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Richard Schragger
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Scholar’s Corner

Rich Schragger is one of the nation’s leading young scholars of local government law whose work expands considerably the traditional boundaries of that field.  Schragger looks at issues that are conventionally analyzed as problems of state-federal relations, such as economic regulation or same-sex marriage, and shows that the relevant policy actors are often mayors and other local officials.  He uses that observation to illuminate federal constitutional law and federalism — but federalism considered as a three-tier rather than a two-tier problem.  Local, and not merely state, rules may be protectionist or interfere with the free movement of people and goods.  Schragger’s work challenges us to think more deeply about the ways in which the division of political power affects the distribution of power between private capital and government.

In the following excerpt, Schragger considers the appropriate scale for economic regulation. Despite the conventional wisdom that sub-national governments cannot effectively control or redistribute capital, Schragger observes that cities have increasingly sought to do both. This new “regulatory localism” is noteworthy because it challenges the proposition that industrial policy, redistribution, and other responses to global economic restructuring must be addressed at the national level. It also challenges the proposition that local economic development policies must necessarily be biased in favor of corporate capital.

Mobile Capital, Local Economic Regulation, and the Democratic City

123 Harv. L. Rev. — (forthcoming 2009)

Economic localization is being driven by a decentralized labor movement, urban anti-poverty organizations, opportunities in municipal law, political alliances with progressive city mayors, a localist economic ideology, and the urban resurgence. These efforts are emphatically post-industrial; in this atmosphere it may be possible for cities to regulate in ways that nations and states cannot — to leverage place-dependent value and constrain or redistribute capital. This nascent localization of economic policy coincides with the rise of the region as an important economic unit and the relative decline of the nation-state as a central regulator of economic life. Even if there was the political will to generate a new relationship between capital and democracy, it is far from clear that the nation can or is in a better position than cities to deliver. Indeed, a progressive economic localism is one possible answer to the dislocations that accompany globalization.

In light of these phenomena, we need to reframe our approach to city power. The conventional approach to the allocation of powers between the federal, state, and local governments involves assessing those governments’ relative competences and the political effects of particular allocations. These debates occur, however, with little consideration of the allocation of power as between government and capital. Debates about decentralization make little sense without reference to the private-side exercise of economic power as well as the public-side exercise of regulatory power. The relevant question is: How is the city’s power exercised vis-à-vis capital — in particular, vis-à-vis large-scale, mobile capital? That question should inform how we conceive of local power and how we think about local economic policy.

We should start by complicating our understanding of the relative vulnerabilities of city and capital. The disciplining view of capital mobility is skeptical of the exercise of local power — it assumes that government power will often be deployed to exploit unless there are some constraints. Liberty, on this account, is the exercise of rights against — and the operation of markets free from — direct government intervention or interference. One implication of this view is that where exit does not provide sufficient discipline, legal limits on city power are appropriate to prevent exploitation of property owners, corruption, and other political process flaws of local urban democracy. Courts and legislatures should step in to prevent local oppression of the vulnerable; local authority is thus appropriately limited. 

When one turns away from the dominant conception of rights and markets, however, a different idea of vulnerability emerges. A competing political tradition tells us that governments are also vulnerable to markets, though this vulnerability tends to be less visible. Indeed, the vulnerability of the city to mobile capital is often interpreted as the reverse — the vulnerability of capital to local government.

Kelo [v. New London] is a nice example: mobile capital dictates the terms of New London’s economic strategy, but the salient and legally-cognizable act was the government’s invasion of the homeowners’ property rights. The liberal economic order has the necessary tools to prevent the public sphere from invading a protected private sphere — the language of rights does most of this work. But we have more trouble understanding when the private sphere is invading the sphere of the public — that is, we have more trouble preventing the distortion of public decision-making for private ends. Explicit corruption or capture of public processes can be guarded against, but the form of corruption that worries those concerned with capital’s political power — the narrowing of the public sphere, the loss of political and economic independence, government policy driven by unaccountable and unelected economic actors — is more difficult to articulate. The sense that government has lost the power to control the chief determinants of citizens’ well-being — sometimes described in terms of “democracy deficits” — drives local economic reform efforts like the minimum wage.

Our difficulty in articulating this concern reflects the pervasiveness of the negative conception of rights as trumps to be asserted against government invasions. That difficulty also stems from the fact that we have come to discount the notion of the common good itself; the “public” no longer exists, but is an amalgam of private interests. Indeed, our current theories of democratic process — dominated as they are by public choice — tend to undermine the idea of an identifiable democratic public at all. The democratic public either does not exist or has no interests that can be invaded by private-side rights-bearers.

But this one-sidedness masks the central problem, which is that the political pathologies of local government are, in significant part, a function of local government’s relationship to capital. Indeed, both concerns — the public invasion of rights and the private corruption of the public good — have and continue to be dominant problems in the city-business relationship. Recall that the original 19th century limitations on city power were a means of restraining giveaways to mobile capital; the counter-movement to limit state authority was motivated by similar concerns that business-dominated interests were corrupting good municipal government. Limiting municipal power to intervene in the private marketplace by enforcing a rigid public/private distinction and adjusting the city’s powers vis-à-vis higher level governments have been the two primary ways of dealing with the pathologies of the city-business relationship. These conceptual narratives continue to dominate the current law of local government.

Those efforts are quite imperfect, however. More importantly, they appear unable to effectively cabin the politics of capital attraction, retention, and exploitation. That is because the relationship between the legal regulation of the city and mobile capital is not a linear one. The city develops in tandem with private investment, commercial activity, and capital formation — city power cannot be disentangled from the power of private economic activity.  Mobile capital operates through the instruments of local government; the rules that bind the latter might well be for the purpose of binding the former. Reformers legitimately worry that public power will be used as an instrument for private gain, but private gain is the city’s lifeblood.

The notion of city power is thus more complicated than it appears. Cataloguing the powers or limitations of municipal government does not tell us very much. Rather, one needs to ask how lodging authority to make certain kinds of decisions at a particular level of government — federal, state, or local — affects the city-business relationship. Indeed, the city power debate — to the extent it only looks at the legal powers of cities vis-à-vis other levels of government — is somewhat beside the point. Local “autonomy” is not an available option: first, because the city and private investment are inextricably linked; and second, because different allocations of legal authority as between the city, state, and federal governments will have different (and not always predictable) consequences for the city’s vulnerability to private-side control and manipulation.