Diary

Homage to JusticeBrandeis, Dr. Drucker and Master Sun: Towards a Second Party for the 21st Century

IntroductionHeading into the November elections, it appears that the Democratic Party is, to use a favorite phrase of Robert F. Kennedy, “deader than Kelsey’s n-ts.”A political party that mirrors the views of an extremely Left Wing faction, which polls indicate are shared by only about 20% of the population http://www.gallup.com/poll/120… cannot continue as a national political party.  The major rejection of Far Left ideas this year, coming on the heels of similar rejections in 2002 and 1994 and 1980, will finally prove it will not.

What happens next?  Likely a “Second Era of Good Feelings,” where the Republican Party will be the only real, viable national party, probably no later than the 2012 election cycle.  However, as with the first Era of Good Feelings, it is likely that a new opposition party will take shape, along already apparent fault lines,  probably as early as the 2020 election cycle.

The “snake in the Garden” for the American Progressive Movement was its embrace of centralized Federal power used to compel virtue.  This emerging opposition party will likely form because many of the outcomes sought by the Far Left were very laudable, even if the methods used to attain those ends ultimately proved both shockingly ineffective and ultimately corrupting.

In Justice Louis Brandeis, who famously called the states “laboratories of democracy,” and who said:

 

America has believed that in differentiation, not in uniformity, lies the path of progress. It acted on this belief; it has advanced human happiness, and it has prospered

we see a template for what Liberalism could have been if it had not embraced centralization and compulsion by the use of naked Federal power to achieve things best attained at lower levels through consent.  The New Republic publishes favorable profiles and thinkers in The Huffington Post sing Brandeis’s praiseshttp://www.huffingtonpost.com/2010/07/06/why-louis-brandeis-matter_n_636807.html.  What would a Liberalism that seeks to provide for the Commonweal through the decentralized, fractal distribution of power called for in the Constitution look like?  Here is my view.  It is time to create a new paradigm to work humbly to achieve the lofty goal stated by the Greeks and quoted by Robert F. Kennedy at the time of Dr. King’s assassination, “To tame the savageness of man and make gentle the life of this world.”

Towards Constitutionally Legitimate Healthcare ReformIn 1905, Louis Brandeis spearheaded a movement to reform the life insurance industry in Massachusetts.  He did so, not by asking the government to take over the industry or by arguing for draconian regulation, but by drafting legislation that effectuated the development of a new business model: savings bank life insurance.This year, Congress passed the Patient Protection and Affordable Care Act (“PPACA”) which is wildly unpopular (71% of voters in Missouri recently voted for an initiative exempting the state from large portions of PPACA; a Kaiser Family Foundation report indicates that opposition to PPACA increases the more people know about the billhttp://www.asjonline.com/News/2010/5/Pages/Kaiser-Study-Shows-Less-Confusion-Fading-Enthusiasm-over-PPACA.aspx?k=ppaca).  How could this needed reform have been more effectively achieved, as Brandeis helped reform the life insurance industry?

Work done by the brilliant Rep. Paul Ryan provides an outline.  His concept of “Association Health Plans” would have allowed small businesses to come together to bargain for cheaper health insurance for their employees through not-for-profit entities like the Chamber of Commerce.  Going further, expanding potential membership to self-employed individuals and allowing these entities to be self-insured Multi-Employer Welfare Arrangements under the Employee Retirement Income Security Act of 1974 (“ERISA”), would have allowed these entities to design their own plans to meet the needs of their members (as single-employer ERISA plans like those of GE and Safeway do today), while exempting them from sometimes onerous and expensive requirements of state insurance laws, in effect allowing them to have the benefits of “buying insurance across state lines” without triggering a race to the bottom on benefits.

The key to effective health reform now is the same as the key to life insurance reform was for Brandeis in Massachusetts in 1905:  create the legal framework for an economically viable business model that meets a real need.

Toward a Legitimate Scheme of Regulation

One of the preoccupations of Brandeis’s professional life was what he saw as the pernicious effect of large businesses.  As a practicing attorney (who excelled in both transactional law and litigation) Brandeis often acted as a valued counsel to businesses.  However, they tended to be smaller, privately held, regional businesses.

As attorney and Albany Law School  Anti-trust Law Professor Michael Hutter says, though, “Bigness does not necessarily equal badness.”  Large, publically traded, multi-national corporations are not an inherent evil.

But, bailing out large corporations that fail is a pernicious trend.  As many commentators have indicated, it socializes loss, while privatizing gain.  Additionally, it prevents the reallocation of scarce capital to more productive uses, a process that the influential Austrian economist Joseph Schumpeter called “creative destruction.”

Brandeis once said: “If we desire respect for the law, we must first make the law respectable.”  The recent Financial Regulatory Reform Bill (“FinReg”) adds some 2300 pages to join the many pages of laws and regulation in the United States Code and the Code of Federal Regulations that did not prevent the Financial Crisis of September 2008.  What it does not do is reflect an understanding of the fact that, while the rule of law and an effective regulatory scheme are critical to free markets, there are really only three things these things can do effectively:

1)      Create transparency (as with SEC filings, something this bill does fairly well with derivative instruments);
2)      Define terms; and
3)      Put pre-crime scene tape over patent conflicts of interest (as with Glass-Steagall, which this bill does not restore).

Fewer laws and regulations, which are more narrowly tailored to achieve these goals, might create better outcomes.  As Brandeis once said, “The world presents enough problems if you believe it to be a world of law and order; do not add to them by believing it to be a world of miracles.”  Having laws that allow market forces to work with full transparency (as Brandeis once wrote in another context, “Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.”) will not warp the natural outcome of market forces and will allow the rapid return of economic equilibrium, reducing the inherent power of large businesses to use the law to lock in profits and create barriers to market entry for competitors.

Effectuating the People’s Rights and Powers Under The Ninth and Tenth Amendments

In his last book, Managing in the Next Society (2002) http://www.amazon.com/Managing… the great management thinker Peter Drucker forecast that the bloated, ineffective social welfare systems of the 20th Century (such as Social Security) would eventually be privatized, as the Bush Administration proposed in 2005.  Unlike the Bush Administration, Drucker proposed privatizing them into what he called the Social Sector: the uniquely American not-for-profit sector that was also praised by Alexis de Tocqueville.

Taking the retirement system out of the hands of the government and private employers (both of whom have often looted and mismanaged plans)  and putting it into the hands of groups of  people working through not-for-profit entities with clear cut fiduciary duties seems the better approach.

Under ERISA, an employer who has palpable fiduciary duties to participants and beneficiaries while wearing her Plan Administrator hat, can cancel the plan while wearing her CEO hat.  As she has both Federal law fiduciary duties under ERISA to participants and beneficiaries and state common law duties to shareholders, members, partners and other owners, which often conflict, that CEO, even without any fault of her own, is a “double agent.”  However, as ENRON proved, some CEOs, at times, have had copious “fault of their own.”

The Tenth Amendment states:

 

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

The Ninth Amendment states:

 

The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.

The recent Citizens United  (Citizens United v Federal Election Commission, 558 U.S. 50 [2010]) case establishes that corporations are legal “persons” because they represent the real “persons” who are their members (for a not-for-profit) acting in concert to achieve a goal.Combining these concepts, people can legitimately band together in groups to effectuate those “positive” rights that neither the US Constitution nor most state constitutions address, such as having economic security in one’s old age or the right to medical treatment.

Further, such groups provide both another buttress to society, along with the private sector, the Federal Government and various state and local governments, and a check on all of these other components.  Perhaps the ultimate check on large, for profit companies is not government regulation but rather large numbers of informed investors operating in concert, a solution very much in the tradition of Brandeis’s efforts on life insurance reform.

Mastering the Art Of War

At one point, I attended (but did not complete) the United States Marine Corps Command and Staff College by video teleconference.  As a sometimes Soldier, I came away from the experience with a high regard for the intellectual rigor of Marine Corps officer training and a new feeling for Master Sun’s (Sun Tzu) The Art of War.

The key point of The Art of War is that:

 

There has never been a protracted war from which a country has benefited.

Wars sometimes must be fought.  As Sun Tzu said, “The art of war is of vital importance to the State. It is a matter of life and death, a road either to safety or to ruin. Hence it is a subject of inquiry which can on no account be neglected.”

We live in a time where the leadership of the People’s Republic of China is more apt to read Alfred Thayer Mahan than Gandhi (or even Julian Corbett).  We live in a time when we are economically (hence, militarily and politically) wedded to the Middle East, where Iran is both a potential hostile regional power and a potential failed state.   The old Roman phrase, “Sic Vis Pacis, Para Bellum” (“If you want peace, prepare for war”) applies to our time as well.

However, a huge military is a ruinous expense in a time of unimaginable Federal, state, local and private sector debt.  An economically inefficient military is itself a threat to the security of the state, as Sun Tzu taught so long ago.

A Liberalism for the 21st Century should understand Sun Tzu’s teaching that, “To fight and conquer in all your battles is not supreme excellence; supreme excellence consists in breaking the enemy’s resistance without fighting.”  National Defense is a (probably “the”) main role of the Federal government, but that “defense” also includes diplomacy and fair and strong economic interactions.

A Liberalism for the 21st Century should also understand that the purpose of a Navy is not to provide officers ships to command but to secure the seas and that the purpose of an Army is to fight and win, not to have a certain number of divisions and tanks.

A Liberalism for the 21st Century should understand that the young officers and NCOs who have grown up in the Long War have learned their trade by sweat and blood.  They have learned to be adoptable and quick by fighting a quick and adoptable enemy.  We must preserve and nurture this outstanding human capital, if we hope to be able to defend our country in an era of constrained resources.  

The young man or woman who was a Second Lieutenant or Ensign on 9-11, is now (or is about to be) a Major or Lieutenant Commander.  We need to institutionalize their lessons learned and create a Military and Naval culture that thrives on and embodies the initiative, decentralization and individual responsibility they have shown.

Conclusion

Bill Clinton said the “Era of Big Government is over.”  However, a more accurate statement is that the era of big anything is over.   The Liberalism of centralized, Federal one-size-fits all solutions is a dead letter.  However, the demise of this (to use Alvin Toffler’s phrase) Second Wave, industrial age phenomenon clears the way for the development of a Third Wave Liberalism committed to the Commonweal, but not to centralized Federal power.  Justice Brandeis, and others like Dr. Drucker and Master Sun,  provide varied and effective role models for this new paradigm.