2011/04/21/business/21boeing.html (describing retaliation complaint filed against Boeing for relocating a plant from a unionized state to a nonunion state).
n108 Keith Snavely & Uday Desai, Competitive Sourcing in the Federal Civil Service, 40 AM. REV. PUB. ADMIN. 83, 85 (2010); see also Fischl, supra note 28, at 55 (“We’re the black sheep of the federal government. There are no work floor regulations for us so when there’s an issue, management’s attitude is: ‘It’s our way or the highway.'”) (quoting a Transportation Security Administration employee discussing the agency’s lack of collective-bargaining rights).
n109 U.S. GOV’T ACCOUNTABILITY OFFICE, GAO-05-398R, HUMAN CAPITAL: SELECTED AGENCIES’ STATUTORY AUTHORITIES COULD OFFER OPTIONS IN DEVELOPING A FRAMEWORK FOR GOVERNMENTWIDE REFORM 23-37 (2005) (describing the recent wave of federal agency exemptions from civil-service laws relating to hiring and firing authority, employment reclassification, and pay adjustments); David Leonhardt, Union Contracts, Not Pay, Are States’ Problem, N.Y. TIMES (Mar. 1, 2011), http://www.nytimes.com/2011/03/02/business/021eonhardt.html. Leonhardt connects the weakening of public-sector unions to the success of elected leaders in forcing government workers to accept reductions in wages and benefits. Id.
n110 See infra notes 239-43 and accompanying text.
n111 See John D. Donahue, The Ideological Romance of Privatization, in MORALITY, RATIONALITY, AND EFFICIENCY: NEW PERSPECTIVES ON SOCIO-ECONOMICS 133, 137 (Richard M. Coughlin ed., 1991).
n112 See, e.g., HERBERT APPLEBAUM, THE AMERICAN WORK ETHIC AND THE CHANGING WORK FORCE: AN HISTORICAL PERSPECTIVE 202 (1998) (discussing blue-collar workers’ diminished opportunities for socioeconomic advancement); ROBERT B. REICH, SUPERCAPITALISM: THE TRANSFORMATION OF BUSINESS, DEMOCRACY, AND EVERYDAY LIFE (2007) (comparing solidly middle-class, blue-collar jobs of the 1950s and 1960s with far less remunerative employment today for otherwise-similarly-situated workers).
n113 See supra note 41 and accompanying text; see also Sinkhole!, BLOOMBERG BUSINESSWEEK (June 12, 2005), http://businessweek.com/stories/2005-06-12/sinkhole. When it comes to highly skilled jobs, private-sector pay typically exceeds government pay. See Richard J. Pierce, Jr., Outsourcing Is Not Our Only Problem, 76 GEO. WASH. L. REV. 1216, 1224-26 (2008) (reviewing VERKUIL, supra note 73). But many highly skilled government workers eventually decamp to the private sector, where they are then well-compensated for their valuable experience in government. See Richard W. Painter, President Obama’s Progress in Government Ethics, 26 CONST. COMMENT. 195, 204-05 (2010); James Q. Wilson, The Politics of Regulation, in THE POLITICS OF REGULATION 357, 392 (James Q. Wilson ed., 1980). Needless to add, investment banks, white-shoe law firms, or Silicon Valley start-ups are unlikely to be interested in poaching rank-and-file civil servants.
n114 For a broad survey of public-sector pension reform, see SUJIT M. CANAGARETNA, COUNCIL OF STATE GOV’TS, AMERICA’S PUBLIC RETIREMENT SYSTEMS: STRESSES IN THE SYSTEM 56 (2004), available at http://www.slcatlanta.org/Publications/FAGO/stressweb/stressesinthesystemweb.pdf. For discussions of public-sector wage, benefit, and pension cutbacks, see Jeff Brady, Scranton’s Public Workers Now Paid Minimum Wage, NPR.ORG (July 7, 2012), http://www.npr.org/2012/07/07/1564l6876/scrantons-public-workers-pay-cut-to-minimum-wage (describing Scranton’s push to lower city workers’ salaries to the state minimum wage); Colangelo, supra note 87 (documenting efforts to scale back benefits and pensions in New York City); Michael Cooper & Mary Williams Walsh, San Diego and San Jose Lead Way in Pension Cuts, N.Y. TIMES (June 6, 2012), http://www.nytimes.com/2012/06/07/us/politics/san-diego-and-san-jose-pass-pension-cuts.html?pagewanted=all&_r=0 (describing movements in San Diego, San Jose, Chicago, and Providence to cut public-employee pensions); Lisa Fleisher & Shelly Banjo, Political Allies Turn on Unions, WALL ST. J. (June 24, 2011), http://online.wsj.com/article/SB10001424052702304231204576406154027153110.html; John Fritze, Debt Debate Puts Federal Workers on Edge, BALT. SUN (June 26, 2011), http://articles.baltimoresun.com/2011-06-26/news/bs-md-debt-fedworkers-20110626_1_debt-debate-federal-workers-federal-employees; Abby Goodnough, Providence Mayor Moves Financial Woes to Fore, N.Y. TIMES (Apr. 30, 2012), http://www.nytimes.com/2012/05/01/us/providence-mayor-moves-financial-woes-to-fore.html; Steven Greenhouse, More Workers Face Pay Cuts, Not Furloughs, N.Y. TIMES (Aug. 3, 2010), http://www.nytimes.com/2010/08/04/business/economy/04paycuts.html; Danny Hakim, Cuomo Secures Big Givebacks in Union Deal, N.Y. TIMES (Jun. 22, 2011), http://www.nytimes.com/2011/06/23/nyregion/new-york-reaches-deal-with-largest-public-employee-union.html (“The state’s largest public-employee union, acknowledging the pressures on government workers around the nation, agreed . . . to major wage and benefits concessions in a pact to avoid sweeping layoffs.”); Robert Holland & Don Soifer, Public Pensions Under Water, OKLAHOMAN, Jan. 2, 2011, at 13A (noting recent benefit and pension reductions in California and Illinois); David Kocieniewski, In Tax Deal, Many Public Employees Will Pay More, N.Y. TIMES (Dec. 8, 2010), http://www.nytimes.com/2010/12/09/business/economy/09tax.html; Jay Miller, FitzGerald Likely To Cut County Employees’ Pay, CRAIN’S CLEVELAND BUS. (Oct. 18, 2012), http://www.crainscleveland.com/article/20110919/FREE/309199975 (noting Cuyahoga (Cleveland, OH)’s efforts to slash county workers’ pay); NJ Slashes Public Workers Benefits, WALL ST. J. (June. 24, 2011), http://online.wsj.com/article/SB10001424052702303339904576404492031170666.html; Steiden, supra note 96 (reporting that “[e]ven Democratic governors such as Andrew Cuomo in liberal-leaning New York” are seeking to cut government wages).
n115 JOHNSON ET AL., supra note 50, at 1. And, thirty-nine of the fifty states have scaled back civil-service pensions. PEW CTR. ON THE STATES, ROADS TO REFORM: CHANGES TO PUBLIC SECTOR RETIREMENT BENEFITS ACROSS STATES (2010), available at http://pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Retirement_security/Roads_To_Reform.pdf?n=1725.
n116 Brady, supra note 114; Shane Goldmacher, Gov. Urges Minimum Wage for California State Workers Until Budget Deal Is Reached, L.A. TIMES (Jun. 24, 2010), http://articles.latimes.com/2010/jun/24/local/la-me-schwarzenegger-wages-20100624.
n117 Fernandez et al., supra note 80, at 67; Hays & Sowa, supra note 94, at 104.
n118 See Kathleen Barker & Kathleen Christensen, Controversy and Challenges Raised by Contingent Work Arrangements, in CONTINGENT WORK: AMERICAN EMPLOYMENT RELATIONS IN TRANSITION 1-10 (Kathleen Barker & Kathleen Christensen eds., 1998).
n119 Fernandez et al., supra note 80, at 60; Hays & Sowa, supra note 94, at 103.
n120 DONAHUE, supra note 22; Schooner, Competitive Sourcing Policy, supra note 38; see also supra note 36 and accompanying text.
n121 Needless to add, the private labor market is also a dynamic one. Thus, there is always the possibility that changes in the private workforce affect marketization’s arbitraging opportunities.
n122 Slashing government salaries might also be more politically advantageous than continued service contracting. Section II.B.3, infra, addresses the diminishing political returns from continued contracting.
n123 See MAXWELL L. STEARNS & TODD J. ZYWICKI, PUBLIC CHOICE CONCEPTS AND APPLICATIONS IN LAW 341 (2009); Rose-Ackerman, supra note 23, at 132 (suggesting that workers not subject to performance incentives might lack adequate motivation to strive for excellence); supra section I.A.1.
n124 See CIVIL SERVICE REFORM IN THE STATES: PERSONNEL POLICY AND POLITICS AT THE SUBNATIONAL LEVEL chs. 10, 12 (J. Edward Kellough & Lloyd G. Nigro eds., 2006) (describing performance-based pay in Arizona and Wisconsin); Stephen Barr, Inspector General Finds TSA Very Generous With Executives’ Bonuses, WASH. POST (Oct. 15, 2004), http://www.washingtonpost.com/wp-dyn/articles/A34267-2004Oct15.html; Hays & Sowa, supra note 94, at 114; James J. Heckman et al., Performance Standards and the Potential to Improve Government Performance, in THE PERFORMANCE OF PERFORMANCE STANDARDS 1, 1 (James J. Heckman et al. eds., 2011) (describing federal government workers’ increased eligibility for performance-based bonuses); Ingraham, supra note 57, at 489; Cortney Whalen & Mary E. Guy, Broadbanding Trends in the States, 28 REV. PUB. PERSONNEL ADMIN. 349, 350 (2008). See generally U.S. MERIT SYS. PROT. BD., DESIGNING AN EFFECTIVE PAY-FOR-PERFORMANCE COMPENSATION SYSTEM, at ix (2006), available at http://www.mspb.gov/netsearch/viewdocs.aspx7docnumber=224104&version=224323&application=ACROBAT. There has been some pushback to the merit-based system. See WENDY GINSBERG, CONG. RESEARCH SERV., RL34673, PAY-FOR-PERFORMANCE: THE NATIONAL SECURITY PERSONNEL SYSTEM 1-16 (2008).
n125 See RADICAL REFORM OF THE CIVIL SERVICE (Stephen E. Condrey & Robert Maranto eds., 2001); James S. Bowman et al., Florida’s Service First: Radical Reform in the Sunshine State, in CIVIL SERVICE REFORM IN THE STATES, supra note 124, at 146; Condrey & Battaglio, supra note 94, at 425; Selden & Brewer, supra note 94, at 4, 7.
n126 See James S. Bowman, The Success of Failure: Paradox of Performance Pay, 30 REV. PUB. PERSONNEL ADMIN. 70, 70 (2010) (indicating that government supervisors “see pay for performance [incentives] as a basis of control”); Moynihan, Architecture, supra note 98, at 167 (linking financial-performance incentives with employee control and motivation); Rose-Ackerman, supra note 23, at 132-33; Whalen & Guy, supra note 124, at 357.
n127 Heckman et al., supra note 124, at 1 (“By . . . developing explicit rewards for their attainment, these [governmental performance-based pay] systems have aimed to replicate, in a non-market setting, the incentive structures, competition, and resulting high performance and efficiency of private markets.”); Thompson, supra note 94, at 499 (“[T]he new performance paradigm incorporates a logic of action that has an instrumental orientation in common with the private sector.”).
n128 See Frug, supra note 28, at 945 (suggesting “for-cause” termination requires “serious act[s] of misconduct”). Government workers no longer entitled to their jobs lack due process protections to challenge unjust or simply mistaken terminations. See Bishop v. Wood, 426 U.S. 341 (1976) (holding that a terminated at-will government employee is not entitled to due process); Bd. of Regents v. Roth, 408 U.S. 564 (1972) (holding that a government employee without any expectation of continued employment is not entitled to due process). See generally Hays & Sowa, supra note 94, at 106 (“Under the banners of decentralization, accountability, and flexibility, the due process rights of many civil servants are eroding. . . .”); id. at 110-11 (noting government workers’ reduced opportunities to challenge adverse employment decisions).
n129 See Patricia W. Ingraham, Introduction to Part III: The Civil Service Reform Act: Process and Procedure, in THE PROMISE AND PARADOX OF CIVIL SERVICE REFORM 159, 160 (Patricia W. Ingraham & David H. Rosenbloom eds., 1992) (“The purpose of the merit system was to limit political patronage and eliminate political abuse of federal job opportunities.”); see also supra note 57 and accompanying text.
n130 See supra section I.A. 1.
n131 See supra notes 61-65 and accompanying text.
n132 See DANIEL GUTTMAN & BARRY WILLNER, THE SHADOW GOVERNMENT 28, 65, 151-52 (1976) (describing the Nixon Administration’s hiring of conservatively inclined contractors to replace liberal civil servants working on federal anti-poverty initiatives); see also Michaels, supra note 65, at 748-50 (describing how political appointees might prefer to contract around civil servants whose job protections emboldened them to question or oppose the Administration’s policy priorities).
n133 See KATHERINE V.W. STONE, FROM WIDGETS TO DIGITS: EMPLOYMENT REGULATION FOR THE CHANGING WORKPLACE 6 (2004); Stone, supra note 24, at 84.
n134 JONATHAN WALTERS, LIFE AFTER CIVIL SERVICE REFORM: THE TEXAS, GEORGIA, AND FLORIDA EXPERIENCES 23, 30 (2002), available at http://sites.duke.edu/niou/files/2011/05/Walters-Life-after-Civil-Service-Reform-The-Texas-George-and-Florida-Experiences.pdf; Hays & Sowa, supra note 94, at 106; J. Edward Kellough & Lloyd G. Nigro, Dramatic Reform in the Public Service: At-Will Employment and the Creation of a New Public Workforce, 16 J. PUB. ADMIN. RES. & THEORY 447, 449 (2005); Moynihan, Architecture, supra note 98, at 181 (noting that Florida, Georgia, and Texas “have essentially done away with their civil service systems, making most if not all of their employees ‘at will'”); Heather Kerrigan, Civil Service Reform: Lessons from Georgia and Indiana, GOVERNING (Jun. 13, 2012), http://www.governing.com/topics/public-workforce/col-civil-service-reform-lessons-from-georgia-indiana.html (describing reclassification efforts in Georgia and Indiana); Melissa Maynard, Civil Service Reform Passes in 3 States, GOVERNING (Jun. 12, 2012), http://www.governing.com/blogs/view/civil-service-reform-passes.html (describing Arizona, Colorado, and Tennessee’s reclassification of former civil servants as at-will employees and indicating that these three states are also classifying many new hires as at-will employees).
n135 Hays & Sowa, supra note 94, at 115.
n136 Moynihan, Homeland Security, supra note 98, at 171-72; Slater, supra note 98, at 297, 308, 312-13; Snavely & Desai, supra note 108, at 85.
n137 Hays & Sowa, supra note 94, at 106.
n138 See supra notes 24, 28 and accompanying text; see also Moynihan, Architecture, supra note 98, at 181 (noting that government workers newly disengaged from the civil service “lack any protections beyond those afforded to private employees”).
n139 See David W. Chen, Goldman To Invest in City Jail Program, Profiting if Recidivism Falls Sharply, N.Y. TIMES (Aug. 2, 2012), http://www.nytimes.com/2012/08/02/nyregion/goldman-to-invest-in-new-york-city-jail-program.html (“The beauty of [bounties] is if they perform to get the results, then we pay. If they don’t, we don’t pay.”) (quoting government official); supra section I.A.2; see also Michaels, supra note 65, at 729-30 n.44 (cataloguing reports of traditional service contractor waste, fraud, and abuse).
n140 See NASH ET AL., supra note 16, at 525 (describing government-contracting payment arrangements).
n141 See infra note 155 and accompanying text.
n142 See infra notes 164-70 and accompanying text.
n143 See infra notes 157-60 and accompanying text.
n144 See infra note 152 and accompanying text.
n145 See infra sections III.B. 1-2.
n146 See infra notes 198-202 and accompanying text.
n147 See infra notes 203-04; see also supra note 19.
n148 See infra sections III.B. 1-2.
It bears underscoring that many of the bounty schemes discussed in this Article are still in their infancy. Yet it is apparent that a contingent of academics, government officials, and business leaders who, in prior decades, passionately championed traditional service contracting are now designing and promoting bounties. See infra notes 149, 198-204, 304, 320-323 and accompanying text. Given the enthusiasm surrounding these initiatives, we can envision a time when considerably more responsibilities will be administered through bounties.
n149 See JEFFREY B. LIEBMAN, CTR. FOR AM. PROGRESS, SOCIAL IMPACT BONDS: A PROMISING NEW FINANCING MODEL TO ACCELERATE SOCIAL INNOVATION AND IMPROVE GOVERNMENT PERFORMANCE 1 (2011), available at http://www.americanprogress.org/wp-content/uploads/issues/2011/02/pdf/social_impact_bonds.pdf; David Leonhardt, For Federal Programs, a Taste of Market Discipline, N.Y. TIMES (Feb. 8, 2011), http://www.nytimes.com/2011/02/09/business/economy/091eonhardt.html; Performance Bonds: Who Succeeds Gets Paid, ECONOMIST (Feb. 17, 2011), http://www.economist.com/node/18180436.
n150 See Chen, supra note 139 (describing New York City bonds); Leonhardt, supra note 149 (discussing proposed interest in social-impact bonds at the federal level); Performance Bonds, supra note 149 (describing federal interest in social-impact bonds); Press Release, Executive Office for Administration and Finance, Massachusetts Pursues Social Innovation Financing To Spur Innovation and Build on Program Success (May 6, 2011), available at http://www.mass.gov/anf/press-releases/2012/mass-pursues-social-innovation-financing.html. Minnesota’s legislature has already appropriated money for pilot programs. Minnesota Pay for Performance Act of 2011, ch. 10, §§ 16A.93-96, 2011 Minn. Laws 1418, available at http://wdoc.house.leg.state.mn.us/leg/LS87/HF068L1.pdf.
Social-impact bonds are more firmly established in the United Kingdom. EMILY BOLTON, SOC. FIN., SOCIAL IMPACT BONDS: UNLOCKING INVESTMENT IN REHABILITATION, (2010), available at http://www.socialfinance.org.uk/sites/default/files/SF_CriminalJustice.pdf; Performance Bonds, supra note 149; Alan Travis, Will Social Impact Bonds Solve Society’s Most Intractable Problems?, GUARDIAN (U.K.) (Oct. 5, 2010), http://www.guardian.co.uk/society/2010/oct/06/social-impact-bonds-intractable-societal-problems; John Loder et al., Financing Social Value: Implementing Social Impact Bonds 1 (Jan. 2010) (unpublished manuscript), available at http://archive.youngfoundation.org/files/images/SIB_paper_Jan_10_final.pdf.
n151 See Chen, supra note 139; Travis, supra note 150; Loder et al., supra note 150, at 16.
n152 See LIEBMAN, supra note 149, at 2; Loder et al., supra note 150, at 7.
n153 See LIEBMAN, supra note 149, at 2.
n154 New York City promises a 21% return on its investment. Chen, supra note 139. The British anti-recidivism program promises a 13.5% annual rate of return. See Performance Bonds, supra note 149.
n155 Loder et al., supra note 150.
n156 The government certainly incurs some costs. It must, after all, decide what bond proposal to endorse, draw up an agreement with the bond organization, and verify the provider’s results.
n157 This will not always be the case. Many traditional government contracts are structured as “cost-reimbursement” or “cost-plus” contracts. See Michael Abramowicz, Perfecting Patent Prizes, 56 VAND. L. REV. 115, 131 n.50 (2003) (emphasizing that cost-plus contractors have little incentive to be efficient because they get paid a fixed-profit margin); Marjorie E. Kornhauser, Choosing a Tax Rate Structure in the Face of Disagreement, 52 UCLA L. REV. 1697, 1711-12 (2005) (noting that cost-plus government contracts transfer little, if any, risk to the private sector); Julie A. Roin, Privatization and the Sale of Tax Revenues, 95 MINN. L. REV. 1965, 2009 (2011) (characterizing cost-plus contracting as “the government promis[ing] to reimburse the [contractors’] costs with a guaranteed profit margin”); supra note 16 and accompanying text.
Of course, it is likely difficult to ascertain whether a social-impact program has been carried out successfully. But it is often no less difficult to determine whether traditional service contractors are performing successfully. Thus, ease of performance evaluation is not a prima facie reason for privatization’s proponents to prefer traditional service contracts to bounty arrangements.
n158 See NASH ET AL., supra note 16, at 525.
n159 With social-impact bonds, the government is separating financial management (undertaken by the bond organization) from program management (undertaken by the provider). Because this is neither a constitutive nor necessary feature of government by bounty, I do not take up the admittedly interesting and important questions this structure invites.
n160 See supra section II. A.
n161 See supra notes 26-27 and accompanying text.
n162 See supra section II.A.4.
n163 This assumes that reputational harm associated with failure is an insufficient deterrent.
n164 See supra notes 36-39 and accompanying text.
n165 See Nicholas Bagley & Richard L. Revesz, Centralized Oversight of the Regulatory State, 106 COLUM. L. REV. 1260, 1303 (2006) (discussing “principal-agent problem[s]” arising “between the heads of agencies and their employees”).
n166 JOEL D. ABERBACH & BERT A. ROCKMAN, IN THE WEB OF POLITICS: THREE DECADES OF THE U.S. FEDERAL EXECUTIVE 168 (2000) (describing civil servants as ideologically to the left of the political leadership of both major parties); RICHARD P. NATHAN, THE ADMINISTRATIVE PRESIDENCY 7-12 (1983) (describing ideological differences between civil servants and the political leadership).
n167 See Simon & Wilson, supra note 61 (describing civil servants’ objections to the appointed leadership’s substantive agenda and procedural protocols).
n168 See Lisa Schultz Bressman, Procedures as Politics in Administrative Law, 107 COLUM. L. REV. 1749, 1767-68 (2007) (emphasizing principal-agent tensions between Congress and administrative agencies).
n169 Moe & Wilson, supra note 67, at 18, 34-36 (describing presidential oversight efforts).
n170 For descriptions of the difficulties associated with government oversight of contractors, see DONAHUE, supra note 22; Kavaliauskaite & Jucevicius, supra note 33; Steven L. Schooner, Fear of Oversight: The Fundamental Failure of Businesslike Government, 50 AM. U. L. REV. 627 (2001).
n171 See supra notes 153-54 and accompanying text.
n172 Cf. Susan Rose-Ackerman, Social Services and the Market, 83 COLUM. L. REV. 1405 (1983). Rose-Ackerman describes the concept of “proxy shopping.” Proxy shopping involves a private provider receiving public funding to dispense social services to needy populations only if that provider is able to attract unsubsidized customers who purchase the same services on the open market. The unsubsidized customers’ patronage essentially validates the private provider. By sending that validating signal, the unsubsidized customers lessen the government’s need to rigorously monitor the provider. If the unsubsidized customers take their business elsewhere, the provider knows it will also lose its public funding. See id. at 1412. An analogy can be drawn to social-impact bonds. Here, it is not private customers validating a private provider through market patronage. Rather, it is private bond organizations that validate a private provider by investing in it; and, they signal their lack of faith by withholding or withdrawing that investment.
n173 The government still needs to verify that the benchmarks established are met, and that the provider did not abuse its authority.
n174 Whether bounties create efficient lending markets is, of course, a questionable proposition.
n175 Typically, when social services are provided in-house, the government expends resources in real time to carry out those social services. Rent, heat, electricity, office supplies, and employee salaries are paid as they come due–as are the tangible expenses associated with the program itself. See Alejandro E. Camacho, Can Regulation Evolve? Lessons from a Study in Maladaptive Management, 55 UCLA L. REV. 293, 347-48 (2007).
n176 For discussions connecting budgetary issues, timing, and political decision making, see Michaels, supra note 24, at 848-49, 891; Super, supra note 49, at 2624-26.
n177 See supra note 150 and accompanying text.
n178 See BOLTON, supra note 150; Travis, supra note 150.
n179 See, e.g., Lisa Schultz Bressman & Robert B. Thompson, The Future of Agency Independence, 63 VAND. L. REV. 599, 613-14 (2010) (acknowledging that cabinet-level appointees usually serve short tenures); David Fontana, Government in Opposition, 119 YALE L.J. 548, 610 (2009) (finding that the average tenure of political appointees is approximately two years).
n180 See Michaels, supra note 24, at 850-51 (describing elected officials’ present-mindedness and corresponding predisposition to devalue long-term goals).
n181 For a list of states that impose term limits on state legislators, see The Term Limited States, NAT’L CONFERENCE OF STATE LEGISLATURES (Jan. 2013), http://www.ncsl.org/legislatures-elections/legisdata/chart-of-term-limits-states.aspx.
n182 MATTHEW ERIC GLASSMAN ET AL., CONG. RESEARCH SERV., R41545, CONGRESSIONAL CAREERS: SERVICE TENURE AND PATTERNS OF MEMBER SERVICE, 1789-2011, at 2-3 (2011) (estimating that the average member of Congress serves for over ten years).
n183 See Richard D. McKelvey & Raymond Riezman, Seniority in Legislatures, 86 AM. POL. SCI. REV. 951 (1992); Nelson W. Polsby et al., The Growth of the Seniority System in the U.S. House of Representatives, 63 AM. POL. SCI. REV. 787 (1969).
n184 See, e.g., Stephen Ansolabehere & James M. Snyder, Jr., The Incumbency Advantage in U.S. Elections: An Analysis of State and Federal Offices, 1942-2000, 1 ELECTION L.J. 315 (2002).
n185 See Auger, supra note 81, at 435; Donahue, supra note 10, at 62; Kelman, supra note 85, at 315; supra section I.D.
n186 See Michael S. Kang, Sore Loser Laws and Democratic Contestation, 99 GEO. L.J. 1013, 1019-21 (2011).
n187 See supra notes 80-85 and accompanying text.
n188 See ALAN I. ABRAMOWITZ, THE DISAPPEARING CENTER: ENGAGED CITIZENS, POLARIZATION, AND AMERICAN DEMOCRACY 41-43 (2010); BARBARA SINCLAIR, PARTY WARS: POLARIZATION AND THE POLITICS OF NATIONAL POLICY MAKING 3-36 (2006); Pildes, supra note 69, at 277-80.
n189 See supra section I.D.2.
n190 E.g., LEONARD C. GILROY, REASON FOUND., POLICY BRIEF NO. 86, LOCAL GOVERNMENT PRIVATIZATION 101 (2010); supra notes 80-82 and accompanying text.
n191 HERBERT KITSCHELT, THE TRANSFORMATION OF EUROPEAN SOCIAL DEMOCRACY 119 (1994).
n192 John H. Aldrich, A Downsian Spatial Model with Party Activism, 77 AM. POL. SCI. REV. 974 (1983); John R. Petrocik et al., Issue Ownership and Presidential Campaigning, 1952-2000, 118 POL. SCI. Q. 599 (2003).
n193 For discussions of the importance of primaries in many elections, see Gary W. Cox, Centripetal and Centrifugal Incentives in Electoral Systems, 34 AM. J. POL. SCI. 903 (1990); Bernard Grofman, Downs and Two-Party Convergence, 7 ANN. REV. POL. SCI. 25, 28-30 (2004).
n194 ABRAMOWITZ, supra note 188, at 104 (“The primary emphasis in most political campaigns today is not on persuading swing voters but on mobilizing core party supporters.”); Pildes, supra note 69, at 298 & n.89 (“[P]rimaries tend to be dominated by the most committed and active party members, who tend to be more ideologically extreme than the average party member.”).
n195 See supra section I.D.2. Issue convergence is also common among political rivals. See ANTHONY DOWNS, AN ECONOMIC THEORY OF DEMOCRACY 140 (1957). Convergence often precedes (and prompts) efforts at political product differentiation.
n196 See supra note 17 and accompanying text.
n197 See supra notes 82-84 and accompanying text.
n198 See infra section III.B.1.
n199 Prediction (or public-futures) markets encourage private parties to place money on the likelihood of certain events (such as the outbreak of war or energy crises) occurring. Government agencies study public betting patterns to gain insight into what will happen–and apply that insight to prepare for (or prevent) that occurrence. See MICHAEL ABRAMOWICZ, PREDICTOCRACY: MARKET MECHANISMS FOR PUBLIC AND PRIVATE DECISION MAKING (2007); CASS R. SUNSTEIN, INFOTOPIA: HOW MANY MINDS PRODUCE KNOWLEDGE (2006); Tom W. Bell, Government Prediction Markets: Why, Who, and How, 116 PENN ST. L. REV. 403 (2012); Robert W. Hahn & Paul C. Tetlock, Using Information Markets to Improve Public Decision Making, 29 HARV. J.L. & PUB. POL’Y 213 (2006); Saul Levmore, Simply Efficient Markets and the Role of Regulation: Lessons from the Iowa Electronic Markets and the Hollywood Stock Exchange, 28 J. CORP. L. 589 (2003).
Government prediction markets operate as bounties. Participants in prediction markets must invest their own resources, which they lose if their predictions do not come true. For this reason, participants have strong incentive to do their homework before wagering. For this reason, too, the information generated by the market is expected to be highly accurate. See Robin Hanson, Decision Markets for Policy Advice, in PROMOTING THE GENERAL WELFARE: NEW PERSPECTIVES ON GOVERNMENT PERFORMANCE 151, 151 (Alan S. Gerber & Eric M. Patashnik eds., 2006) (describing the highly accurate results of prediction markets on questions of public consequence). Those who have the most knowledge will wager large sums. And, those with just a passing interest or uninformed opinion will bet far more modestly (if they bet at all). By contrast, unlike those placing bets, government employees and traditional contractors do not lose money when they supply inaccurate predictions.
n200 See infra note 311.
n201 Since the late 1990s, governments have shown increased receptivity to hiring private lawyers on contingency-fee bases. Just this past decade, attorneys general in thirty-six states secured legal services on a contingency basis to sue gun manufacturers, lead-paint producers, HMOs, fast-food chains, mortgage lenders, and polluters. See Victor E. Schwartz et al., Can Governments Impose a New Tort Duty to Prevent External Risks?: The “No-Fault” Theories Behind Today’s High-Stakes Government Recoupment Suits, 44 WAKE FOREST L. REV. 923, 932 (2009); David B. Wilkins, Rethinking the Public-Private Distinction in Legal Ethics: The Case of “Substitute” Attorneys General, 2010 MICH. ST. L. REV. 423, 430-31. Contingency-fee arrangements work the same way for the government as they do for private clients. Lawyers bear the costs of investigating and trying a case. When the lawyers win a damages judgment, they take home their bounty, namely a percentage of that award. If they do not win, they receive nothing (and are not compensated for the costs incurred). See John C. Coffee, Jr., “When Smoke Gets in Your Eyes”: Myth and Reality About the Synthesis of Private Counsel and Public Client, 51 DEPAUL L. REV. 241, 251 (2001) (“[Contingency-fee arrangements] provide the elected official with a no-risk gamble . . . .”); Schwartz et al., supra, at 931.
n202 See infra section III.B.2.
n203 Qui tam laws authorize private individuals (“relators”) to prosecute claims alleging fraud against the government. Successful relators receive a bounty–up to thirty percent of the judgment or settlement plus legal fees. See 31 U.S.C. § 3730(d)(2) (2006). Like social-impact bond organizations, relators must ante up, expending time and resources to uncover and prosecute claims, fully aware that there is no guarantee of a recovery, or even an assurance that their legal fees will be recouped.
By giving individuals opportunity and motive to help combat fraud, the government recovers most of the judgment or settlement, while conserving its in-house resources. See 31 U.S.C. § 3730(b)(2), (d)(2) (2006); CHARLES DOYLE, CONG. RESEARCH SERV., R40785, QUI TAM: THE FALSE CLAIMS ACT AND RELATED FEDERAL STATUTES 1, 5, 7 (2009); William E. Kovacic, Whistleblower Bounty Lawsuits as Monitoring Devices in Government Contracts, 29 LOY. L.A. L. REV. 1799 (1996). For a discussion of the modern-day resurgence in qui tam suits, see VERKUIL, supra note 73, at 179 & n.136. Verkuil finds that although the size of the Justice Department’s false-claims unit has remained stable since the late 1980s, the number of suits prosecuted has increased six-fold.
n204 There is likewise renewed enthusiasm for prize competitions. See America COMPETES Reauthorization Act of 2010, Pub. L. No. 111-358, 124 Stat. 3982 (2011) (authorizing agencies to initiate prize competitions); OFFICE OF MGMT. & BUDGET, EXEC. OFFICE OF THE PRESIDENT, M-10-11, GUIDANCE ON THE USE OF CHALLENGES AND PRIZES TO PROMOTE OPEN GOVERNMENT (2010), http://www.whitehouse.gov/sites/default/files/omb/assets/memoranda_2010/m10-11.pdf (describing President Obama’s promotion of prizes); Liam Brunt et al., Inducement Prizes and Innovation 2 (Harvard Bus. Sch., Working Paper No. 11-118, 2011), available at http://www.prizecapital.net/Prize_Capital/Prizes_files/11-118_1.pdf (noting the recent resurgence of interest in prizes); Thomas Kalil, Prizes for Technological Innovation 5 (Hamilton Project, Discussion Paper 2006-08, 2006), available at http://www.brookings.edu/views/papers/200612kalil.pdf.
In the past few years, the federal government has sponsored prizes to encourage private parties to support NASA projects, energy initiatives, public-health innovation, military needs, and social-service programs. See, e.g., BELA DHAMANKAR, USING PRIZES AND CHALLENGES AS A POLICY TOOL TO STIMULATE INNOVATION IN HEALTHCARE app. B. (2011), available at http://www.sts.virginia.edu/pip/research_papers/2011/Dhamankar.pdf; Holly Doremus, Constitutive Law and Environmental Policy, 22 STAN. ENVTL. L.J. 295, 343-44 & n.166 (2003); Kalil, supra; Badges for Vets, CHALLENGE.GOV, http://challenge.gov/VAi2/262-badges-for-vets; Fuel Scrubber, CHALLENGE.GOV. http://challenge.gov/AirForce/291-fuel-scrubber.
Prizes, a type of bounty, differ from traditional service contracts in what should by now be familiar ways. The government pays for success, awarding bounties only to those participants who meet the stated goals. Jonathan H. Adler, Eyes on a Climate Prize: Rewarding Energy Innovation to Achieve Climate Stabilization, 35 HARV. ENVTL. L. REV. 1, 29 (2011). Prizes encourage greater entrepreneurial ingenuity. Unlike with government service contracts, government-sponsored prizes encourage market actors to chart their own courses as they strive to meet the stated goals. See Abramowicz, supra note 157, at 131-32. And, the government is relieved of the costs and risks associated with choosing ex ante which private party will be most capable of meeting the stated goals–and those associated with monitoring that firm’s progress. Adler, supra, at 4-5, 29 (suggesting that awarding prizes ex post for already completed, successful innovations can be superior to funding ex ante a potentially successful project proposal); Kalil, supra, at 6-7 (similar).
n205 See supra section II.A.
n206 See, e.g., OFFICE OF MGMT. & BUDGET, EXEC. OFFICE OF THE PRESIDENT, OMB CIRCULAR No. A-76, PERFORMANCE OF COMMERCIAL ACTIVITIES (2003) (establishing “federal policy for the competition of commercial activities,” including “[i]dentify[ing] all activities performed by government personnel as either commercial or inherently governmental”); see Mathew Blum, The Federal Framework for Competing Commercial Work Between the Public and Private Sectors, in GOVERNMENT BY CONTRACT, supra note 2, at 63-71.
n207 See infra notes 235-36 and accompanying text.
n208 Cf. Jody Freeman, Extending Public Law Norms Through Privatization, 116 HARV. L. REV. 1285 (2003) (describing efforts to acculturate service contractors to make them more like public servants). Rather than making service contractors more like public servants (which is what Freeman suggests), marketization makes public servants more like contractors.
n209 Cf. supra section II.A.3 (discussing performance evaluations).
n210 Blum, supra note 206, at 83.
n211 See Federal Activities Inventory Reform (FAIR) Act of 1998, Pub. L. No. 105-270, § 5(2)(A), 112 Stat. 2382, 2384 (defining “inherently governmental function[s]” as those “so intimately related to the public interest as to require performance by Federal Government employees”); Performance of Inherently Governmental and Critical Functions, 76 Fed. Reg. 56,227, 56,236 (Sept. 12, 2011) (providing guidance on managing “the performance of inherently governmental and critical functions” in the Executive Branch); cf. OFFICE OF MGMT. & BUDGET, supra note 206, at (B)(2). Federal agencies follow the FAIR Act’s statutory definition. See Performance of Inherently Governmental and Critical Functions, supra.
n212 See Federal Acquisition Regulation 7.503(c) (2012) (providing examples of inherently governmental functions); L. ELAINE HALCHIN ET AL., CONG. RESEARCH SERV., R41209, INHERENTLY GOVERNMENTAL FUNCTIONS AND OTHER WORK RESERVED FOR PERFORMANCE BY FEDERAL GOVERNMENT EMPLOYEES: THE OBAMA ADMINISTRATION’S PROPOSED POLICY LETTER (2010) (explaining guidelines for determining when governmental functions should be performed in-house); Guttman, supra note 77, at 41.
n213 E.g., Blum, supra note 206, at 68.
n214 See OFFICE OF MGMT. & BUDGET, supra note 206.
n215 See OFFICE OF MGMT. & BUDGET, EXEC. OFFICE OF THE PRESIDENT, COMPETITIVE SOURCING: REPORT ON COMPETITIVE SOURCING RESULTS: FISCAL YEAR 2007, at 5 (2008). It bears mentioning that many commercially designated activities are exempt from private-public competition. See, e.g., U.S. GENERAL ACCOUNTING OFFICE, GAO/NSIAD-00-198, DoD COMPETITIVE SOURCING: MORE CONSISTENCY IS NEEDED IN IDENTIFYING COMMERCIAL ACTIVITIES 10-12 (2000) (documenting large numbers of commercially designated federal responsibilities nevertheless exempt from private-public competition). Perhaps more importantly, if an agency wants to contract out a new government responsibility–that is, one not currently being performed by either federal employees or service contractors–that agency need not conduct a private-public competition. See OFFICE OF MGMT. & BUDGET, supra note 206, at 2.
n216 See supra notes 134-38 and accompanying text (describing the wholesale reclassification of civil-service jobs as at-will positions).
n217 See DONAHUE, supra note 22, at 147 (arguing that “carefully structured competition with for-profit rivals can dramatically boost the efficiency of public organizations,” but that “the absence of competition can just as dramatically stifle any benefits that privatization would otherwise offer”); Donahue, supra note 10, at 44-45 (characterizing the benefits of service contracting turning on the government’s capacity to define the tasks capable of being outsourced and to measure the contractor’s performance in carrying out those tasks); Levmore, supra note 23, at 521 (noting that flat-fee payment to agents is appropriate where “the marginal and comparative value of work is difficult for the [principal] to assess”).
n218 See Michaels, supra note 65 (describing the use of service contractors as enabling the Executive to more easily evade constitutional and statutory restrictions on its activities, to sideline politically obstinate civil servants, and to conceal the true costs of government initiatives).
n219 But see Rose-Ackerman, supra note 23, at 143-44. Susan Rose-Ackerman supports incentive-based pay for some government officials, a scheme that, she argues, “need not be incompatible with a civil service system which attempts to isolate officials from political pressures.” Id. at 132-33. Given some of her qualifying language (for example, “[s]o long as there is little or no uncertainty about the relationship between effort and performance,” id. at 134; “[p]rofessional norms might break down if the agency rewards many lucky but unprofessional officials and penalizes conscientious but unlucky ones,” id. at 143-44), it is far from apparent that Rose-Ackerman would endorse wholesale marketization over surgical interventions in cases where “there is little or no uncertainty about the relationship between effort and performance.” Id. at 134.
n220 See, e.g., SARA HEYBURN ET AL., NAT’L CTR. ON PERFORMANCE INCENTIVES, COMPENSATION REFORM AND DESIGN PREFERENCES OF TEACHER INCENTIVE FUND GRANTEES 1 (2010), http://www.performanceincentives.org/data/files/news/PapersNews/2010_Heyburn_etAl_TeacherIncentiveGranteesl.pdf (“[I]ncentive pay for educators . . . has [recently] secured itself firmly at the top of the education policy agenda and in the public eye.”).
n221 See, e.g., JOHN E. CHUBB & TERRY M. MOE, POLITICS, MARKETS, AND AMERICA’S SCHOOLS 36 (1990) (“[G]ood education and the behaviors conducive to it are inherently difficult to measure in an objective, quantifiable, formal manner.”).
n222 Cf. Monica Teixeira de Sousa, The State of Our Unions: How President Obama’s Education Reforms Threaten the Working Class, 50 U. LOUISVILLE L. REV. 201, 204 (2011) (noting efforts to evaluate teacher performance based on “their students’ performance on standardized assessments”); Benjamin A. Lindy, Note, The Impact of Teacher Collective Bargaining Laws on Student Achievement: Evidence from a New Mexico Natural Experiment, 120 YALE L.J. 1130, 1132-33 (2011) (describing incentives that tie teacher evaluations to “student performance on standardized tests”).
n223 See James E. Ryan, Standards, Testing, and School Finance Litigation, 86 TEX. L. REV. 1223, 1243 (2008) (“[F]or accountability purposes, test scores are the primary if not sole measurement of success. . . . [S]chools teach to the tests and ignore standards (and entire subjects) that are not tested.”).
n224 Marilyn Cochran-Smith, Editorial, No Child Left Behind: 3 Years and Counting, 56 J. TCHR. EDUC. 99, 101 (2005) (characterizing efforts to evaluate teacher quality based on student performance on standardized tests as the “worst trend of the current accountability movement”) (internal quotation marks omitted); Andrew Spitser, Comment, School Reconstitution Under No Child Left Behind: Why School Officials Should Think Twice, 54 UCLA L. REV. 1339, 1373-78 (2007) (highlighting the weak links between standardized test scores and teacher quality).
n225 E.g., Stephanos Bibas, Rewarding Prosecutors for Performance, 6 OHIO ST. J. CRIM. L. 441 (2009) (advocating performance-based pay for prosecutors); Jessica Fender, DA Chambers Offers Bonuses for Prosecutors Who Hit Conviction Targets, DENVER POST (Mar. 23, 2011), http://www.denverpost.com/search/ci_17686874; cf. Schooner, Contractor Atrocities, supra note 38, at 567-69 (noting the distorting incentive for agencies “to operate like an ongoing business” and thus pursue contracting credits “rather than any congressionally mandated mission”).
n226 AL GORE, BUSINESSLIKE GOVERNMENT: LESSONS LEARNED FROM AMERICA’S BEST COMPANIES 80 (1997) (“The best way to protect the public is by preventing violations, not just punishing them.”).
n227 See Exec. Order No. 9,981, 3 C.F.R. 722 (1943-1948).
n228 See, e.g., Michael J. Klarman, Rethinking the Civil Rights and Civil Liberties Revolutions, 82 VA. L. REV. 1, 7-8 (1996) (arguing that Truman’s military desegregation order helped pave the way for Brown v. Board of Education); see also JACK GREENBERG, RACE RELATIONS AND AMERICAN LAW 369 (1959) (“Integration of the armed forces shows the potential of law for achieving changes in race relations.”).
n229 MARY L. DUDZIAK, COLD WAR CIVIL RIGHTS: RACE AND THE IMAGE OF AMERICAN DEMOCRACY 87 (2000) (describing “safeguarding the nation’s overseas image” as “a critical factor” in “Truman’s decision to desegregate the military”); PHILIP A. KLINKNER WITH ROGERS M. SMITH, THE UNSTEADY MARCH: THE RISE AND DECLINE OF RACIAL EQUALITY IN AMERICA 237 (1999) (discussing similar reasons as to why President Eisenhower “moved to complete the process of desegregating the military”).
n230 Cf. JAMES Q. WILSON, BUREAUCRACY: WHAT GOVERNMENT AGENCIES DO AND WHY THEY DO IT 17 (1989) (attributing the effectiveness of the German military in part to its demographic homogeneity within each unit).
n231 MORRIS J. MACGREGOR, JR., INTEGRATION OF THE ARMED FORCES 1940-1965, at 18, 317 (1981) (documenting opposition within the military on the ground that integration would be difficult so long as the nation remained otherwise racially segregated).
n232 See, e.g., MICHAEL J. KLARMAN, FROM JIM CROW TO CIVIL RIGHTS: THE SUPREME COURT AND THE STRUGGLE FOR RACIAL EQUALITY (2004) (describing cultural and legal hostility to racial integration).
n233 See supra section II.A.
n234 See PETER K. EISINGER, BLACK EMPLOYMENT IN CITY GOVERNMENT, 1973-1980, at 3 (1983) (“The opportunities for socioeconomic advancement and administrative power through civil service employment are important for both individual workers and the minority group as a whole.”); Donahue, supra note 111, at 137 (“[P]ublic jobs have been the gateway to the middle class for millions of disadvantaged Americans.”); infra notes 242-43 and accompanying text; cf. Bd. of Regents v. Roth, 408 U.S. 564, 589 (1972) (Marshall, J., dissenting) (“Employment is one of the greatest, if not the greatest, benefits that governments offer in modern-day life.”).
n235 See supra note 43 and accompanying text (describing requirements that federal service contractors pay their employees prevailing wages).
n236 See, e.g., Federal Acquisition Regulation § 19.1405-.1406 (2012) (recognizing disabled service veterans as a preferred class of contractors); Small Business Administration’s Small Business Size Regulations, 13 C.F.R. §§ 121, 124-27, 134 (2012) (codifying the government’s preference for women-owned, small-business contractors).
n237 Cf. MARY DOUGLAS, HOW INSTITUTIONS THINK (1986) (characterizing the ways in which institutions acculturate themselves to one another); Sharon Dolovich, How Privatization Thinks: The Case of Prisons, in GOVERNMENT BY CONTRACT, supra note 2, at 128 (applying a similar approach in the context of private and state prisons).
n238 Until the early 1970s, the Post Office Department was organized as a conventional government agency. See Postal Reorganization Act of 1970, Pub. L. No. 91-375, 84 Stat. 719 (1970) (codified in scattered sections of 39 U.S.C.) (abolishing the Post Office Department, an Executive agency, and replacing it with the Postal Service, a government corporation). For convenience, I will refer both to the current Postal Service and to its predecessor, the Post Office Department, as the “Postal Service” or the “Service.”
n239 See, e.g., LINDA B. BENBOW, SORTING LETTERS, SORTING LIVES: DELIVERING DIVERSITY IN THE UNITED STATES POSTAL SERVICE (2011); PHILIP F. RUBIO, THERE’S ALWAYS WORK AT THE POST OFFICE: AFRICAN AMERICAN POSTAL WORKERS AND THE FIGHT FOR JOBS, JUSTICE, AND EQUALITY (2010). In an earlier era, we could also speak of the Postal Service serving as “the chief means by which intellectual light irradiates to the extremes of the republic.” George Will, Op-Ed, Privatize the Nation’s Mail Delivery, WASH. POST (NOV. 25, 2011), http://www.washingtonpost.com/opinions/privatize-the-nations-mail-delivery/2011/11/23/gIQAe2J7wN_print.html (quoting Jacksonian-era congressional leader). Given the rise of global telecommunications, which today makes “snail mail” seem quaint and perhaps unnecessary, democratic-enlightenment arguments in defense of the Postal Service carry little weight. Were that not the case, calls to charge a premium for deliveries to remote locations–or to abandon costly routes altogether–would themselves butt up more forcefully against important social and political goals.
n240 Gary MacDougal, Op-Ed, Junking the Junk Mail Office, WALL ST. J. (Oct. 5, 2011), http://online.wsj.com/article/SB100014240529702045246045766l0600937347950.html; Maurice P. Mc-Tigue & Benjamin J. VanMetre, Can the Postal Service Be Saved?, CHI. TRIB. (Oct. 19, 2011), http://articles.chicagotribune.com/2011-10-19/news/ct-perspec-1019-usps-20111019_1_usps-postal-service-postal-delivery; Lisa Rein, Issa Introduces Bill to Overhaul U.S. Postal Service, Increase Regulation, WASH. POST (Jun. 23, 2011), http://www.washingtonpost.com/politics/issa-introduces-bill-to-overhaul-us-postal-service-increase-regulation/2011/06/23/AG7CS4hH_story.html (describing proposed legislation that would result in weaker collective-bargaining arrangements and reduced wages and benefits). By and large, private parcel companies are concerned about shareholder value, not their employees’ financial security. See Bob Sechler, FedEx Begins Campaign Against Labor Bill, WALL ST. J. (June 9, 2009), http://online.wsj.com/article/SB124450587313396177.html (noting FedEx’s opposition to legislation that would make it easier for its workers to unionize).
n241 AFDC is the commonly used acronym for the Aid to Families with Dependent Children program. TANF is the commonly used acronym for the Temporary Assistance to Needy Families program. See David A. Super, Offering an Invisible Hand: The Rise of the Personal Choice Model for Rationing Public Benefits, 113 YALE L.J. 815, 817 (2004) (describing federal, means-tested welfare programs).
n242 Thomas Meehan, Moynihan of the Moynihan Report, N.Y. TIMES (July 31, 1966), https.//www.nytimes.com/books/98/10/04/specials/moynihan-report.html. I invoke Moynihan solely for his influential role in shaping social-welfare debates and policies. I take no position on the controversy surrounding Moynihan’s theories on the causes of poverty. See, e.g., WILLIAM JULIUS WILSON, MORE THAN JUST RACE: BEING BLACK AND POOR IN THE INNER CITY (2009); Herbert J. Gans, The Negro Family: Reflections on the Moynihan Report, in THE MOYNIHAN REPORT AND THE POLITICS OF CONTROVERSY 445, 450 (Lee Rainwater & William L. Yancey eds., 1967).
n243 Meehan, supra note 242. But see Ross Douthat, Op-Ed, What Tax Dollars Can’t Buy, N.Y. TIMES (Oct. 30, 2011), http://www.nytimes.com/2011/10/30/opinion/sunday/douthat-what-tax-dollars-cant-buy.html (characterizing above-market government pay as an implicit redistribution program).
n244 See Donahue, supra note 111, at 137.
n245 See supra note 240 and accompanying text.
n246 See Steven Greenhouse, Postal Chief Seeks Ability to Cut Costs to Stem Loss, N.Y. TIMES (Nov. 21, 2011), http://www.nytimes.com/2011/11/22/business/postal-chief-seeks-ability-to-cut-costs-to-stem-losses.html; Lisa Rein & Ed O’Keefe, U.S. Postal Service To End Saturday Delivery, WASH. POST (Feb. 6, 2013), http://www.washingtonpost.com/politics/us-postal-service-to-end-saturday-delivery/2013/02/06/16032b88-7084-11e2-ac36-3d8d9dcaa2e2_story.html (reporting that the Postal Service “will stop collecting and delivering mail on Saturdays in an effort to stem its staggering financial losses”); USPS Proposes Pay Cuts, End to Layoff Protection for Mail Handlers, POSTAL NEWS BLOG (NOV. 13, 2012), http://postalnews.com/postalnewsblog/2012/11/15/usps-proposes-pay-cuts-end-to-layoff-protection-for-mail-handlers/ (describing plan to casualize postal employment and to place new hires on an appreciably lower pay scale).
n247 See Meehan, supra note 242; see also JAMES T. PATTERSON, FREEDOM IS NOT ENOUGH: THE MOYNIHAN REPORT AND AMERICA’S STRUGGLE OVER BLACK FAMILY LIFE–FROM LBJ TO OBAMA 15 (2010). As Meehan notes, Moynihan’s proposal was not without precedent. Until 1950, the Postal Service routinely provided twice-daily mail services. Meehan, supra note 242.
n248 But see Jon D. Michaels, All the President’s Spies: Private-Public Intelligence Partnerships in the War on Terror, 96 CALIF. L. REV. 901, 914-16 (2008) (describing FedEx’s corporate managers as engaging–for reasons of national security and personal prestige–in activities that potentially jeopardize shareholder value).
n249 See generally Megan Woolhouse, Now Hiring: Your Uncle Sam, Bos. GLOBE (May 30, 2009), http://www.boston.com/jobs/news/articles/2009/05/30/unlike_rest_of_us_federal_government_is_hiring_a_lot/ (quoting a government personnel official who described agencies as recruiting employees “who desire to be in public service versus kneeling at the altar of the bottom line”). Delivering first-class mail for the same price regardless of distance or ease of access is yet another difference between government and private provision. See supra note 239.
n250 See MICHAEL J. SANDEL, WHAT MONEY CAN’T BUY: THE MORAL LIMITS OF MARKETS (2012).
n251 See Massachusetts v. EPA, 549 U.S. 497, 533-34 (2007) (requiring agencies to provide reasoned justifications when rejecting petitions for proposed rulemaking); Motor Vehicle Mfrs. Ass’n of the U.S. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 48-51 (1983) (requiring expert consideration and analysis as a basis for upholding a challenged agency rule); Ethyl Corp. v. EPA, 541 F.2d 1, 68-69 (D.C. Cir. 1976) (en banc) (Leventhal, J., concurring). Then-Justice Rehnquist urged the State Farm Court to accord greater deference to a new political administration’s desire to act upon its elected mandate. State Farm, 463 U.S. at 59 (Rehnquist, J., concurring in part and dissenting in part) (“A change in administration brought about by the people casting their votes is a perfectly reasonable basis for an executive agency’s reappraisal of the costs and benefits of its programs and regulations.”).
n252 Jody Freeman & Adrian Vermeule, Massachusetts v. EPA: From Politics to Expertise, 2007 SUP. CT. REV. 51, 52 (describing a series of cases, including Massachusetts v. EPA, Gonzales v. Oregon, and Hamdan v. Rumsfeld, as all “overrid[ing] executive positions [the Court] found untrustworthy, in the sense that executive expertise had been subordinated to politics”).
n253 Magill & Vermeule, supra note 60, at 1053; id. at 1078 (suggesting judicial scrutiny focused on expertise “reduce[s] the political responsiveness of agency decisionmaking”).
n254 State Farm, 463 U.S. at 48-51; SEC v. Chenery Corp., 318 U.S. 80, 87 (1943) (insisting that agency actions be upheld only for the reasons the agency gave at the time it made its decision).
n255 Cary Coglianese, The Internet and Citizen Participation in Rulemaking, 1 J.L. & POL’Y FOR INFO. SOC’Y 33, 36 (2005) (noting that agency heads “delegate the drafting, analysis, and policy design [of rules] to career civil servants”); see also Magill & Vermeule, supra note 60, at 1037-38 (describing as “significant” the input of civil servants, lawyers, scientists, and economists in rulemaking and adjudicatory proceedings); Jeffrey J. Rachlinski & Cynthia R. Farina, Cognitive Psychology and Optimal Government Design, 87 CORNELL L. REV. 549, 579 (2002) (emphasizing the critical role played by career civil servants whose expertise informs regulatory decisions).
n256 See supra note 28 and accompanying text.
n257 See Tummino v. Von Eschenbach, 427 F. Supp. 2d 212, 233 (E.D.N.Y. 2006) (treating a top senior career employee’s resignation “in protest over the decisionmaking process” as bolstering plaintiff’s allegation that the FDA acted improperly). There are also nonjudicially mediated ways for politically insulated government workers to let it be known that politics supplanted their work. See supra note 61 and accompanying text.
n258 See Magill & Vermeule, supra note 60, at 1053 (suggesting that hard-look review “forces agencies to ensure . . . that their decisions are scientifically and technocratically defensible” and has the effect of shifting intra-agency power “from political appointees at the top level of the agency to technocrats and lawyers at lower levels of the agency”).
n259 See supra section I.C.
n260 Of course, where service contractors effectively sideline non-marketized civil servants in matters pertaining to, for example, rulemaking, similar politicization concerns would arise. See supra note 6 and accompanying text.
Furthermore, marketization’s effects on compensation and job security might precipitate a brain drain. See Hays & Sowa, supra note 94, at 115; Joe Davidson, Report Shows Federal Workers Are Increasingly Dreary About Their Jobs, WASH. POST (NOV. 16, 2011), http://www.washingtonpost.com/politics/report-shows-federal-workers-are-increasingly-dreary-about-their-jobs/2011/11/16/gIQAjaIXSN_story.html (“Pay freezes and reductions in benefits will only exacerbate the coming brain drain. . . . Competitive pay and benefits are major factors in attracting the best and brightest to public service.”) (quoting U.S. Representative Jim Moran); Dan Eggen, Civil Rights Focus Shift Roils Staff at Justice, WASH. POST (NOV. 13, 2005), http://www.washingtonpost.com/wp-dyn/content/article/2005/11/12/AR2005111201200.html (reporting that the politicization of the Civil Rights Division damaged morale and prompted career Justice Department lawyers to leave the government). If so, lower-quality analysis–a byproduct of the brain drain–is yet another reason (distinct from politicization) for courts to be skeptical of post-marketization agency actions. See Gailmard & Patty, supra note 31.
n261 See, e.g., Barron, supra note 68, at 1140-41 (noting hard-look review works to limit the effects of agency politicization); Metzger, supra note 61, at 445 (“Evidence that [agency] decisions were made over the objections of career staff and agency professionals often triggers more rigorous review.”); see also STEPHEN BREYER, BREAKING THE VICIOUS CIRCLE: TOWARD EFFECTIVE RISK REGULATION 60-63 (1993) (emphasizing the important role played by expert, politically insulated government officials in improving the quality and legitimacy of agency action).
n262 See Matthew C. Stephenson, A Costly Signaling Theory of “Hard Look” Judicial Review, 58 ADMIN. L. REV. 753, 755 (2006) (arguing that hard-look review forces the government to produce high-quality explanations and that high-quality explanations are themselves indicative of the substantive merits of the policies being challenged).
Note that hard-look review generally refers to whether an agency took a hard look at the evidence, see Greater Bos. Television Corp. v. FCC, 444 F.2d 841, 851 (D.C. Cir. 1970), but at times has been invoked to describe the courts themselves taking a hard look at the agency’s reasoning, see Nat’l Lime Ass’n v. EPA, 627 F.2d 416, 451 n.126 (D.C. Cir. 1980). For these purposes, either use of the term by reviewing courts would produce a substantially similar effect on marketized agencies.
Note, too, that some suggest FCC v. Fox Television Stations, Inc., 556 U.S. 502 (2009), chips away at hard-look review by not requiring agencies that revise a rule to explain why the revised rule is better than the old rule. See Kathryn A. Watts, Proposing a Place for Politics in Arbitrary and Capricious Review, 119 YALE L.J. 2, 22 (2009) (suggesting Fox does not “neatly fit within Massachusetts’s and State Farm’s technocratic lenses”). Without engaging the merits of that contention, even assuming that Fox does undermine hard-look review, agencies would still have to justify the reasonableness of the new rule. Courts worried that the fact-finding and policy analysis underlying the reasoning for the revised rule are themselves politicized would still have cause to more aggressively scrutinize that reasoning in a marketized world than in a world in which the civil service is insulated from politics.
n263 Kagan, supra note 26, at 2380 (suggesting hard-look review should be relaxed when agencies are politically accountable–through the President–for their decisions); Watts, supra note 262, at 8.
n264 See, e.g., JERRY L. MASHAW & DAVID L. HARFST, THE STRUGGLE FOR AUTO SAFETY (1990) (suggesting aggressive judicial review pushed the National Highway Traffic Safety Administration to switch from promulgating rules to issuing safety recalls); Stephen Breyer, Judicial Review of Questions of Law and Policy, 38 ADMIN. L. REV. 363, 391-93 (1986); Thomas O. McGarity, Some Thoughts on “Deossifying” the Rulemaking Process, 41 DUKE L.J. 1385, 1410-24 (1992).
n265 For discussions of the virtues of rulemaking, see NLRB v. Wyman-Gordon Co., 394 U.S. 759, 777-79 (1969) (Douglas, J., dissenting); Nat’l Petroleum Refiners Ass’n v. FTC, 482 F.2d 672, 681-84 (D.C. Cir. 1973).
n266 See MASHAW & HARFST, supra note 264; McGarity, supra note 264, at 1441-43 (describing alternative, less-formal vehicles through which agencies route policymaking to evade hard-look review).
n267 533 U.S. 218 (2001).
n268 See Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984).
n269 Mead, 533 U.S. at 239 (Scalia, J., dissenting) (calling Mead’s invigoration of Skidmore deference an “avulsive change” to the Chevron regime).
n270 Chevron, 467 U.S. at 865-66 (explaining that courts will not overturn an agency’s interpretation of an ambiguous statute provided that interpretation is reasonable).
n271 Id. at 865.
n272 The Court explicitly acknowledges as much in deferring to the agency not just because the agency is politically accountable but also because “the regulatory scheme is technical and complex [and] the agency considered the matter in a detailed and reasoned fashion.” Id.; see also Evan J. Criddle, Chevron’s Consensus, 88 B.U. L. REV. 1271 (2008).
n273 See Mead, 533 U.S. at 244-45 (Scalia, J., dissenting) (arguing that political accountability–rather than procedural rigor–is, per Chevron, the more valid basis for judicial deference to agencies’ statutory interpretations); Bressman, supra note 168, at 1764-65; Watts, supra note 262, at 37.
n274 To be sure, in a non-marketized administrative state, civil servants can be intimately involved in rendering legal interpretations. Administrative law judges, among others, regularly issue legal opinions. See Mead, 533 U.S. at 245 (Scalia, J., dissenting) (describing ALJs’ receiving Chevron deference when presiding over adjudications); see also supra note 255 and accompanying text (characterizing the critical role played by civil servants in rulemaking proceedings).
n275 See, e.g., Lisa Schultz Bressman, How Mead Has Muddled Judicial Review of Agency Action, 58 VAND. L. REV. 1443, 1445 (2005).
n276 Mead, 533 U.S. at 228-31 (suggesting that Chevron is not being circumscribed but rather that Chevron itself was a carve out from so-called Skidmore deference).
n277 Id. at 227, 229. Chevron might reach further. See id. at 227, 231, 237 (noting that Chevron deference is not limited to adjudication and rulemaking); see also Nat’l Cable Telecomm. Ass’n v. Brand X Internet Servs., 545 U.S. 967, 1003 (2005) (Breyer, J., concurring). In practice, it rarely does. See Jud Matthews, Deference Lotteries, 91 TEX. L. REV. (forthcoming 2013), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2012843 (finding Chevron deference to apply in non-rulemaking or non-adjudicatory proceedings only five percent of the time).
n278 Mead, 533 U.S. at 227-31; see Skidmore v. Swift & Co., 323 U.S. 134 (1944). As William Eskridge and Lauren Baer show, the landscape is more complicated than the binary divide between Chevron and Skidmore/Mead might suggest. See William N. Eskridge, Jr. & Lauren E. Baer, The Continuum of Deference: Supreme Court Treatment of Agency Statutory Interpretations from Chevron to Hamdan, 96 GEO. L.J. 1083 (2008); cf. Peter L. Strauss, Essay, “Deference” Is Too Confusing–Let’s Call Them “Chevron Space” and “Skidmore Weight,” 112 COLUM. L. REV. 1143 (2012). My stylized account would benefit little from the added granularity of a full deference continuum, and thus I work within the conventional, if oversimplified, binary world of Chevron and SkidmorelMead deference.
n279 Skidmore, 323 U.S. at 140.
n280 See Mead, 533 U.S. at 228 (noting “relative expertness” among the factors relevant to how much deference to accord an agency’s interpretation); Eskridge, Jr. & Baer, supra note 278, at 1168; Kristin E. Hickman & Matthew D. Krueger, In Search of the Modern Skidmore Standard, 107 COLUM. L. REV. 1235, 1288-89, 1293-94 (2007); Magill & Vermeule, supra note 60, at 1045.
n281 Elizabeth Magill and Adrian Vermeule remind us that political insulation is not the same as expertise. See Magill & Vermeule, supra note 60, at 1039. While they are of course right, political insulation enables the recruitment and retention of the most highly qualified (rather than politically loyal) employees, who develop considerable expertise as they serve across political administrations and whose counsel need not be shaded or distorted to fit the leadership’s political priorities. Cf. JAMES M. LANDIS, THE ADMINISTRATIVE PROCESS 111 (1938) (suggesting the view that independent agencies would “make for more professionalism than that which characterized the normal executive department” and would generate polices “more permanent” and “fashioned with greater foresight” than those proffered by agencies “where the dominance of executive power was pronounced”). Though Landis was referring to independent agencies, it is hardly a stretch to apply similar analysis at the individual-employee level, when comparing insulated civil servants to those government workers serving at the pleasure of the political administration.
n282 For this reason, marketization’s resulting “brain drain,” supra note 260–apt to peel off some of the most highly skilled government workers–also counsels against deference.
n283 See Mead, 533 U.S. at 244-45 (Scalia, J., dissenting) (labeling “absurd” Mead’s according greater deference to the legal determinations by career civil servants proceeding via adjudications than to those of Cabinet secretaries made personally and “without any prescribed procedures”); David J. Barron & Elena Kagan, Chevron’s Nondelegation Doctrine, 2001 SUP. CT. REV. 201, 204 (criticizing Mead and Skidmore for giving more deference to lower ranked civil servants engaging in rigorous administrative review than to top agency officials proceeding informally).
n284 Where agencies have not marketized relevant parts of their bureaucracies (such as, for example, their cadres of administrative law judges), the decisions arrived at by those non-marketized units would presumably receive more favorable treatment under the Skidmore framework.
n285 See, e.g., David Zaring, Reasonable Agencies, 96 VA. L. REV. 135, 146 (2010) (explaining that while a court “must defer” to a reasonable interpretation under Chevron, under Skidmore said court “may defer based on how persuasive it finds the agency interpretation”).
n286 See, e.g., Adrian Vermeule, Introduction: Mead in the Trenches, 71 GEO. WASH. L. REV. 347, 350-51 (2003); Zaring, supra note 285, at 159-61 (collecting scholarly and judicial statements to the effect that the doctrinal splintering between Mead/Skidmore and Chevron deference has little practical effect); cf. RICHARD A. POSNER, How JUDGES THINK 113-14 (2008) (noting that standards of review–including “Chevron [and] Skidmore”–represent differences that “are finer than judges want, can discern, or need”).
n287 Eskridge, Jr. & Baer, supra note 278; Richard J. Pierce, Jr., What Do the Studies of Judicial Review of Agency Actions Mean? 63 ADMIN. L. REV. 77 (2011); Zaring, supra note 285, at 180-83. Of course, the similarity in reversal rates could be a function of agencies anticipating and responding to the different levels of deference. An agency expecting Skidmore deference might prepare a rule more carefully (and take fewer interpretive risks) than an agency expecting Chevron deference. See E. Donald Elliot, Chevron Matters: How the Chevron Doctrine Redefined the Roles of Congress, Courts and Agencies in Environmental Law, 16 VILL. ENVTL. L.J. 1, 3 (2005) (suggesting agencies “gradually internalized and adapted” to differing levels of judicial scrutiny); Matthew C. Stephenson, The Strategic Substitution Effect: Textual Plausibility, Procedural Formality, and Judicial Review of Agency Statutory Interpretations, 120 HARV. L. REV. 528, 550 (2006).
n288 This of course assumes that marketization proceeds notwithstanding the altered doctrinal landscape.
n289 United States v. Mead Corp., 533 U.S. 218, 247 (2001) (Scalia, J., dissenting).
n290 See Tumey v. Ohio, 273 U.S. 510, 532 (1927) (finding a due process constitutional violation where an adjudicator has a financial incentive to favor a particular outcome).
n291 Ward v. Vill. of Monroeville, 409 U.S. 57, 60 (1972) (invalidating fine assessments adjudicated by a village mayor when those fines are deposited in the village’s coffers).
n292 Marshall v. Jerrico, Inc., 446 U.S. 238, 250-51 (1980) (upholding an administrative adjudicatory scheme in part because the adjudicators were politically insulated from those agency decision makers who decided how agency funds–including collected fees–would be spent); Wiener v. United States, 357 U.S. 349. 356 (1958) (insisting upon a for-cause removal limitation on an appointment to a war-claims adjudicatory commission, even though the statute did not expressly include one).
n293 See 5 U.S.C. § 706(2)(E) (2006).
n294 Politically insulated administrative law judges, for instance, share many traits with federal judges. See Butz v. Economou, 438 U.S. 478, 513 (1978); see also Wiener, 357 U.S. at 351-53 (recognizing the inherent problems associated with adjudicators serving at the pleasure of elected officials); cf. Republican Party of Minn. v. White, 536 U.S. 765, 803-04 (2002) (Ginsburg, J., dissenting) (questioning the legitimacy of elected jurists); John A. Ferejohn & Larry D. Kramer, Independent Judges, Dependent Judiciary: Institutionalizing Judicial Restraint, 77 N.Y.U. L. REV. 962, 969 (2002) (noting concerns surrounding politically responsive jurists); Samuel P. Siegel, Note, Reconciling Caperton and Citizens United: When Campaign Spending Should Compel Recusal of Elected Officials, 59 UCLA L. REV. 1076 (2012) (discussing concerns intrinsic to politicized adjudications).
n295 See supra section II.B. cf. Matt Bloom & George T. Milkovich, Relationships Among Risk, Incentive Pay, and Organizational Performance, 41 ACAD. MGMT. J. 283, 283 (1998) (noting that agents generally want to avoid “both work and risk”).
n296 Susan Rose-Ackerman indicates that governments seeking principal-agent incentive alignment and accurate, effective performance might be willing to pay dearly, above agents’ “opportunity wage.” Rose-Ackerman, supra note 23, at 131-38; see also William J. Baumol, Payment by Performance in Rail Passenger Transportation: An Innovation in Amtrak’s Operations, 6 BELL J. ECON. 281, 287-88 (1975) (emphasizing that agents need to be generously rewarded for success when they are asked to take on considerable risk); Michael C. Jensen & Kevin J. Murphy, Performance Pay and Top-Management Incentives, 98 J. POL. ECON. 225 (1990) (discussing the need to encourage agent participation notwithstanding requirements that the agent bear risks); Levmore, supra note 23, at 503 (describing “rewards [as] an important means of reducing agency costs”).
n297 Of course not all in-kind benefits are costless or even cost effective. See, e.g., Martha B. Coven, The Freedom To Spend: The Case for Cash-Based Public Assistance, 86 MINN. L. REV. 847, 888 (2002). See generally MILTON FRIEDMAN, CAPITALISM AND FREEDOM 190-94 (1962) (describing the virtues of shifting away from a panoply of substantive, non-monetary welfare services toward a “negative income tax” scheme).
n298 See supra notes 48-55 and accompanying text.
n299 For descriptions of market-based regulatory approaches as less intrusive than command-and-control approaches, see IAN AYRES & JOHN BRAITHWAITE, RESPONSIVE REGULATION: TRANSCENDING THE DEREGULATION DEBATE (1992); RN. Grabosky, Regulation by Reward: On the Use of Incentives as Regulatory Instruments, 17 LAW & POL’Y 257 (1995); Darren Sinclair, Self-Regulation Versus Command and Control? Beyond False Dichotomies, 19 LAW & POL’Y 529 (1997); Rena I. Steinzor, Reinventing Environmental Regulation: The Dangerous Journey from Command to Self-Control, 22 HARV. ENVTL. L. REV. 103, 107-08(1998).
n300 See David B. Ridley et al., Developing Drugs for Developing Countries, 25 HEALTH AFF. 313, 313(2006).
n301 See, e.g., Princeton N. Lyman, U.S. Foreign Assistance and Trade Policies in Africa, in U.S. AFRICA POLICY BEYOND THE BUSH YEARS: CRITICAL CHALLENGES FOR THE OBAMA ADMINISTRATION 111, 111 (Jennifer G. Cooke & J. Stephen Morrison eds., 2009) (describing President George W. Bush’s landmark initiative channeling greater aid to combat HIV/AIDS in Africa).
n302 See, e.g., E.S. Savas, Privatization and the New Public Management, 28 FORDHAM URB. L.J. 1731, 1733 (2001) (describing the State of Michigan as having previously operated its own vaccine laboratory).
n303 See, e.g., David Willman, Cost, Need Questioned in $ 433-Million Smallpox Drug Deal, L.A. TIMES (NOV. 13, 2011), http://articles.latimes.com/2011/nov/13/nation/la-na-smallpox-20111113(questioning U.S. government proposals to purchase experimental smallpox drugs).
n304 Food and Drug Administration Amendments Act of 2007, Pub. L. No. 110-85, § 1102, 121 Stat. 823, 972-74 (amending scattered sections of 21 U.S.C.).
n305 See 21 U.S.C. § 360n (2006 & Supp. V 2011).
n306 Waseem Noor, Placing Value on FDA’s Priority Review Vouchers, IN VIVO, Sept. 2009, at 1, 1, available at http://www.imshealth.com/imshealth/Global/Content/Document/Placing_Value_on_FDA_Priorities.pdf; Ridley et al., supra note 300; Priority Review Vouchers, BIO VENTURES FOR GLOBAL HEALTH, http://www.bvgh.0rg/What-We-D0/R-D-Incentives/Pri0rity-Review-V0uchers.aspx#Value_of_PRVs (last visited Nov. 12, 2012).
n307 21 U.S.C. § 360n(b)(2) (2006 & Supp. V 2011).
n308 As with many other regulatory schemes, there is a debate whether these vouchers provide too little of an incentive or too great of a private windfall. See, e.g., Aaron S. Kesselheim, Drug Development for Neglected Diseases–The Trouble with FDA Review Vouchers, 359 NEW ENG. J. MED. 1981, 1981-82(2008).
n309 21 U.S.C. § 360n(b)(1) (2006 & Supp. V 2011).
n310 See Jack Goldsmith, Liberal Democracy and Cosmopolitan Duty, 55 STAN. L. REV. 1667, 1683 (2003) (characterizing the “United States’ paltry foreign aid as a percentage of GNP” as reflective of the American public’s relative lack of interest in funding overseas humanitarian efforts); supra notes 18, 75, 87 and accompanying text.
n311 Other bounty programs shift risk onto consumers and onto those in physical proximity to the bounty seekers. See, e.g., Critical Infrastructure Information Act of 2002 (“CIIA”), Pub. L. No. 107-296, §§ 212-215, 116 Stat. 2135, 2150-55 (codified at 6 U.S.C. §§ 131-134). The CIIA offers a regulatory bounty–immunity from civil liability–to firms that disclose to the government information about their infrastructure vulnerabilities. In the event of an attack on said infrastructure, the disclosing firms are not liable for injuries caused to their customers or neighbors. Sidney A. Shapiro & Rena I. Steinzor, The People’s Agent: Executive Branch Secrecy and Accountability in an Age of Terrorism, 68 LAW & CONTEMP. PROBS. 99, 126 (2006).
n312 RALPH M. STAIR & GEORGE W. REYNOLDS, PRINCIPLES OF INFORMATION SYSTEMS: A MANAGERIAL APPROACH 411 (9th ed. 2010) (describing the high-stakes race among pharmaceutical manufacturers to get their respective drugs approved first); Tom Blackett, Branding and Its Potential Within the Pharmaceutical Industry, in BRAND MEDICINE: THE ROLE OF BRANDING IN THE PHARMACEUTICAL INDUSTRY 9, 42-43 (Tom Blackett & Rebecca Robins eds., 2001).
n313 Cf. Jon D. Michaels, Deputizing Homeland Security, 88 TEX. L. REV. 1435, 1454 & n.100 (2010) (describing the pressure felt by firms to cooperate with the government–so long as its competitors are doing so).
n314 See 21 U.S.C. § 360n(b)(2) (2006 & Supp. V 2011).
n315 Cf. Neil S. Siegel, Commandeering and Its Alternatives: A Federalism Perspective, 59 VAND. L. REV. 1627, 1655-57 (2006) (describing the fine line between acceptable federal conditional spending programs and those that are coercive on the states).
Note too the potential for bounties cancelling each other out in a competitive market. If all manufacturers succeeded in scoring a priority-review voucher, those vouchers would lose their value. This happens only when bounties have a zero-sum quality to them–unlike, say, qui tam bounties.
n316 Cf. GUIDO CALABRESI, THE COST OF ACCIDENTS: A LEGAL AND ECONOMIC ANALYSIS 26-31, 309-18 (1970) (discussing the cheapest cost avoider as the one best positioned to minimize tort damages).
n317 Perhaps because traditional service contracts are fee-for-service arrangements–and contractors usually are paid regardless what happens beyond their control, see NASH ET AL., supra note 16-privatization scholars have not given much thought to such questions.
n318 See infra notes 339-41 and accompanying text.
n319 These leases are more akin to service than construction contracts, BOT (Build-Operate-Transfer) arrangements, or BOOT (Build-Own-Operate-Transfer) arrangements. For discussions of these contracts and other private-public arrangements, see E.R. YESCOMBE, PRINCIPLES OF PROJECT FINANCE 10-11 (2002). There is no building or construction component to the transportation-infrastructure leases discussed in this section–just private responsibility for managing and maintaining existing public resources.
n320 See, e.g., OFFICE OF THE INSPECTOR GENERAL, CITY OF CHICAGO, AN ANALYSIS OF THE LEASE OF THE CITY’S PARKING METERS 1, 9-10 (2009), available at http://chicagoinspectorgeneral.org/wp-content/uploads/2011/03/Parking-Meter-Report.pdf [hereinafter OIG REPORT]; Theodore Kim, Toll Road Lease Is a Go–Barely, INDIANAPOLIS STAR, Mar. 15, 2006, at A1. Perhaps the biggest deal of all, a $ 12.8 billion deal to lease the Pennsylvania Turnpike, fell through at the last minute. See Press Release, State of Pennsylvania, Pennsylvania Turnpike Lease Would Boost Funding for Roads, Bridges, Transit (May 19, 2008), available at http://www.prnewswire.com/news-releases/pennsylvania-turnpike-lease-would-boost-funding-for-roads-bridges-transit-57265842.html [hereinafter Pennsylvania Tumpike]; Tom Barnes, Group Withdraws Turnpike Lease Bid, PITTSBURGH POST-GAZETTE (Oct. 1, 2008), http://old.post-gazette.com/pg/08275/916380-85.stm.
For more-detailed descriptions of these practices, see Ellen Dannin, Crumbling Infrastructure, Crumbling Democracy: Infrastructure Privatization Contracts and Their Effects on State and Local Governance, 6 Nw. J.L. & SOC. POL’Y 47, 64 (2011); Roin, supra note 157, at 2013.
n321 Kim, supra note 320.
n322 See, e.g., David Zahniser, LA. Financial Crisis Deepens as Bidders Shun Proposed Parking Garage Deal, L.A. TIMES (Feb. 11, 2011, 1:07 PM), http://latimesblogs.latimes.com/lanow/2011/02/la-financial-crisis-deepens-as-bidders-shun-proposed-parking-garage-deal.html.
n323 Editorial, Landing $ 2.5 Billion, CHI. TRIB. (Oct. 2, 2008), http://articles.chicagotribune.com/2008-10-02/news/0810010603_1_spanish-australian-consortium-billion-deal-lease.
n324 The government’s “repayment” of these effective loans takes the form of foregone government-revenue generation over the life of the lease.
n325 See NASH ET AL., supra note 16, at 525 (describing traditional contracting’s payment arrangements).
n326 See, e.g., Roin, supra note 157, at 2004-08. A study by Chicago’s Inspector General estimated that the city, in leasing control over municipal parking meters, received less than half of the estimated value of future parking-meter revenue. OIG REPORT, supra note 320, at 24.
n327 It is for this reason that some officials suggest these leases are efficiency-promoting. See Pennsylvania Turnpike, supra note 320.
n328 See Roin, supra note 157, at 2011.
n329 The government may financially indemnify the bounty seeker. But there are fiscal and perhaps philosophical reasons why doing so would not be a bounty-promoting government’s preferred choice.
n330 See Baumol, supra note 296, at 289 (discussing performance-based incentives and the need to avoid penalizing agents for events or circumstances that are beyond their control).
n331 See Roin, supra note 157, at 2010-11 (“[D]ecreasing the riskiness of the enterprise increases the price the investors will pay for it up front. Investors will not pay much for an enterprise that may be taxed or regulated out of existence in short order, nor for one that is likely to face competition sponsored by its contractual partner.”).
Needless to add, governments cannot make assurances about policy decisions outside of their legal authority. A city or state has little influence over federal environmental or transportation policy. The risk that another political jurisdiction will interfere with the terms of a lease thus falls into the category of risks outside the control of both parties to the lease.
n332 See Celeste Pagano, Proceed with Caution: Avoiding Hazards in Toll Road Privatizations, 83 ST. JOHN’S L. REV. 351, 370-72 (2009) (discussing potential conflicts between a leaseholder’s profit motive and various government goals–including congestion relief, safety, and economic development).
n333 See, e.g., Nicholas Confessore, $ 8 Traffic Fee for Manhattan Gets Nowhere, N.Y. TIMES (Apr. 8, 2008), http://www.nytimes.com/2008/04/08/nyregion/08congest.html?pagewanted=all.
n334 See Roin, supra note 157, at 2011 (describing non-compete clauses).
n335 Governments choosing to reassert sovereign authority will incur steep penalties for violating the lease agreements. See AMENDED AND RESTATED COMPREHENSIVE AGREEMENT (RELATING TO THE GRANT OF A PERMIT) TO DEVELOP AND OPERATE THE ROUTE 895 CONNECTOR 61 (2006), available at http://www.virginiadot.org/business/resources/Amended%20and%20Restated%20comprehensive%20Agreement.pdf; Dannin, supra note 320, at 61-62 (describing a government forced to buy back its lease because the non-compete clause was so restrictive).
Note that traditional service contracts can bind future governments and polities too. But when those contracts bind future administrations, politics rather than economics could very well be the driving force. Specifically, long-term contracts might reflect an incumbent administration’s desire to lock in policy preferences and impose them on successor governments. See Michaels, supra note 65, at 739-44.
n336 See supra note 335.
n337 See supra note 318 and accompanying text.
n338 Whether the market is a normatively or pragmatically attractive alternative venue for influencing public policy is beyond the scope of this project.
n339 486 U.S. 592, 612-15 (1988) (Scalia, J., dissenting).
n340 Id. at 618.
n341 Id. For a broader discussion of what he calls “constitutional privileging,” see Michael Coenen, Constitutional Privileging, 99 VA. L. REV. (forthcoming 2013).
n342 487 U.S. 500, 511-12 (1988). Additionally, where contractors are aware of any dangers associated with the manufactured product, they must disclose those to the government. Id. at 512.
n343 See, e.g., Carley v. Wheeled Coach, 991 F.2d 1117, 1118 (3d Cir. 1993).
n344 E.g., In re Katrina Canal Breaches Litig., 620 F.3d 455 (5th Cir. 2010); Hudgens v. Bell Helicopters/Textron, 328 F.3d 1329, 1334 (11th Cir. 2003); Richland-Lexington Airport Dist. v. Atlas Props., Inc., 854 F. Supp. 400 (D.S.C. 1994); see also VIVIAN S. CHU & KATE M. MANUEL, CONG. RESEARCH SERV., R41755, TORT SUITS AGAINST FEDERAL CONTRACTORS: AN OVERVIEW OF THE LEGAL ISSUES 15 (2011) (documenting the federal judiciary’s extension of Boyle).
Many states have adopted their own versions of the government-contractor defense. See, e.g., IND. CODE ANN. § 34-20-5-1(2) (LexisNexis 2008); KAN. STAT. ANN. § 60-3304(c) (2005); MICH. COMP. LAWS ANN. § 600.2946(4) (West 2010); WASH. REV. CODE § 7.72.050(2) (2010); see also Burgess v. Colo. Serum Co., 772 F.2d 844 (11th Cir. 1985) (recognizing Alabama’s government-contractor defense); McDermott v. TENDUN Constructors, 511 A.2d 690 (N.J. Super. Ct. App. Div. 1986) (recognizing New Jersey’s government-contractor defense).
n345 See Ronald A. Cass & Clayton P. Gillette, The Government Contractor Defense: Contractual Allocation of Public Risk, 77 VA. L. REV. 257, 259 (1991); Steven L. Schooner & Erin Siuda-Pfeffer, Post-Katrina Reconstruction Liability: Exposing the Inferior Risk-Bearer, 43 HARV. J. ON LEGIS. 287, 298 (2006).
n346 28 U.S.C §§ 1346(b), 2671-80 (2006).
n347 28 U.S.C § 2680(a) (2006). This exemption applies regardless whether the officials are negligent in their duties. See id.; United States v. Varig Airlines, 467 U.S. 797, 813-14, 820 (1984); Vicki C. Jackson, Suing the Federal Government: Sovereignty, Immunity, and Judicial Independence, 35 GEO. WASH. INT’L L. REV. 521, 563-64 (2003).
n348 Schooner & Siuda-Pfeffer, supra note 345, at 298 n.62 (“[T]he government contractor defense ensures that contractors are afforded liability protection only in those cases where the government itself would receive such protection under the FTCA’s discretionary function exemption.”).
n349 See supra notes 342, 344 and accompanying text.
n350 See Cass & Gillette, supra note 345, at 287 (suggesting liability ought to be placed on those who have enough discretion that the “threat of liability” can help guide their choices and actions); Rose-Ackerman, supra note 23, at 147 (recognizing that immunizing or insuring actors against liability “reduces the positive incentives to avoid error”). This differential treatment between service contractors and bounty seekers could be seen as its own form of parity: a private actor submits either to close supervision ex ante or to lawsuits ex post. Cf. Filarsky v. Delia, 132 S. Ct. 1657, 1670 (2012) (Sotomayor, J., concurring) (indicating that contractors who are closely supervised are more likely to receive qualified immunity than are contractors who are not closely supervised).
n351 See Michaels, supra note 313, at 1460-62; see also Cass & Gillette, supra note 345, at 279; S. Shavell, The Judgment Proof Problem, 6 INT’L REV. L. & ECON. 45 (1986).
n352 Cf. 50 U.S.C. § 1805(h) (2006 & Supp. V 2011) (immunizing from civil liability telecom firms that provide the government with electronic surveillance assistance); Public Readiness and Emergency Preparedness Act, 42 U.S.C. § 247d-6d (2006) (immunizing from civil liability manufacturers of emergency medical countermeasures).
n353 See, e.g., NCAA v. Tarkanian, 488 U.S. 179, 191 (1988); Hudgens v. NLRB, 424 U.S. 507, 513-14(1976).
n354 Lebron v. Nat’l R.R. Passenger Corp., 513 U.S. 374, 378 (1995) (quoting Edmonson v. Leesville Concrete Co., 500 U.S. 614, 632 (1991) (O’Connor, J., dissenting)). For cases attributing state action to private actors, see West v. Atkins, 487 U.S. 42, 53-57 (1988); Rosborough v. Mgmt. & Training Corp., 350 F. 3d 459, 461 (5th Cir. 2003). For cases declining to extend state action to private actors, see Rendell-Baker v. Kohn, 457 U.S. 830 (1982); Wade v. Byles, 83 F.3d 902 (7th Cir. 1996).
n355 See Alexander Volokh, The Constitutional Possibilities of Prison Vouchers, 72 OHIO ST. L.J. 983, 1006-07 (2011). Volokh notes that courts consider whether
a private party exercises powers traditionally exclusively reserved to the State, . . . whether that action must in law be deemed to be that of the State[,] . . . whether the action may be fairly treated as that of the State itself[,] . . . whether the challenged action is fairly attributable to the State[, and] whether the state is responsible for the specific conduct of which the plaintiff complains.
Id. (emphases removed) (footnotes and internal quotation marks omitted).
n356 See Rendell-Baker, 457 U.S. at 841. The Fourth Amendment context is, perhaps, most revealing. See United States v. Momoh, 427 F.3d 137, 141 (1st Cir. 2005); United States v. Robinson, 390 F.3d 853, 872 (6th Cir. 2004); United States v. Smith, 383 F.3d 700, 705 (8th Cir. 2004); United States v. Lambert, 771 F.2d 83, 89 (6th Cir. 1985); see also United States v. Hall, 142 F.3d 988, 995 (7th Cir. 1988) (rejecting a state-action claim alleging warrantless search by a computer maintenance firm on the grounds that although the firm ultimately contacted the police the search was independent of any law-enforcement objective); United States v. Walther, 652 F.2d 788, 793 (9th Cir. 1981) (finding state action in an airline-carrier search where the government “had knowledge of a particular pattern of search activity . . . and had acquiesced in such activity”). See generally Michaels, supra note 313, at 1465 (discussing state-action doctrine in contexts related to the government informally deputizing private actors to facilitate counterterrorism operations).
n357 See Brentwood Acad. v. Tenn. Secondary Sch. Athletic Ass’n, 531 U.S. 288, 296 (2001).
n358 See Volokh, supra note 355, at 1006-07 (describing contexts where private contractors and other private actors closely connected to the government, or otherwise carrying out specific government requirements, are deemed state actors).
n359 Elsewhere, I’ve made this argument about service contractors. See, e.g., Michaels, supra note 65, at 735-38 (describing the use of service contractors to carry out “constitutional workarounds”). For the reasons described above relating to bounty-seeker autonomy, the claims I’ve made in previous works about service contractors having greater leeway than government personnel to act outside the color of State law apply a fortiori to bounty seekers.
n360 See supra note 356.
n361 Cf. Michaels, supra note 65, at 735-38 (discussing religiously infused social-welfare programs carried out by service contractors).