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Freedom to Harm

Freedom to Harm: The Lasting Legacy of the Laissez Faire Revival

Thomas O. McGarity
Copyright Date: 2013
Published by: Yale University Press
Pages: 408
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  • Book Info
    Freedom to Harm
    Book Description:

    How much economic freedom is a good thing?This book tells the story of how the business community, and the trade associations and think tanks that it created, launched three powerful assaults during the last quarter of the twentieth century on the federal regulatory system and the state civil justice system to accomplish a revival of the laissez faire political economy that dominated Gilded Age America. Although the consequences of these assaults became painfully apparent in a confluence of crises during the early twenty-first century, the patch-and-repair fixes that Congress and the Obama administration put into place did little to change the underlying laissez faire ideology and practice that continues to dominate the American political economy. In anticipation of the next confluence of crises, Thomas McGarity offers suggestions for more comprehensive governmental protections for consumers, workers, and the environment.

    eISBN: 978-0-300-19521-7
    Subjects: Political Science, Law

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Preface
    (pp. vii-x)
  4. Introduction: Two Tragedies
    (pp. 1-8)

    On December 6, 1907, a train of fourteen three-ton cars hauling coal from the interior of the Consolidation Coal Company’s number 6 mine in Monongah, West Virginia, broke free and descended 1,500 feet into the darkness below. The company had anticipated this sort of accident and had installed a “derailing switch” at the mine entrance. The young man in charge of the derailing switch, however, was also responsible for keeping the mine’s ventilation fans oiled, and he was oiling a fan when the runaway train sped by. When it reached the bottom of the mine, a huge explosion lit up...

  5. Part One The Evolving Social Bargain

    • [Part One Introduction]
      (pp. 9-12)

      With the same trowel that President George Washington used to lay the cornerstone of the United States Capitol, President Franklin Delano Roosevelt in 1936 set the cornerstone for the long-awaited headquarters of the Federal Trade Commission at the apex of the Federal Triangle in Washington, D.C. Soon thereafter, the New Deal “Public Works of Art Project” commissioned sculptor Michael Lantz to create an appropriate landmark for the building that would house the powerful federal agency. The resulting Art Deco statue portrays a muscular male clothed only in bell-bottom trousers struggling with both sinewy hands to restrain a powerful stallion. Entitled...

    • 1 The Laissez Faire Benchmark
      (pp. 13-17)

      The American economy of the antebellum years was dominated by farmers, traders, and small shops and factories owned by single proprietors or a few partners. The corporate form was reserved for financing large-scale public projects (roads, dams, canals, and the like) operating under state-issued charters that subjected the underlying business entities to extensive oversight and control. Under the forceful prodding of advocates for economic growth, however, state legislatures in the years leading up to the Civil War began to enact general incorporation statutes that permitted private business entities to incorporate under charters drafted by their lawyers and approved by state...

    • 2 Freedom Reined: The Progressive Era Through the Public Interest Era
      (pp. 18-26)

      During three critical periods of American history, a confluence of crises revealed the consequences of unconstrained economic freedom in vivid tragedies that were too stark to ignore. At these junctures, the terms of the social bargain were readjusted to reflect a more protective balance among the values of freedom, responsibility, and accountability. During the Progressive Era of the early twentieth century, the New Deal Era of the 1930s, and the Public Interest Era of the late 1960s and early 1970s, Congress enacted bold legislation designed to bring about fundamental change in the relationship between the business community and its consumers,...

    • 3 Freedom, Responsibility, and Accountability
      (pp. 27-32)

      At the outset of the 1970s, some respected scholars believed that “the ideological clash between the advocates of laissez faire and the advocates of the general welfare state [had] been resolved in theory, in practice, and in public esteem in favor of the general welfare state.”¹ What was good for American workers and consumers, not General Motors, was good for America. Most conservative intellectuals agreed that liberalism was ascendant, but they did not agree with the historians who concluded that the debate was over.² Indeed, the business community would soon launch a fierce counterattack against the protective governmental infrastructure that...

  6. Part Two Preparing for the Laissez Faire Revival

    • [Part Two Introduction]
      (pp. 33-34)

      The Laissez Faire Revival did not spontaneously erupt from the void that was American conservatism following Barry Goldwater’s defeat in 1964. It grew slowly from seeds planted during the 1940s by businessmen who were repelled by communism and an intrusive governmental infrastructure that the New Deal had erected, which, they were convinced, was not far removed from communism. Chapter 4 describes the “Wilderness Years” during which small enclaves of free market thinkers at the London School of Economics and the University of Chicago, supported by one or two conservative foundations, formed the Mont Pelerin Society to advance a laissez faire...

    • 4 The Intellectual and Financial Foundations
      (pp. 35-40)

      In the aftermath of the successful efforts of the Roosevelt Administration to steer the nation out of the Great Depression, the business community could not credibly advocate a return to a laissez faire economy. It was in fact busily accommodating itself to the New Deal as the country entered the “great compression” of the 1950s. Conservative thinkers, however, had not come to terms with the New Deal, nor were they pleased by developments around the world as the Soviet Union’s power grew and many Western nations adopted moderately socialist domestic programs. During these “wilderness years,” the keepers of the laissez...

    • 5 The Idea Infrastructure
      (pp. 41-56)

      As the business community began to feel the cumulative impact of Public Interest Era regulatory programs and common law expansion, a prominent Richmond, Virginia, attorney named Lewis Powell captured the alarming implications of these developments in a lengthy memorandum to his good friend and neighbor Eugene B. Sydnor, Jr., who was at the time the Chairman of the Education Committee of the U.S. Chamber of Commerce. Widely circulated among business leaders, the memo contained a powerful call to arms. Powell ventured that “no thoughtful person can question that the American economic system [was] under [a] broad attack.” At the forefront...

    • 6 The Influence Infrastructure
      (pp. 57-64)

      The Powell memorandum recognized that business-friendly academics and think tanks would need an influence infrastructure to place their ideas on the policy agenda and ensure that their policy prescriptions became the law of the land. Think tanks were sufficiently adaptable that they could fill that need with the help of traditional lobbying organizations like the Chamber of Commerce, the Business Roundtable, and the National Association of Manufacturers. To supplement those efforts, the founding funders created a network of pro-business activist groups to promote business-friendly solutions to social problems at the grass-roots level. The business community also established an extensive communications...

  7. Part Three The Laissez Faire Revival

    • [Part Three Introduction]
      (pp. 65-66)

      The founding funders and the business community created the idea and influence infrastructures with a single broad goal in mind—a return to the laissez faire benchmark of the Gilded Age. They were committed to replacing the government that emerged from the Public Interest Era with a government that provided a great deal more freedom to companies to invent, manufacture, and deliver their products and services without the restrictions of regulations and without the threat of crushing liability. To accomplish this Laissez Faire Revival, they would have to “reform” the existing institutions of responsibility and accountability in radical ways. Since...

    • 7 The Assaults on Regulation
      (pp. 67-83)

      Toward the end of the Public Interest Era in the mid-1970s, the business community found itself in an uncomfortable world in which the scope and depth of its responsibilities had expanded, its accountability to plaintiffs and the beneficiaries of regulatory programs had grown, and its freedom to pursue profits had correspondingly diminished. Having lost the critical legislative battles, it sought to cushion the impact of the new statutes by delaying their implementation, demanding exemptions, and pressing for industry-friendly interpretations. It also went to great lengths to persuade the White House and Congress to impose constraints on the rulemaking process that...

    • 8 Worker Safety
      (pp. 84-98)

      Many workplaces and all underground mines pose significant risks to the health and safety of the workers who labor there. The Occupational Safety and Health Administration (OSHA) is responsible for the safety and health of employees in nearly every private sector workplace in the United States. The Mine Safety and Health Administration (MSHA) is responsible for protecting miners at all the nation’s more than 14,600 mines. According to the Bureau of Labor Statistics, U.S. private sector employers in 2009 reported 3.1 million injuries and at least 166,000 workplace illnesses. The actual numbers are likely much higher because some employers underreport...

    • 9 Environmental Protection
      (pp. 99-117)

      Many federal agencies bear some responsibility for protecting the nation’s natural resources and environment. In this chapter, we will focus on four of those agencies—the Environmental Protection Agency (EPA), the Army Corps of Engineers (CoE) in the Department of Defense, and the Office of Surface Mining (OSM) and Minerals Management Service (MMS) in the Department of Interior. EPA oversees programs that are responsible for controlling air and water pollution from thousands of industrial facilities that discharge tens of millions of tons of pollutants into the air and water every day. EPA and CoE are responsible for protecting the nation’s...

    • 10 Drug and Device Safety
      (pp. 118-132)

      The Food and Drug Administration (FDA) regulates a huge variety of products that account for about 25 percent of overall consumer spending, and about 25 percent of that amount is devoted to pharmaceutical products and medical devices. As of 2004, Americans were spending about $200 billion annually on prescription drugs, and the pharmaceutical industry was the most profitable industry other than Wall Street finance. The next year, however, congressional hearings and testimony in civil litigation revealed that a disturbing number of widely used drugs and devices had not been properly tested for adverse side effects and that manufacturers had failed...

    • 11 Food Safety
      (pp. 133-146)

      In the early 1990s, scientists discovered that more than half of the poultry that Americans consumed was contaminated bySalmonella Enteriditis, a virulent bacterium that causes diarrhea, fever, intestinal cramping, and more serious complications in immune compromised patients. Worse, as modern egg production facilities forced huge flocks of hens into close quarters, their ovaries became infected withSalmonella. As a result, the bacterium became an invisible contaminant of millions of eggs. Scientists estimated that one in ten thousand eggs was infected. Health experts estimated that 2–4 million cases ofSalmonellapoisoning occurred annually, resulting in around 2,000 deaths.¹


    • 12 Transportation Safety
      (pp. 147-163)

      In 2010, Americans drove more than three trillion miles on U.S. roads and highways, airlines flew more than 700 million passengers from U.S. airports, and trains carried more than 24 million passengers on U.S. rails.¹ Virtually every mode of transportation poses risks to the people and property being transported and to people and property in the vicinity of the transportation corridors. Railroad collisions and derailments were killing hundreds of people annually during the 1890s, and they continue to kill hundreds and injure thousands in the twenty-first century. In 2010, 1,873 train accidents caused 8 fatalities and 1,682 grade crossing collisions...

    • 13 Financial Protection
      (pp. 164-182)

      The banking system of the United States has changed dramatically since the major regulatory overhaul of the New Deal Era, during which time some but not all sectors were regulated by federal agencies. The Office of the Comptroller of the Currency (OCC) is currently responsible for the safety and soundness of the nation’s 1,500 federally chartered commercial banks. It is also responsible for 800 federally chartered savings and loan institutions (S&Ls), which prior to 2010 were regulated by the Office of Thrift Supervision (OTS) and, before that, by the Federal Home Loan Bank Board (FHLBB). The Federal Reserve Board (the...

    • 14 Consumer Protection
      (pp. 183-196)

      As modern mass production technologies and the “great compression” of the postwar period enabled average Americans to purchase more automobiles, appliances, and other consumer products, it became readily apparent that defectively designed and manufactured products could kill and maim innocent people. Although reputational considerations gave manufacturers a natural incentive to produce safe products, safety often played second fiddle to style and price considerations. The Consumer Product Safety Commission (CPSC) is responsible for protecting consumers from dangerous consumer products ranging from children’s toys to all-terrain vehicles. The FTC has broad-ranging jurisdiction to protect consumers’ pocketbooks from unfair and deceptive trade practices....

    • 15 Civil Justice
      (pp. 197-214)

      As a lawful form of self-help, state tort law is the vehicle through which individual citizens protect their persons and property from invasion by private sector actors. The possibility that a jury composed of twelve representatives of the community will hold powerful corporations accountable for violating standards of conduct articulated by common law courts provides a strong incentive to act responsibly and some assurance to victims that their wrongs will be redressed.¹

      State common law serves as an institutional counterweight to a regulatory system that is too easily controlled by the very interests it is supposed to be controlling. Common...

  8. Part Four Renegotiating the Social Bargain

    • [Part Four Introduction]
      (pp. 215-216)

      During the late 2000s, the nation experienced a confluence of crises that seriously undermined both the bedrock assumptions of laissez faire minimalism and the faith of American people in the capacity of government to protect them from corporate malfeasance. The financial sector meltdown, the Texas City refinery explosion, the Upper Big Branch mine catastrophe, theDeepwater Horizonoil spill, the Peanut Corporation scare, and the Chinese toy recalls were just a few of the more visible consequences of the laissez faire mentality that had pervaded the American political economy for a generation. But the legacy of the Laissez Faire Revival...

    • 16 Disabled Government
      (pp. 217-231)

      If the business community did not succeed in repealing the bedrock regulatory statutes and common law innovations of the Progressive, New Deal, and Public Interest Eras, it was remarkably successful in disabling the institutions of responsibility and accountability that were basic to their implementation. Responding to an ongoing ideological air war and three powerful ground assaults, Congress, the agencies, and the courts gradually chipped away at the protective governmental infrastructure. Protective governmental action nearly always came in response to particular crises and was usually limited to the minimum required to address the specific causes of the crises. By the mid-2000s,...

    • 17 Patch-and-repair
      (pp. 232-263)

      Pressed by Congressman Henry Waxman (D-California) to explain the ongoing financial meltdown, former Fed Chairman Alan Greenspan admitted that the “entire intellectual edifice” that housed the financial establishment during the Laissez Faire Revival “collapsed in the summer of” 2008. That edifice was designed by Chicago School academics in the 1960s and erected by laissez faire minimalists like Greenspan, Senator Phil Gramm (R-Texas) and his wife Wendy, and Treasury Secretaries Robert Rubin, Lawrence Summers, and Henry Paulson. Dubbed the “efficient market hypothesis,” it held that the collective wisdom of the sophisticated rational actors participating in the financial markets would prevent irrational...

    • 18 Striking a new Bargain
      (pp. 264-285)

      The regulatory programs established during the Progressive, New Deal, and Public Interest Eras and the civil justice reforms of the Public Interest Era brought about many remarkable improvements in consumer welfare, public health and safety, and the environment. The nation’s air is cleaner, its waters are less polluted, and its workplaces, highways, railways, and airways are much safer than at the beginning of the twentieth century. Victims of corporate malfeasance have better access to corrective justice.¹ The regulatory and civil justice systems that brought about these welcome changes, however, have been depleted by three vigorous assaults over the past thirty...

  9. 19 Conclusions
    (pp. 286-292)

    At the outset of the 2010 election cycle, the modest regulatory reforms of the Obama Administration and the Democratic 111th Congress were having little positive impact on working-class Americans. Far from restoring faith in government, the Obama Administration had generated additional cynicism about the government’s capacity to protect its citizens. That, in turn, reversed the political momentum for greater governmental protection that had been building in response to the confluence of crises of the late 2000s. In the aftermath of the Roosevelt Administration’s aggressive responses to the market failures that brought on the Great Depression, the business community could not...

  10. Notes
    (pp. 293-376)
  11. Index
    (pp. 377-394)