The Constitution of Risk

By Adrian Vermeule

How should we approach legal decisions regarding private property for public use? How can constitutional risk be managed in order to maximise the benefits? In this article adapted from the author’s book The Constitution of Risk, Adrian Vermeule explores such questions, looking at the role of constitutional risk within free market development, financial regulation, and how constitutional rulemakers are able to optimise strategy in these fields.

Kelo v. City of New London

In 2005, the United States Supreme Court issued a highly controversial decision in Kelo v. City of New London. Kelo involved constitutional regulation of “takings” – government appropriations of property through the power of eminent domain. Kelo allowed the taking of private property that was then transferred to another private party, in order to promote redevelopment of an economically depressed urban area; the decision triggered a barrage of criticism from libertarian advocates of constitutional property rights.

Under the U.S. constitution, takings generally require “just compensation” to the owner, but there are also restrictions on when government may engage in taking private property at all – most prominently a requirement that the taking must be for “public use.” The critics of Kelo, mostly libertarian lawyers with free-market commitments, hotly denied that a transfer of property to a private party, in the interests of economic redevelopment, should count as a public use. In Kelo, however, the Supreme Court offered an expansive definition of the public-use requirement, and thus allowed a wide range of governmental takings, including forced transfers from one private party to another, for public purposes. How should we assess that decision? Does it rest on an analytically sound approach to constitutional law? What of the risks to property rights, and the risks of harmful interest-group activity? The book offers a way to think about problems of this sort.

Constitutional Risk in Public Law

There are many stock theories of constitutionalism. However, none of them provide an overarching analytic framework for addressing risk-saturated tradeoffs among various constitutional goods. The book attempts to provide such a framework. The central claim is that constitutions, and public law generally, are best understood as devices for regulating and managing political risks. Whoever and wherever we are, we inevitably have a “constitution of risk,” in the sense that constitutional law structures and regulates the risks that arise in and from political life.

Whoever and wherever we are, we inevitably have a “constitution of risk,” in the sense that constitutional law structures and regulates the risks that arise in and from political life.

In this view, constitutional law addresses second-order risks that arise from the design of institutions, from the allocation of power across institutions to make first-order decisions, and from the selection of officials to staff institutions. Constitutional law structures the power of government and allocates it in complex ways to a set of institutions, themselves constituted by the same law. Any such structure creates the chance of various good or bad political consequences, just as any policy for regulating nuclear power creates the chance of various good or bad environmental and economic consequences. Constitutional rulemakers will have to assess and then somehow compare and balance the goods and bads that might arise from various institutional designs and allocations of power across institutions – precisely the sort of uncertain decision that risk analysis addresses. So the book’s overarching theoretical claim is that constitutions and public law are best understood as devices for regulating second-order political risks.

Managing Risk

But how in fact should such risks be managed? As to that question, the book offers a separate, narrower claim: “optimizing constitutionalism” is the best approach to constitutional regulation of political risks. Optimizing constitutionalism trades off all relevant political risks, giving them their due weight in the circumstances, without any systematic skew or bias against any particular type of political risk. This second claim is partially independent of the first as a logical matter: one may subscribe to the macro-idea that constitutional law manages political risks without accepting the narrower claim that optimizing constitutionalism is the best approach.  

To understand the significance of the second claim, some background is necessary. The history of constitutional law and theory has witnessed a running contest between two (families of) competing views. The first view we may call “precautionary constitutionalism.” It holds, roughly speaking, that constitutional rules should above all entrench precautions against the risk that official action will result in dictatorship or tyranny, corruption and official self-dealing, violations of the rights of minorities, or other political harms of equivalent severity. On this view, constitutional rulemakers and citizens design and manage political institutions with a view to warding off the worst case. The burden of uncertainty is to be set against official power, out of a suspicion that the capacity and tendency of official power to inflict economic harms and violations of personal dignity are greater than its capacity and tendency to promote human welfare, liberty, or justice.

In the strongest form, precautionary constitutionalism encodes a powerful presumption of distrust, holding that if it is possible for officials to abuse their powers, then constitutional rulemakers should act as if those officials will be certain to do so – an approach that focuses strictly on the harm of the worst-case scenario, as opposed to the probability of its occurrence. We may call this extreme form of the precautionary approach “maximin constitutionalism,” after the maximin strategy in decision theory: roughly, where the probabilities of possible harms are unknown, choose the course of action that maximizes the minimum payoff – the action with the best worst-case scenario.

The second, competing view of constitutional risk regulation is optimizing constitutionalism or, equivalently, “the mature position” – a pointedly tendentious phrase coined by the great social scientist Albert Hirschman in a somewhat related context. Optimizing constitutionalism offers mature – meaning well-rounded and balanced – case-by-case judgments about risks and harms, both those avoided and those created by constitutional precautions. On this view, all relevant political risks matter, and a systematically precautionary and distrustful approach to the constitutional allocation of power is a mistake.

Precautionary and Maximin Constitutionalism

The heart of the book is a sustained critique of precautionary constitutionalism and maximin constitutionalism, and a sustained argument for optimizing constitutionalism and the mature position. The basic problem that afflicts precautionary constitutionalism is myopia. Precautionary constitutionalism focuses myopically on some particular target risk or set of target risks, while neglecting countervailing risks. In light of predictable tradeoffs among the competing goods that constitutional rulemaking properly aims to secure, there is no alternative to considering all relevant risks, with no systematic skew or bias against official power (or for that matter in favor of it).

For one thing, precautions must be incentive-compatible. If they rest on a jaundiced diagnosis of official motivations and then simply prescribe, by fiat, public-spirited action or public-regarding constraints that are inconsistent with those motivations, the precautions will be futile and ineffective. Furthermore, precautions may neglect the benefits of official action, which must be weighed in the balance along with the risks and harms of abuses; one of the relevant benefits is that official power may be wielded to prevent or remedy abuses of political, economic, or social power by nongovernmental actors, as when the power of the national government in the United States was wielded to shatter the racial oppression of Jim Crow. Finally, and crucially, precautions against official abuses can actually create or exacerbate the very risks they are intended to prevent; where that occurs, precautions will be self-defeating. In general, constitutional rulemakers of a precautionary bent may become obsessed with a particular target risk, thereby overlooking that the obsession may operate perversely to bring about the very risk the rulemakers dread.

Optimizing constitutionalism offers a master principle of avoiding obsession with particular risks, and it arms rulemakers with a breviary that lists and illustrates the ways in which such an obsession may come into being.

At bottom, optimizing constitutionalism offers a master principle of avoiding obsession with particular risks, and it arms rulemakers with a breviary that lists and illustrates the ways in which such an obsession may come into being. To be sure, it might turn out that with respect to certain problems, and for certain types of decision makers within the constitutional system, a precautionary approach may itself just be the optimizing strategy in a second-order sense, in light of the limited rationality or harmful incentives of the first-order decision makers. To that extent, the optimizing approach includes and embraces the precautionary one. But this does not at all empty the optimizing approach of significance; indeed this utter plasticity is its significance. The point of the optimizing approach is cautionary, ironically enough. It is to warn rulemakers about a number of ways in which myopic focus on particular target risks can damage or defeat their enterprise.

Constitutional Rulemaking

What is at issue, ultimately, is whether constitutional rulemaking will be undertaken in a systematic spirit of distrust and caution or instead – and this is what the book advocates – in a spirit of welfare-maximization that may sometimes happen to counsel caution but that need not do so, and that will not do so where caution is itself harmful in expectation. The negative virtue of the optimizing approach is that it does not commit itself, ideologically, to any precautionary maxim, such as “better safe than sorry” or “in matters of constitutional design, assume the worst.” At the highest level of analysis, and to the extent possible for ordinary humans, constitutional rulemakers should lack any systematic predilections or leanings, should have no favorite moves or characteristic concerns – no obsessions. Constitutional rulemakers, the book suggests, should have no style. In this way, optimizing constitutionalism offers a corrective to the pervasive and frequently irrational attitude of distrust of official power.

To return to our opening example, Kelo fits comfortably with the book’s argument. The free-market libertarian critiques of Kelo focus to excess on one type of political risk – the risk that the power of eminent domain will be abused by officials in the service of interest groups or private-regarding agendas – while neglecting countervailing risks. No one, at least no one sensible, thinks that government should lack the power of taxation, even though the taxing power can be and often has been abused. The reason is that the taxing power produces economic and political gains that swamp the costs of the abuses. Like the taxing power, the power to take property for purposes of economic development is plausibly justified, despite the possibility of abuses, because the overall welfare gains are greater still. Or at a minimum, the question whether the gains justify the costs should be decided by nonjudicial officials, rather than by constitutional judges – just as nonjudicial officials are trusted to decide whether certain taxes do more harm than good. The critics of Kelo overlook the possibility that as with taxes, so with takings: some level of abuse may well be optimal, in the sense that the abuses are a necessary byproduct of a constitutional grant of power that is desirable overall.

The free-market critics are worried about the risk of interest-group “capture” – a risk that narrow, well-organized groups will exert disproportionate influence over legislatures or agencies, according to some unspecified normative conception of influence. The critics believe that interest groups will cause government to abuse the takings power in order to confer benefits on private groups, reducing social welfare overall and undermining the security of property rights.However, enhancing judicial scrutiny in order to raise the costs of interest-group capture is just as likely to have perverse effects, which the critics fail to take into account. As legal theorists (including my Harvard colleague Einer Elhauge) have pointed out, vigorous review by judges can actually encourage interest-group capture, rather than discouraging it. The litigation process offers differential advantages to small, well-organized groups, such as trade and industry associations; and review by judges introduces a kind of status quo bias that makes it harder to undo whatever successful capture does occur, raising the expected benefits of the attempt to capture policy in the first place.

Final Thoughts

In short, the critics of Kelo may or may not be ultimately correct, but their approach is flawed. Myopically, they consider only a set of target risks that obsess them, while ignoring countervailing risks. The critics thus illustrate, all unwittingly, the vices of precautionary constitutionalism and the superiority of optimizing constitutionalism.

The article is an excerpt taken from Adrian Vermeule’s The Constitution of Risk, © Adrian Vermeule 2014, published by Cambridge University Press, reproduced with permission.

 About the Author

Adrian Vermeule (B.A. Harvard College 1990; J.D. Harvard Law School 1993) is the John H. Watson Professor of Law at Harvard Law School. His research centers on constitutional law, administrative law, and the design of institutions. He is the author or co-author of eight books, most recently The Constitution of Risk (2014) and The System of the Constitution (2012).

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.