January 16, 2003

Chapter 5

Constitutional Protection Against

External Costs and Costs of Power Abuse

In this chapter, we complete our discussion of a constitution by considering several provisions that would help deal with the external costs of collective decision-making and the costs of power abuse. Part one describes the separation of the branches of the government. Part two discusses provisions relating to information about government activities. Part three analyzes rules on vote-buying. Part four discusses rules against profiteering. Additional constitutional provisions, including those that allow for constitutional change, are described in part five. Part six briefly discusses the possibility that the constitution may turn out to be a much less potent protection against the external costs and costs of power abuse than members of a collective may hope.

1. THE SEPARATION OF GOVERNMENT BRANCHES

     The separation of government branches is a characteristic of a presidential system. As noted in Chapter Four, in a parliamentary system, the prime minister is elected from among the legislature and, generally speaking, can be replaced at any time that a legislative majority decides to do so. Accordingly, our discussion in this section is mainly about a presidential system. We shall see that the main advantage of the separation of branches is the balance of power that it helps achieve. At the end of the section, we show how balance of power is typically achieved in a parliamentary system.

     In presidential systems, democratic constitutions separate the legislature from the executive branch of government. Each is separately elected and the elections are of different types and/or held at different times. The U.S. also has a separate judicial branch of government, whose task is to judge (1) whether a law is consistent with the constitution and (2) whether the enforcement of laws violates constitutional rights. In this part, we begin by describing the three branches.

The Three Traditional Branches

     The three traditional branches of government are the legislature, the executive, and the judiciary. We discuss each in turn.

The Legislature

     The first branch is the legislature. It typically consists of elected agents who represent different voting districts. Its main task is to make laws. In large national governments, each legislator is ordinarily aided by a staff of assistants. Most presidential systems have only one legislative house. The U.S. has two. The first -- the senate -- has two representatives from each state who are elected in statewide elections. The second -- the house of representatives -- is comprised of representatives from voting districts. Voting districts are arranged so that all have approximately equal voting populations.

     The legislature makes laws during regularly-scheduled meetings which follow strictly-defined procedures. The legislature makes rules of order and elects a respected member to enforce these rules. Any elected legislator may introduce a bill. The bill may be voted on immediately, discussed at length by proponents and opponents, referred to a special committee for further study and recommendations, or set aside for consideration at a later time. If a majority of legislators vote in favor of the bill, it is passed. In the U.S., where there are two legislative houses, a bill is not passed until it is approved by a majority in each house. Since bills have a variety of characteristics, this often means that special joint committees must be established to work out compromises before a bill can pass.

     A second task of the legislature is to monitor the bureaus, or ministries, which are directed by the chief of the executive branch. The legislature usually does this through specific committees, such as the committee on transportation. Such committees may have regular meetings to discuss the activities of the government agencies that come under their purview. The committees may also call upon the chiefs of those agencies and others to give them information about their activities.

     A third occasional task is to oversee the chief executive, or president. If the legislature judges that the president has begun to act in ways that they disapprove of, they may initiate an impeachment proceeding. Because impeachment proceedings cannot succeed unless a very large majority (say seventy-five per cent) of the legislature agrees, they are rare.

The Executive Branch

     The second branch is the executive. The chief executive, or president, is elected either directly by the citizens or indirectly through their representatives. He (she) is typically backed up by a vice-president who, while also elected, is usually chosen by the presidential candidate as a running mate prior to the election. The two are typically voted on as a pair. If the president becomes disabled, resigns, or is impeached; the vice-president takes his place.

     The chief executive, or president, has three kinds of tasks: (1) representing the nation in foreign affairs, (2) administering and enforcing laws, and (3) influencing law-making. Regarding foreign affairs, the president has the authority to represent the country in such things as military actions, international alliances, and trade agreements. However, his decisions are subject to ultimate approval by the legislature. Ordinarily, the president acts cautiously, since he does not wish to make an alliance or agreement that will later be annulled by the legislature. However, there are also extraordinary situations. The president practically always has the power to act quickly and decisively in a situation that he judges to be an emergency. This is necessary when a country is threatened with war. Nevertheless, even in these cases, his decisions can later be revoked by the legislature. For example, the president of the U.S. has the power to order troops to invade a foreign country. However, if after 30 days, the legislature does not approve, the troops must be withdrawn.

     The president's second task is to administer and enforce laws. Laws are really orders sent to the president by the legislature to either use an existing agency or establish a new agency to carry out some set of actions. For example, a new law may specify that aliens must meet more stringent requirements before being allowed to become citizens. The president has the task of directing the agency that deals with immigrants to enforce the new law.

     The third task is to influence law making. The president does this through his veto power. Suppose that a president expects that the legislature will pass a bill of which he disapproves. Then he may threaten to veto it. To avoid the potential conflict, he may send a representative to discuss the issue with the legislature. Or the legislature may send a representative to discuss the issue with the president. The result may be a compromise bill, which the president agrees not to veto. The president may also propose a law and ask a friendly legislator to introduce it to the legislature.

     The executive branch includes all the people who work in the enforcement and administration of laws. Thus, it includes all of the government bureaus and agencies except the legislature and judiciary. Not counting the president and vice-president, the members of the executive branch are either short term bureaucrats (bureau chiefs, or ministers, and their assistants) or long-term bureaucrats hired through a civil service system. The civil service system is a set of general rules for hiring, promoting, and firing which are designed to guard against partisanship. The rules are typically made by the legislature.

The Judiciary

     The third branch is the judiciary. It consists of a hierarchy of court judges. At the highest level are the supreme court judges. They are typically appointed by the executive subject to approval by the legislature.

     The judiciary has two types of tasks. The first is to make the final judgment of guilt for suspected law-breakers. Because the judiciary is the court of last appeal, it is correct to say that the executive and judicial branch are jointly responsible for the enforcement of laws. The executive branch surveils probable sites of criminal action, investigates reported crimes, presents evidence, prosecutes suspected criminals, and punishes people who are convicted of crimes. The judiciary decides guilt and determines punishment. The second task is to assure that both the laws of the legislative branch and the actions of the executive branch conform to the provisions of the constitution. The judiciary is like an overseer. Any citizen who is charged with violating a law has the right to challenge the charge in court by claiming either that the tactics used by the executive branch or the law itself is against the constitution. If a judge or court agrees, the challenger may be set free and the executive action or law declared null and void. If the constitution is ambiguous or unclear, the judiciary has the task of determining how it should be interpreted. This second task is usually summarized by saying that the judiciary must interpret the constitution and render enforceable judgments on whether someone has violated it.

     In performing its tasks, the judiciary is expected to follow procedures similar to those of the old British common law. This means that it is required to justify its decisions with written arguments that are made available to the public. These arguments can then be used by future courts as precedents in similar cases. Requiring written arguments has three benefits. First, it has the potential of economizing on the use of judges. The most accomplished and articulate interpreters of law can be placed at the top of a hierarchical system while the less accomplished can be placed in lower courts. Through the hierarchy, the decisions of the highest, or supreme, court can be applied by lower courts. This enables the system to deal economically with a large number of cases. Second, it gives future supreme courts a starting point for considering cases that are similar to those of the past but in some way different. Third, it allows members of the collective and various government functionaries to learn how laws are likely to be interpreted in the future. This reduces peoples' uncertainty about whether their actions will violate the law.

     A hierarchical court system allows for appeals from the lower courts. The Supreme Court of the U.S. is the ultimate court of appeal. Because of its hierarchical appeal process and the court's tradition of judging cases based on precedent, we can conclude that the U.S. is a rule-of-law country (see Chapter One).

     Legislators and the president have short terms of office, usually between two and six years. The supreme court judges, however, have long terms, possibly lifetime terms. The intent of having long terms is to make the judiciary more independent. The framers of the constitution hope that long terms of office will reduce the probability that the judges will make decisions that favor a particular political party or pressure group. The goal is non-partisan decisions.

Rationale for Having Separate Government Branches

Why would members of a collective that has a demand for public goods want such a separation of powers for its agents? One obvious reason is specialization. The members of a collective would presumably want their agents to make decisions on the supply of many different kinds of goods. Decisions to supply entail three parts: making a decision on which goods should be supplied and how, executing the decisions, and monitoring. Accordingly, it is reasonable to have a legislature to decide which laws will be passed, an executive branch to execute the laws, and a monitoring branch to see that supply contracts are met. Although each constitutional democracy has a legislature and an executive, no constitutional democracy today has an independent monitoring branch. Modern democracies rely on the public to monitor. The monitoring is encouraged by citizens' rights that include (a) the right to communicate without interference (see part two of this chapter) and (b) the right to sue government officials who have violated various other rights, including the rights of suspects in criminal cases. Although monitoring is performed by citizens, the incentive to monitor is greatly increased by an independent judicial branch, which is responsible for adjudicating complaints by citizens that their rights have been violated. Without such protections, the legislature might punish critics by passing discriminatory laws; and the administrators at the executive branch might enforce laws in a more discriminatory fashion than otherwise.

Balance of Power

     A second benefit of, or rationale for, the separation of branches is that it prevents any single branch from gaining too much power. In other words it helps create a balance of power. If a branch has too much power, the result may be either high external costs of collective decision-making or high costs of power abuse. Let us first show how separate branches lead to a balance of power. Then we can discuss its benefits. In the discussion, we will assume a tripartite system.

     Let us begin by considering the legislature's power over the executive. Suppose that the president chooses not to enforce some law. Then the legislature has two options. First, it can ask the judiciary to order the chief to enforce. In the traditional system, the president has the constitutional privilege of vetoing a law. However, once the legislature overrides the veto, he must enforce. Second, the legislature can vote to impeach an executive who violates his duties.

     The legislature also has power over the judiciary because it can propose changes in the constitution and pass laws. If the legislature does not like particular interpretations of the Supreme Court, it can make a constitutional amendment in order to clarify the meaning. In the U.S. the legislature further has the power to turn down a prospective Supreme Court judge who is nominated by the president.

     Judges have power over the legislature because their task of interpreting the constitution gives them the power to declare laws unconstitutional. When this happens, they direct the executive branch not to enforce the laws. Their power over the executive branch stems from the rights of citizens, which are typically expressed in the constitution. These include the right of family or others to see a criminal defendant, the right to a speedy trial, the right to know the nature of the crime for which a charge is made, and possibly the right to bail. These rights are basically designed to protect citizens against the arbitrary use of discretion by the executive branch. Suppose that an official of the executive branch uses his power, say, to arrest people who have not committed crimes. Because criminal suspects have the rights described above, the judiciary can direct the president and his employees to release the people who have been arrested.

     The power of the president over the legislature is due to his veto power. By vetoing a law, he can nullify some laws and affect the passage of others. He also has power because he controls the monopoly over force. Even though the legislature passes a law with a 2/3rds vote and the judiciary demands that the president enforce the law, he can vary his enforcement energy and efficiency.

     Another element in the balance of power results from the way in which members of the judiciary are chosen. In the U.S., when a supreme court judge resigns or dies, her replacement is chosen in the following way. The candidate is first nominated by the president and then approved by the legislature. Although the life term makes judges independent after being chosen, presidents and legislators often believe that they can cause more favorable judicial decisions than otherwise by selecting judges whose past views suggest that they will issue constitution interpretations that they favor. For example, if these politicians prefer conservative interpretations, they tend to nominate and approve a candidate with conservative views. Since the president and legislature may be from different political parties, there is often a great deal of dispute over the selection of judges.

     What is the benefit of a balance of power? One way to answer the question is to try to imagine what would happen if there was no independent judiciary to judge the constitutionality of legislative and executive branch actions. In this circumstance, the legislature would control the interpretation and enforcement of constitutional rights, including the right to vote(!). This is the case in Mainland China which, in effect, has no democracy. Moreover, without a judiciary, enforcement agents might use methods to enforce laws that violate the constitution. For example, the police may torture a suspect in order to persuade her to confess to a crime. A bill of rights, combined with an independent judiciary can block such actions.

     Veto power by the executive branch may bring an additional benefit. The separation of the legislature and executive branch amounts to a requirement of a greater than 50% majority in the legislature for laws of which the chief disapproves. Members of the collective may regard this as desirable in order to avoid the external costs of collective decision-making, as described in Chapter Four. They could achieve a similar result by a constitutional provision that requires, say, a two-thirds majority in the legislature for a bill to become law.

Separation of Powers in a Parliamentary System

     As we saw in Chapter Four, there are two major kinds of democratic systems: the presidential system and the parliamentary system. In the latter, the legislature elects the prime minister. As a result, there is no separation of the legislative function from the executive function. Because of this, we must ask how the citizens in a parliamentary system are protected from the external costs of collective decision-making and from power abuse. The answer is that protection depends on factors other than the separation of branches. If there is a coalition government, a prime minister must represent all the parties in the coalition; otherwise some parties may shift their allegiance and force a new election, thereby ousting the prime minister. This protects those citizens wh align themselves with a party that has a reasonable chance of being influential. However, if a single party dominates the parliament, there is a danger of abuse.

     Parliamentary democracies have three possible protections against this danger. The first is a bureaucratic civil service. The civil service includes the military, the police, and other administrative agencies whose task is to assist the prime minister in executing the law. If enough of these bureaucrats refuse to follow orders, the prime minister and his party will not be able to get what they want. For example, a prime minister who attempted to drastically raise taxes in order to give the money to his political party may be unable to get cooperation from the tax administration.

     The second protection is due to the voting power of citizens. If a prime minister attempted to use the government to his own advantage or to the advantage of his political party, members of the collective can make it known that they will vote for opposition parties in the next election and for candidates of the ruling party (or coalition) who shift their allegiance. This could prompt legislators who now support the government to vote against it.

     The third protection is respect for the rule of law. Such respect is likely to be greatest when claims by the prime minister or other ministers that the law has been violated must be judged by an independent judiciary. Suppose that a government began to violate citizens' rights by directing the police to hold suspects without trial and to torture them until they confessed or died. Suppose further that an independent judiciary judged such tactics to violate citizens rights. This might upset citizens sufficiently that they would demand the resignation of the prime minister and/or of the other government officials who were responsible for the abuses. If the prime minister refused to resign or to force the resignations of others, two things might happen. First, some party members may shift their allegiance fearing that if they did not, they would lose the next election. Second, there may be widespread demonstrations ("people power") by citizens who want to express their condemnation of the prime minister's actions.

     The bureaucracy has probably played a significant balance-of-power role in parliamentary systems like that of England. In the U.S., where the civil service bureaucracy developed late (see Chapter Thirteen), the separation of the branches has played a more significant role. Voters and the independent judiciary have played an important role in both.

Restricting the Executive Branch's Use of Force

     A crucial question is who will enforce constitutional provisions and laws against the chief executive. The chief executive is in charge of the monopoly over force (i.e., the military and national police). Suppose that he abuses his power by, say, diverting tax money to build private palaces. How can he be stopped? In the final analysis, restrictions on the chief executive's use of force must be enforced in one of two ways. The first is by the sentiment of the chief executive's bureaucrats, including career officers of the military and police. If the president or prime minister refuses to abide by the constitution or the rules of a parliament, the bureaucrats may forcibly remove him. The second is by the sentiment of citizens. The citizens may, for example, join together in a mass demonstration. The purpose of such an uprising would be to show disrespect for the leaders and to make it more difficult for them to govern. In both cases, those who aim to block the chief executive must place loyalty to the principles of a well-constructed constitution above loyalty to a particular president.

     We often hear people say just the opposite. Bureaucrats and the public should be loyal to the nation's leaders. However, unqualified loyalty to the executive branch of government would upset the balance of power.

2. FREEDOM OF AND RIGHTS TO INFORMATION

     The agents who are hired by the collective have the potential to do great damage by abusing their power. In addition, like all workers, they have some incentive to shirk their duties. To find out what the agents are doing, the members of the collective who are making a constitution would, under ordinary circumstances, demand the right to monitor government activity, to attend meetings, and to inspect government documents. They also would demand that the agents maintain records of their actions. However, there are some circumstances under which members of the collective would waive these rights. The need for security in national defense is evident. So we shall not discuss it further. Criminal surveillance refers to the tactics used to locate criminals. In detecting speeding automobiles, for example, the police may use radar. It would not be wise to allow citizens to learn precisely where on the highway the radar units are located. The same applies to stakeouts and planned police raids. In these cases, members of the collective may wish to limit access to government communications by appointing some highly trustworthy agent (perhaps the judicial branch) to decide the conditions under which access will be granted. In other cases, however, they would want free public access. They would also not want to be excluded from meetings involving government officials.

     On the other hand, members of the collective would want to be secure in their own private papers. The reason is the same -- to more effectively monitor the agents. In spite of the free-rider problem, some members have a special interest in keeping track of agents' activities. Five possibilities come to mind. First, media personnel may be able to make profit by selling news. Second, people who believe that they are being treated unfairly according to the constitution or laws may want to try to verify their beliefs in order to reveal the violation and bring charges (or file a legal suit) against the guilty agents. Third, some people may feel a civic duty to keep an eye on their politicians and bureaucrats. Fourth, some people may just be curious, like the historians at universities. Fifth, a rival political party may see an opportunity to gain by reporting the activities of the ruling party or coalition.

     Members of the collective who are trying to keep track of politicians and bureaucrats often keep records of their suspicions or findings in order to reduce the costs of their work. Keeping records is a tool that they use in a game between themselves and agents who try to conceal their actions. Members of the collective would want their compatriots to have the advantage in this game. Thus, they would want their records of investigators to be secure from being seized by agents.

Means of Raising Trustworthiness

     Politicians, enforcement agents, and the judiciary occupy positions of public trust. Since there are no acceptable tests of trustworthiness, members of a collective may prohibit people who they believe to be untrustworthy, such as known criminals, from being politicians or bureaucrats. Requiring political candidates and bureaucrats to meet minimum qualifications offers a measure of protection, but not very much. As an additional measure, members of the collective can subject a political candidate's and bureaucrat's past to the utmost scrutiny. At one extreme, they could establish a special investigative body whose function is to find out about a candidate's past and make a special report. At a minimum, they could demand that any candidate for public office present a resume containing employment and work history. In addition, they could demand that he make a full disclosure of his past income and assets. Such reports of a candidate's past, resumes and disclosures should be available to the public, without reservation. Beyond this, members of the collective could require an agent to put his existing assets in a blind trust in order to take away his right to profit from a decision he might make as an agent. Of course such requirements must be enforced and violators subjected to significant penalties. It is especially important that the trustee, who administers the blind trust, be independent.

Freedom of Speech and Press

     One way to help people get information about candidates is to allow a free press or, more generally, freedom of speech. Media reporters have an incentive to find out about candidates because members of the collective find such information useful. As a result the media can sell rights to publish the news and they can sell advertising to support their investigations.

     It is important to extend freedom of the press to include broadcast media. Many countries try to strictly control their radio, TV, and movies. They typically defend this by saying that they want to protect traditions, morals or culture from undesirable or foreign influences. Such restrictions also insulate the existing government from criticism by raising the cost to critics. If the costs of gaining access to the broadcast media are high, an individual who believes that a government official is guilty of wrongdoing is less likely to investigate further or to share his information. To limit freedom of the media for any reason raises the costs of discovering shirking, bribery and corruption. It thus encourages them.

3. RULES AGAINST BUYING VOTES

     It is useful to distinguish two types of vote markets: the market for the votes of legislators and the market for the votes of the electorate. The first refers to a legislator's vote on a law. A legislator's vote may be valuable to someone who stands to benefit or lose from the passage of a law. The second refers to a member of the electorate's vote for a political candidate. This vote may be valuable to the candidate herself or to others who believe they will benefit if a particular candidate is elected. We begin by discussing the market for legislators' votes since this market is more common.

The Market for Legislators' Votes

     Members of a collective would oppose the buying and selling of legislators' votes. The reason is more complex than it seems. Actually, some members of the collective may anticipate gains from allowing legislator vote-buying because they would expect it to make them better off. Consider a bill in the legislature that would give cash payments to a special group of people, say military veterans. The cash payments are financed by taxes on all citizens. Suppose that the veterans expect that by buying the votes of some legislators, they can cause the bill to pass. Then they might favor a system where legislators' votes can be bought and sold.

     This kind of vote-buying is most likely wasteful. The net effect is to take money away from one group and give it to another group. So there is no net gain in money. Yet resources are likely to be wasted both by the supporters of the veterans' benefit bill and by its opponents. However, buying legislators' votes need not be so clearly wasteful. The bill may be intended to finance an environmental cleanup that would substantially reduce the risk of contagious and deadly disease.

     To see why most people would want to outlaw legislative vote-buying, we must put ourselves in the shoes of the people who are likely to lose when others buy votes. Suppose that you expected to be part of the tax-paying group in either of the above cases. To defend yourself against having your wealth taken away, your group would have to bid a higher price for the legislators' votes than others.

     There is a virtual infinity of bills that may benefit some groups at the expense of others. If vote-buying were allowed, many people would want to buy votes supporting such bills. In order to defend themselves against losing their wealth, the prospective losers would have to bid against them. We can imagine competitive bidding for legislators' votes on thousands of bills. The result would be a needless waste of resources during the bidding process and, of course, substantial benefits for the legislators.

     If we had some reason to expect that the benefits from the laws that resulted from such bidding would exceed the harm, we might investigate further. However, the main effect seems to be that the legislators would get rich at the expense of members of the collective.

     In short, allowing legislators to sell votes reduces citizens’ protection against the external costs of collective decision making. Members of the collective hire legislators to help administer the monopoly over force. They expect and want the monopoly to be used only to help supply public goods. To allow legislators to sell their votes would give them a greater incentive than otherwise to use that monopoly over force for other purposes.

     In some countries, vote-buying is not outlawed in the constitution but by ordinarily legislation. Even though legislators would seemingly prefer to allow vote-buying, they have passed legislation outlawing it. The apparent reason for this paradox is that if they did not pass such legislation, voters would vote them out of office.

The Market for the Electorate's Votes

     Almost every democracy has a secret ballot for the election of politicians. The main reason seems to be a belief that in its absence, some voters would be influenced by others who have more wealth and/or power. Their votes would not be independent and free from financial influence and coercion. Contrast this with legislators' votes on bills. Members of a collective would not want a secret ballot for votes in the legislature. If citizens could not find out how a legislator voted, they could not make an informed choice among candidates. Whatever the reason for the secret ballot, it substantially reduces the benefits of vote-buying and intimidation by prospective legislators and their financial backers. In its absence, a legislator who paid for a promised vote could easily find out whether the promise had been kept.

     In spite of having a secret ballot, vote-buying is not uncommon in some of the newer democracies. The reason is that vote-sellers in these democracies are often motivated by moral values, custom, or tradition. Such values, custom or tradition are particularly prevalent in countries whose democracies replaced patronage systems, in which subordinates were expected to be loyal to a superior. In a patronage system, a subordinate who accepts a gift from a patron is likely to feel a duty to reciprocate.

     Vote buying was also a characteristic feature of early American politics. This is because election laws permitted political parties to print their own ballots and because a voter's placing his ballot paper into the ballot box was open to public view. By using a special party color for the ballot paper and by placing monitors near the ballot boxes, a party could identify voters who kept their promises.

     If there was no initial secret ballot and no law against vote-buying of this type, it is very likely that legislators would impose one or the other, or both. This is not because it is in the interest of legislators individually. If an incumbent believed that he would have an advantage in vote buying, he would not want a secret ballot. He would only favor the secret ballot if he believed that the challenger would have the advantage. However, since political parties represent both incumbents and challengers, leaders of all parties would join together in their support for the secret ballot in order to reduce their costs of competing for votes.

4. RULES AGAINST PROFITEERING

     A similar argument can be made about profiteering by legislators. We define profiteering as the use of one's position to profit in business. We can divide profiteering into two types: proprietary and speculative. Proprietary profiteering consists of voting for legislation or administering laws for the purpose of increasing one's property or its value. For example, a legislator who owns an export company may vote for a subsidy to exports.

     Speculative profiteering consists of voting for legislation or administering laws for the purpose of profiting in the stock, bond, or property market. Suppose a legislator knows that his vote is the deciding one on legislation that will cause the price of some stock to either rise or fall. He may buy the stock and then vote for the legislation that causes the price to rise. Or he may sell the stock short and then vote for legislation that causes the price of the stock to fall.

     Some people oppose profiteering because it enables politicians or bureaucrats to earn extra income. However, members of a collective would realize that these officials must earn a reasonable amount of income in order to be willing to give up other job opportunities. The important question is whether this way of rewarding them is more or less efficient than alternatives. We can see how it can be inefficient by looking at an example. Consider two owners of road-building companies, A and B. A is an ordinary citizen and B is a legislator. Assume that A's company is more efficient. It can produce a given quality of road at a lower cost. If there is open bidding for roads contracts and bidders are treated equally, A will bid the lowest for a given quality of road and win the contract.

     But now suppose that the firms are not treated equally. Suppose, for example, that the roads department has the authority to reject a lower bid if, in its judgment, the people would be better served. Assuming that B can influence the roads department judgment, he can cause his company to win the contract even though its bid is higher. This is obviously inefficient.

     Besides the inefficiency in production of roads, resources are likely to be wasted when producers seeking favorable treatment bribe government officials or contribute to political campaigns. We discuss this further in Chapter Sixteen on rent seeking.

     Profiteering can be substantially reduced by either a constitutional provision or law that requires government officials to disclose all assets and income. Elected officials who know that concerned voters will find out about their income and assets are less likely to profiteer because it will reduce their chances for reelection and may harm their political party.

     An additional way to reduce profiteering is to make it a crime. A caution is advised, however. Making profiteering a crime would give the executive and judicial branches of government the power to monitor and punish members of the legislative branch. If the power is abused, it might upset the balance of power. Thus, if profiteering is made a crime, the enforcers and judges should be held to the highest standards of accountability to avoid compromising the balance of powers.

5. OTHER CONSTITUTIONAL PROVISIONS

Rules Preserving the Market Economy

     The market economy refers to interaction when people have private property rights and the freedom to specialize and to exchange goods and resources. We saw in Chapter Three that these rights and freedoms provide incentives for individuals to produce what they regard as wealth. We also saw that there are situations in which the wealth that is produced may not be greater than the costs. One is the case of external effects, which arise when the rights to some resources are either too costly or impossible to define and enforce. Examples are pollution and congestion. In addition, some resources seem so vital that members of a collective would not want to entrust their ownership to private parties. We cannot be certain exactly what types of resources would fit into this category at any particular time. However, it seems today that such things as nuclear power plants, weapons of mass destruction, bombs, and the water supply of a large city, would qualify. These are exceptions, however. For most goods and resources, private ownership and the freedom to specialize and exchange are necessary in order to achieve the status of a developed economy.

     Given the importance of property rights, it is reasonable to assume that members of a collective would want constitutional rules to assure that the market economy is nurtured and preserved. Constitutional provisions that require agents to enforce private property rights and to restrict their taking of property except under extreme circumstances would help achieve this. In addition, members of a collective would want to prohibit agents from interfering with free exchange by such practices as price controls. They might also want a provision to facilitate contracts, such as a role for the judiciary in adjudicating contract disputes.

     As a general rule, the collective should not own land except possibly that which it assigns agents to occupy in order to do their work. Again there are exceptions. Although land in modern times cannot be a pure public good because people can be easily excluded from it, a particular piece of land may be vital to the defense of a nation. Or, a parcel of land may contain some vital good which would be monopolized if it was privately owned. Finally, members of the collective may wish to preserve a particular piece of land in its present form (or to restore it to a previous form) perhaps because it is a habitat of valued species of life or because it exerts external benefits on a local or global environment. But these exceptions do not compromise the rule. Moreover, not only must each exceptional case be considered in detail, we should recognize the potential waste due to efforts by special interests to influence how the land is used.(See Chapter Eleven and Twelve.)

     The governments in most of the new democracies have inherited many resources from their dictatorial predecessors. These include land, factories, rights to newly discovered resources, and whole industries (such as transportation, communication, and oil). If these governments truly acted as agents for the members of the collective, they would sell most of these things. In other words, they would privatize. (See Chapters Seventeen and Eighteen.)

Constitutional Change

     Because members face high costs of making collective decisions, they would not want to meet very often, if at all. We have seen that they prefer to delegate their decision-making power to agents, provided that certain rules exist to protect them from external costs of collective decision-making and from agents' abuse of power. Members of a collective who are making a constitution may also want to delegate the power to make constitutional changes to elected representatives. But only if there are very strong safeguards. One safeguard is to require a high supra-majority in order to make a constitutional change. For example, they may require an 80% majority of the legislature to pass a constitutional amendment. In the U.S., the national legislature can propose a constitutional amendment. However, the amendment can be adopted only if three-fourths of the states ratify, or approve, it. This may be achieved either through a vote in the state legislatures or by state conventions, which may require a referendum.

The Referendum

     The referendum can also be used directly to make a constitutional amendment. In a referendum, each eligible voter votes on a particular proposal. It is like an election except that the voter does not select a politician; he agrees or disagrees with some proposal. For example, the constitution may specify that any member of the collective may submit a proposed constitutional amendment. If a sufficient majority (e.g., 67%, or 75% of voters) approve it through a referendum, the constitution must be changed. To avoid frivolous and frequent proposals, a constitution may require a member to gain the support of some minimum number of other members before submitting a proposed amendment. Members of a collective may also agree to use the referendum as a way of ratifying a constitutional amendment that has already been approved by the required majority of legislators. When the referendum is used in this way, we call the referendum an approval.

     In addition, the referendum may be used for direct law-making thereby circumventing the legislature. In this case, the constitution would specify that a proposed law can be placed on the ballot if a minimum number, or percent, of voters agree. It also would specify the percent of voters that are needed to cause the proposal to pass. For example, it might specify that a bill can be placed on the ballot if ten percent of voters sign a statement that they support it. Then it might specify that at least fifty percent of the population must vote in the referendum and that at least fifty percent of these voters must vote "yes" before the proposal becomes law. There are many possible variations of these requirements. When the referendum is used for law making purposes, we call it an initiative.

     In recent times, the referendum has often been used to decide whether the residents of a particular place would like to join in a political union with residents of other places or whether they would like to secede from a union. It has also been used to impose tax ceilings.

     The referendum may also be used for expressing, or finding out, public opinion. Suppose that some individuals believe that politicians are acting differently from what voters want. They may call for a referendum in an effort to show that they are correct. Or opponents may call for one in an effort to show that they are wrong.

     Finally, a referendum may be used for the purpose of removing an elected politician from office. This use is called a recall.

6. HOW PROTECTIVE IS A CONSTITUTION?

     In spite of the best intentions and efforts of members of a collective to protect themselves against the external costs of collective decision making and power abuse, it is nevertheless possible that they will fail. As time passes, the protections that they tried to build into a constitution may erode. There are several ways this can happen. First, the individuals who are delegated the task of amending the constitution may act in unexpected ways. For example, the U.S. constitution was changed from one in which only property owners, for the most part, had the right to vote to one in which there is universal suffrage. The framers of the U.S. constitution did not intend to give everyone the right to vote. At the time they wrote the constitution, they believed that allowing ordinary people to vote would hamper economic development. They had some hope that with time and development, the potential voting population would become more diverse, more intelligent, and more equal in wealth. If that time arrived, voting privileges could be expanded. However, the process through which these developments would occur was not certain and the framers did not give it much attention. Yet, over a period of 150 years or so, a series of constitutional amendments brought about universal suffrage and it now seems here to stay.

     Second, if the judiciary is assigned the task of interpreting the constitution, it may change the way it interprets the words. Since it is difficult to know exactly what was in the backs of the framers' minds, every example of this is somewhat tenuous. However, the following examples have been cited in the U.S.

     A clause in the U.S. constitution says that private property shall not be taken for public use without just compensation. Initially this clause was used by the U.S. Supreme Court as a basis for ruling that the minimum wage and maximum work hour laws are unconstitutional. A law that requires an employer to pay more than the negotiated rate to an employee was thought to unjustly take private property away from the employer without compensation. The same arguments were applied to other laws aimed at redistributing income and wealth. Later in time, however, a different set of supreme court judges interpreted the constitution to mean that redistributive laws are acceptable on the grounds that they fall within the legitimate boundaries of state power. This interpretation appears to be against the intentions of the framers of the constitution but the judiciary did not see it this way.

     The wording of the Sherman Anti-trust Act of 1890 suggests that it was intended to prevent monopoly from developing and to strengthen competition. This act has been used to justify a number of restrictions on business including the imposition of a one million dollar-per-day fine on the Microsoft Corporation for failing to provide an easy way for users of its popular Windows95 software to choose between Microsoft's internet browser and that of its competitors. Obviously, it would have been impossible for the founding fathers to anticipate that giving Congress the power to "regulate commerce...among the several states.."(Article 1, Section 8 of the U.S. Constitution) would be interpreted to allow the government to regulate the sale of computer software.

     Another example is the Employment Act of 1946. This law established a council of economic advisors to the president whose task was to help him (her) formulate economic policies that would "promote maximum employment, production, and purchasing power." The founding fathers believed that free enterprise and trade would bring economic development but they could not have anticipated Keynesian economics and public sentiment favoring the use of government powers to justify anti-cyclical fiscal policy.

     Prospects and facts such as these have led some writers to be very pessimistic about a ultimate capacity to prevent a drift from a limited government favorable to capitalism to an interventionist government whose main consequence is redistribution of income and wealth (de Jasay 1985, Hayek 1979). Writers in this frame of mind have recommended a revision of the U.S. constitution to include such requirements as a balanced budget (Brennan and Buchanan 1980; Buchanan 1981). More controversial proposals include replacing the income tax with a flat tax, giving the president a line-item veto, and setting term limits for politicians elected to Congress.(Mitchell and Simmons 1994: 190)

     If a constitution does not necessarily guarantee a durable democracy, what does? Many writers argue that the success of democracy ultimately depends on a kind of consensus among the citizens. Citizens may allow external costs and occasional abuses of power. However, they must strongly disapprove of any politician or bureaucrat whose actions threaten democracy’s two pillars: representation and the rule of law. According to this view, actions that threaten the pillars will prompt a response by citizens that, if necessary, will be revolutionary. The argument is that “people power,” based on democratic sentiments, is the ultimate protection.

Questions for Chapter 5

1.  Define civil service system, referendum, initiative, recall.

2.  In the separation of powers, there are typically three branches of government. Tell the name and function of each branch.

3.  Given that a nation has the traditional branches of government in a presidential system, name and describe the tasks of the legislature.

4.  Given that a nation has the traditional branches of government in a presidential system, name and describe the tasks of the president.

5.  Given that a nation has the traditional branches of government in a presidential system, name and describe the tasks of the judiciary.

6.  When the judiciary interprets the constitution, it presents written reasons for its interpretations. What are the benefits of this procedure?

7.  Members of the judicial branch of government ordinarily have longer terms of office than members of the other branches. What is the benefit of this, according to the text?

8.  Given that a nation has the traditional branches of government in a presidential system, describe each branch's contribution to law-making.

9.  A good reason for the separation of powers is specialization. Suppose that members of the collective wanted to take full advantage of specialization. Tell which branches they would want to create.

10.   Who monitors the provision of government services in modern democracies.

11.   A traditional constitutional democracy under a presidential system has a balance of power between the legislative, executive, and judicial branches of government. Describe the legislature's power over the executive branch.

12.    A traditional constitutional democracy under a presidential system has a balance of power between the legislative, executive, and judicial branches of government. Describe the legislature's power over the judicial branch.

13.   A traditional constitutional democracy under a presidential system has a balance of power between the legislative, executive, and judicial branches of government. Describe the judiciary's power over the legislature.

14.   A traditional constitutional democracy under a presidential system has a balance of power between the legislative, executive, and judicial branches of government. Describe the judiciary's power over the executive branch.

15.   A traditional constitutional democracy under a presidential system has a balance of power between the legislative, executive, and judicial branches of government. Describe the chief executive's power over the legislature.

16.   A traditional constitutional democracy under a presidential system has a balance of power between the legislative, executive, and judicial branches of government. Describe the chief executive's power over the judiciary.

17.   Describe the benefits of separating the government into executive, legislative and judiciary branches.

18.   How does a parliamentary system protect citizens from the external cost of decision making and of power abuse.

19.   A traditional constitutional democracy under a presidential system has a balance of power between the legislative, executive, and judicial branches of government. However, since the chief executive controls the monopoly over force, how is it possible to restrict his use of force in order to prevent his abuse of power.

20.   Citizens of many countries believe that they and their fellow citizens ought to be loyal to the President. Would loyalty to the president help maintain a balance of power.

21.   Explain how free public access to government meetings and records helps reduce the external costs of collective decision-making and the costs of power abuse.

22.   Are there any cases in which members of a collective would not want free public access to government meetings and records? Explain.

23.   Explain how security from government searches and seizures of private papers helps reduce the external costs of collective decision-making and the costs of power abuse.

24.   Explain how requiring politicians to disclose their assets and income helps reduce the external costs of collective decision-making and the costs of power abuse.

25.   Explain how the freedom of speech and press helps reduce the external costs of collective decision-making and the costs of power abuse.

26.   Explain why prospective members of a collective would probably want rules against buying the votes of legislators.

27.   Explain why vote buying is not a problem in mature democracies.

28.   Explain why political parties have an incentive to pass laws against buying the votes of the electorate.

29.   Name and describe two types of profiteering.

30.   How can profiteering be reduced?

31.   In general, the members of a collective would want constitutional provisions to preserve the functioning of the market economy. Tell the kinds of rules would they want?

32.   In general, the members of a collective would want constitutional provisions to preserve the functioning of the market economy. There are exceptions, however. Tell what these are.

33.   Suppose that members of a collective allow elected officials to make changes in the constitution. Explain two ways that a referendum may be used to act as a safeguard against the use of such power against the collective.

34.   Some writers are pessimistic about a constitution's ultimate capacity to prevent a drift from a limited government favorable to capitalism to an interventionist government whose main consequence is redistribution of income and wealth. Describe at least two ways in which such a drift could occur.

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J. Patrick Gunning
Professor of Economics/ College of Business
Feng Chia University
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Taiwan, R.O.C.
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