ABSTRACT
Margaret Elizabeth White
AN APPRAISAL OF THE INDEPENDEm
COMMISSION SYSTEM OF REGULATION
IN THE UNITED STATES
Department of Political Science
Master of Arts
The main topic discussed in this paper is whether the
independent regulatory commissions of the United States are
adequate to carry out their tasks in the present day structure
of the politics and economy of the United States.
In evaluating
this the commissions are examined with respect to their
historical status and structure, their internal organization,
their status as independent agencies, their procedures and their
ability to carry out their prime assignment, that of regulating
in the public interest.
Also considered are the previously
proposed solutions to the problems of commission regulation
which are then in turn evaluated.
Based on this examination,
possible modifications of the commission system are proposed in
the final chapter.
shortened title:
WHITE,
INDEPENDENT COMMISSION SYSTEM OF REGULATION IN THE U. S •
AN APPRAISAL OF THE -INDEPENDENT COMMISSION SYSTEM
OF RmULATION IN THE UNITED STATES
thesis presented to
The Faculty of Graduate Studiès and
Research, Department of Political Science,
McGill University; in partial fulfillment
of the requirements for the degree
of Master of Arts.
~
BY
Margaret Elizabeth White
July, 1969
@
Mn-garet Elizabeth lfui te
19'70
ACRNOWLEDGEMENTS
1 wish to express
~
thanks to Professor Harold Waller for
his consideration and patience and to the Inter-Library toan
Department of MCLennan Library for their help in procuring
much necessary research material.
TABLE OF CONTENTS
Chapter
l
II
INTRODUCTION
.. . . ... .. ... .. . . . ...
THEORY BEHIND COMMISSION REGULATION
1
5
Problems Giving Rise to a Demand for Regulation
The Nature and Effect of Early Regulation
The Rationale for an Independent Commission
III
IV
HISTORY AND PRESENT STRUCTURE OF THE COMMISSION
SYSTEM • • • • • • • • • • • • • • •
16
THE PROBLEMS IN COMMISSION REGULATION
29
·....
·.......
Change in Regulatory Thought
InternaI Difficulties
The Problem of Independence
The problem of the Public Interest
The Problem of Legalism
Conclusions
·.......
SUGGESTED METHODS OF REFORM . . . . . . . . . . . . .
VI
CONCLUSION . . . . . . . . . . . . . . . . . . . . .
VII
BIBLIOGRAPHY • • • • . . . . . . . . . . . . . . . . . . . . . .
V
A CASE STUDY:
THE ITT AND ABC MERGER
78
90
99
105
LIST OF TABLES
Table
1.
Commissions and their Jurisdiction • • • • • • • • ••
21
CHAPTER l
INTRODUCTION
The la st one hundred years have witnessed many changes,· changes
which have occurred,in aLmost every area of life.
In the economic
structures, for example, there has been the rise of large corporations,
corporations whose employees number in the thousands and whose assets
number in the billions.
The last century has also been a ttme of great
technological innovation, including such inventions as television, radio
and the airplane.
In the area of transportation alone people
travel with equal ease on land, sea or in the air.
~
now
Journeys which
formerly took months are accomplished in a matter of hours.
The effect
of these developments on the lives of the ordinary citizen cannot as
yet be either fully appreciated or calculated.
certain:
One thing, however, is
part of the world has progressed from a relatively simple
agriculturally oriented age into a fast-moving, modern, and complex
society.
Not the least of the changes which have occurred are those that
have taken place in the area of government.
For example, philosophy on
the role of government has altered significantly.
Governments are now
expected to promote and foster competition, to provide for the welfare
of every citizen, to insure equal opportunity and to regulate in the
public interest.
They are encouraged and demanded to play a positive
1
2
role in almost every area of life, free education and medicare being only
a few examples, whereas previously demands were much more" limited.
Satisfaction of su ch demands has necessitated certain changes.
meant the growth of a huge bureaucracy.
an evaluation of one of the parts of
su~h
It has
The subject of this paper is
a bureaucracy, namely, the
independent regulatory commission.
The independent regulatory commission is an American device.
It first came into being in 1887 as an instrument to handle the
complicated aspects of railroad expansion and development.
Since then,
it has broadened into something considerably more far reaching.
It has
multiplied in number and 'its physical jurisdiction has greatly extended.
More important, however, is the possible expansion of its jurisdiction
as a governing instrument.
Although not conceived with this in mind,
through continued growth indepenàent regulatory commissions have reached
the stage where not toutilize them as such will be to encourage
stagnancy.
Tc do so, however, depends on a revaluation of their purpose
and structure.
Currently an independent regulatory commission May be said to
possess the following characteristics •. First, it is independent.
Unlike government departments, Many of which are engaged in similar
tasks, the commission exists outside of the executive branch.
Further,
the members are appointed for definite staggered terms which means that
no one President will be likely to be able to appoint all the
commissioners for any one commission.
be removed only for stated causes.
Moreover, Most commissioners
Secondly~
commission is primarily a supervisory agency.
~
the independent regulatory
It is engaged in
directing the operations of private business and industry, with the
3
goal presumably being the public interest.
Thirdly, aIl independent
regulatory commissions have "a plural membership.
An independent
regulatory commission is then an agency camposed of more than one
member, which regulates private
activi~
and which is to some extent
independent of control by the other three branches of the government.
Nine agencies in the United States fall under this category.
They are
the Interstate Commerce Commission (ICC), the Federal Reserve Board
(FRB), the Federal Trade Commission (.FTC), the Federal Power Commission
(FPC), the Securities and Exchange Commission (SEC), the Federal
Communications Commission (FCC), the National Labor Relations Board
(NRLB), the Federal Maritime Board (.F.MB), and the Civil Aeronautics
Board (CAB).
As can be seen fram their titles, independent regulatory
commissions deal with almost every aspect of economic life.
reason they are an important subject for examination.
also
r~ve
other features which are of interest.
For this
However, they
One, as already
mentioned, is their independence and the particular problems it
presents.
government.
A second is that they combine the three functions of
That
is~they
exercise quasi-Iegislative, quasi-judicial
and quasi-executive functions, a significant departure in structure
for American governmental iDLstitutions.
Thirdly, the commissions as
tools of regulation were in themselves an experiment, and as an
experimental device certain questions as to their success can be
raised.
Finally, due to the possible development of the commission
as an essentially political device, appraisal and evaluation of them
becomes as significant as it is with its counterparts in the political
system.
4
It 1s the purpose of this paper to examine in detail the
effectiveness of commissions as regulatory instruments, taking into
account the above features.
In doing so 1 am not concerned with the
particular functioning of any single commission except insofar as an
examples ofgeneral problems.
What 1 am concerned with is the commission
method of regulation.
Commissions were established in the'belief~ that an independent,
impartial agency composed of experts would provide the best means for
regulating in the public interest.
In recent years, however, this basic
assumption bas come under serious fire.
The question is now being
raised as to whether or not commissions can effectively discharge their
duties.
In t rying to answer this 1 intend to deal firstly, with the
background theory which gave rise to, and shaped, the system as it now
exists, secondly, with the early history of c01IDllission regulationf and
its present structure, and thirdly with the problems encountered as a
result of such structure and organization.
In line with this 1 have
included a case study which illustrates two of the major problems.
The last chapter is then devoted to such solutions as have been
presented to improve the system.
deal with one final question:
Then on the basis of this 1 hope to
Is the independent regulatory c01IDllission
as it now exists an out-dated device?
CHAPTER II
THEORY BEHIND COMMISSION REGULATION
Problems giving Rise to a Demand for Regulation
Prior to the Civil War industry in the United States had
experienced little need for regulation.
The country was agriculturally
oriented and the industry that existed was still small and privately
owned.
Individual shopkeepers and farmers had little to gain from
national government regulation in such an economy.
Further, such
controls as were needed could be adequately provided by the state
governments.
In general, the philosophy of the times was one of
laissez faire, both with respect to economicmanipulations and government
control.
In each case it was felt that the less interference there was
with the natural or der of things, the more the economy and the country
as a wllole would prosper.
However, with the end of the Civil War the
situation began to alter significantly.
Industry had undergone a new tmpetus as a result of the economic
demands of the war.
unconceived of scale.
initiative.
It had begun to expand on a large and previously
Public funds were available to those with
In fact everything was done to encourage expansion.
Roads were built, bridges constructed, canals eut, and
railroads laid by public authorities in order to advance
economic development. Public resources were made freely
available to private individuals. Loans and stock
subscriptions were utilized to promote internaI improvements,
5
6
dams, turnpikes, canals, railroads, and even manui'acturing
entarprisesj • • • Nor was etate aid contined to loans or
stoék subscriptions. Grants of land, lottery privileges,
exemptions from taxatiœ and. other devices were also used
to encourage private initiative. 1
This lavish combination of aid, increased technology and better
transportation and communication facilities had the expected result.
Industry flourished, so muèlh so that by "1890 it had replaced
agriculture as the most important sector of the economy in terms of
relative contribution to national production."
expansion
unfortunate~
2
The results of this
were not all beneficiaJ.. The United states,
moving .tram a pre-industrial society into an industrial
Ollé,
encountered.
problems connected with the transformation, especia.J.q in the fields of
business and agriculture.
The business sector by this time had changed not
respect to size but also with respect to type.
corporations had came into their own.
~
~o
o~
with
state it simpq,
great advantage of the
corporation was that i ts increased size allowed for greater efficiency,
reduced costs and
according~
increased profits but at the same
time it also becama a ver.y effective tool'for exploitation.
Large
concerna, as a result of their added commercial power, could much
more
effective~
suppress sma1J er businesses. Also affected b.Y
corporate development ws labor, sinee with the increase in size
came the estrangement of the owner and the worker, the latter of wham
found that his bargaini ng position had suffered.
l
Harle Fainsod, Govermnent and. the American Econmgr (New York:
W. W. Norton and. Company, 1959), PP. 241-242.
2.
.
iJ.ames Anderson, ~ &!ergence ~ the Modern Regula.tory state
(Washington, D.C.: Public Affairs Press, 1962), p.2.
7
The close contact between worker and owner which had
existed in smaller individual enterprises was greatly
altered.. Labor was separated from management, coming
into contact wi·th lt only through the medium of
foremen and superintendents. Ta higher management
the worker was becaming more and more a digit, a mere
factor of P30duction, and less and lessa distinctive
individual.
The net impact of the above developments was a demand for regulation by
those concerned with progressive action.
The other major problem area was that of agriculture.
Agrarian
groups found their hegemony challenged, a situation which led to
jealousy and euvy of Eastern money pàwer.
Aiso as a result of increased
mechanization, farmingitself became a big business
4
enterprise~
Farmers found themselves growing foodstuffs less for their own use than
for the market.
They became tied to a market economy.
: Inherent in
this transition were the new costs of transportation, machines and the
middleman, and it shortly became clear that the expense was greater
than could be carried.
Tne day of the self.sufficient family farm,
growing only what was needed, was
ove~
but the farmer was not yet ready
to enter the competitive market into which he had been thrust.
Mor eover,
adding to the general hardship existing at this time was an agricultural
depression which lasted through the late sixties and early seventies of
the nineteenth century.
The combined effect of a11 the above changes
was a growing and active frustration.
lt soon became apparent that a
philosophy of inditidual self-sufficiency could not cope with such'
problems as were arising.
Once again the only remedy seemed to lie with
the government.
3lbid ., p .4.
4Fainsod, Government, p.240.
8
The pbilosopqy of agrarianismdid not correspond to this
üew iüdustrialismnor àid laissez faire economics seem to
provideadequate or acceptable. solutions for the exonomic
and social problems· it caused. Theresult was a growing
demand for governmental action to remedy such problems as
monopoly, unfair competition, and poor working ·conditions
problems tbat were geyond the power of the individual to
prevent or correct.
The Nature and Effect of Early Regulation
The actual goal sought by regulation was limited.
for emost, the
approve~
end was not socialistic.
First and
Regulation was believed
to be the moderate way to approach the problem avoiding, both the
6
extremes of laissez faire and of socialism.
The remedy of evils of • • • monopoly is not to be found
in the disorganization of industry. It is not to be found
in the ownership and operation of the organized industries
by the State. As is so often the case, the remedyis to
be found in a pathway between the two extremes. It lies
neither in unrestricted individualism or State socialism.
It lies in subjecting the combinat ions of labor and
commerceto governmental regulation and control. It lies
in the frank adoption and consistent application of that
principle which is fundamental to aIl social order • • •
liberty under law. 7
What was wanted was a more ordered society, a society in which the
individual could pur sue bis own ends but where the pur suit of such ends
would not be al10wed to harm the interests of society as a whole.
Individual competition was still a goal, but since unrestricted
competition had led to monopoly, it had to be limited in some way.
5
Anderson, Regulatory St·ate, p .3.
6Ibid ., p. 9 •
7u.s. Congress, Senate, Report of the Committee on Interstate
Commerce, Control ~ Corporations, Persons, ~ Firms Engaged in
Interstate Commerce, pursuant to Senate Resolution 98, 62 Cong.,
2nd. sess., 1913, II, lïlO, cited by Anderson, Regu1atory State, p.9.
9
Government action was accordingly necessary but it was action of a
particu1ar nature, name1y, the least regu1atory action that was
necessary to correct abuses and restore the proper working of American
society along traditional lines.
In line with these ltmited ends, regulation of this era disp1ayed
negative and pragmatic traits, both of which were to have an effect on
the system which evo1ved.
The negative aspects of regu1ation meant that
the early commissions were not given adequate power to dea1 with their
assigned tasks.
Often they lacked the substantive power, necessary to
see that their regu1ations were executed.
For example, the Interstate
Commerce Act of 1887 provided no penalties for a violation of a rate
order of the commission,8 a type of deficiency which was not remedied
comp1ete1y unti1 after the Second World War.
MOre significant1y, the
regulation envisioned was not of a positive nature; it did not inc1ude
promotiona1 activities.
For examp1e, unti1 1920 the aim of Congress
in rai1road regu1ation was to prevent abusive practices such as
discriminatory and excessive rates.
It was only after this time that
the commission's purpose was broadened to that of providing an adequate
rai1road service for the country, and that it was given the positive
power of regu1ation,organization, service and finance.
9
What this
meant in practice was that commissions during the ear1y period of
regu1ation were forced to operate under circumscribed conditions.
To same extent they were given the power to correct existing abuses,
but were prevented from entering into comprehensive regu1ation as a
8Emmette S. Redford, American Government and the Economr
(New York: Hacmillan Company, 1965), p.374.
-9
Ibid., p.378
10
result of the lack of authority to investigate and regulate aIl aspects
of the business under their jurisdiction.
Pragmati sm , the other significant feature of regulatory activity
at this ttme also had certain long lasting effects.
Such 1egislation
as was enacted was piecemea1.
The growth of regulation in the United States has not been
the product of any far-sighted plan or design, inspired by
a general philosopqy of goveromental control. Step by
step, whether in state or nation, it has been a series of
empirical adjustments to felt abuses, initiated by ptrticular
groups to deal with specifie problems as they arose. 0
Examp1es of regu1atory legislation of the type mentioned above can be
found in the ear1y history of railroad regulation.
For instance, by
1940 there had been seven acts concerning railroad regulation, each
increasing the jurisdiction one step at a time as the preceding act
was found to be inadequate.
Similarly, as specifie areas of regulation indicated a 1ack of
far-sighted planning, so did the structure as a whole.
As each new
regulatory prob1em arose, a new commission was set up to deal with it,
a solution that was indicated by the pragmatic and negative aspects of
regulatory thought prevalent at the time.
appears to have been the motto of the day.
One problem, one commission
The difficulty was that
although such an approach might adequately take care of the negative
aspects of regu1ation it ddiL lead to difficulties when more
promotional duties are called for.
For example, in the area of
transportation there are now three independent commissions operating
and to some extent their very independence impedes effective coordination.
lOF·
a1nso d , Government, p. 243
11
In conclusion the negativistic and somewhat limited aspirations
of early regulation had a definite effect on the evolving system.
They
encouraged the belief that r'egulation could be dealt with efficiently
in piecemeal
~ashion
by semi-autonomous units, a supposition, which as
a result of the promotional duties now allotted to commissions, can be
questioned.
The Rationale for an Independent Commission
There were many reasons for deciding on the independent commission
as a mode of regulation.
Some of them had to do with the then current
ideas of politics and government and some were the result of more
practical considerations.
In any event, both ideological beliefs and
practical concerns had an effect in shaping the structure of the new
regulatory system and both were to have an impact reaching beyond the
mere structure itself.
Ideological attitudes towards government regulation varied.
Some
were distinctly hostile and had their roots in a belief that "that
government governs best which governs least."
However, even those with
more activist notions of the responsibilities of government were still
essentially moderate in their desires, and tempered their ideas by .two
beliefs.
Regulation was to be an end to solving concrete problems and
not a philosophy of government, management and control.
And although
some government expansion in the nature of positive government was
required, the hope was ttlat it could be kept to a minimum.
In general
these two beliefs were expressed in the ideal of keeping regulation out
of politics, a philosophy which had much to do with the system that
evolved.
12
To start with, "keeping things out of politics" was one of the
motivating forces behind the desire for an inde pendent body.
An
independent board or commission was presumed to allow for policy
formulation without undue political pressure,
Only independence could
result in the impartiality deemed necessary for the task of regulation,
or at least so it was believed.
Further, dislike of politics was one
of the reasons behind favoring a plural bipartisan board.
The rationale
was that plurality in members would avoid corruption, or to state it in
the negative, a single head of an executive department was more likely
to be influenced by either the White House or the groups being regulated.
However, even with a plural board there was still a chance of undue
political pressure, so a stipulation for bipartisanship was added.
Finally, distrust of politics and the belief that regulation involved
only the correction of certain abuses meant that regulation was viewed as
being a problem which could be best handled by experts capable of applying
scientific solutions and not politicians, who were in
anyrrespE!ctl~SUSpect.
The end result was that the desire for keeping regulation out of poli tics
naturally favored and led to the development of an independent bipartisan
commission staffed by experts.
Whether such stipulations were successful
or not is a debatable point since experience of regulatory agencies
indicate that pressure is often still used.
For example, Senator Everett
Dirksen is alleged to have tried to influence the FPC on rulings affecting
.
.
11
cer t a1n
gas compan1es.
Nevertheless, the hope was that by structuring
commissions in this manner such pressures cou Id be kept to a minimum.
11
Charles Roberts, "The Other Ev Dirksen", Newsweek, (16 june
2ï.
13
Certain practical considerations also dictated the creation of
an independent commission.
An obvious solution to the problem would
have seemed to be to place regulation in one of the three branches of
the government.
However, other factors made this less appealing than
on the surface, and none of the three established sectors seemed suitable.
One of the Most obvious methods would have been to allow the
judiciary to regulate.
Courts, after aIl, were a familiar device and
had been engaged in regulation.
Further, they were endowed with an image
of respectability and stability which precluded, in the minds of Many,
any thought of undue influence being exercised.
Despite such favorable
auspices, however, regulation was not destined to remain in the judicial
system.
One reason for this was the expense.
Taking a case to court
usually involved a lengthy degree of time and a considerable amount of
money.
It accordingly gave an unfair advantage to large corporations who
could afford the time and expense involved.
Smaller businessmen, on the
other hand, often found the cost of litigation greater than the return.
With the advent of the industrial age, the great wealth of
huge corporations tended to make a farce out of the
adversary system of administrative justice, which
presupposes equality of opportunity for each party to
present its case. In a sense the common law had again 12
become too rigid and the times cried for a new "equity".
Moreover the legal system of the time precluded preventive action
of the type desired by the reformers.
Judges could only rule on cases
brought before them and these of necessity dealt with past events and
abuses.
The judicial system was primarily designed to facilitate
l2Lloyd D. Musolf, Federal Examiners ~ the Conflict of Law
and Administration (Baltimore: John Hopkins Press, 1953), p.29.---
14
redress after the action, not to prevent its occurrence.
Unlike
administrative adjudication, the common 1aw system did not seek out
cases; it waited for them to come to it.
Basically, this left too much
to private initiative, a situation which those who sought regulatory
contro1s hoped to alter.
In addition the law that it administered, spread as it was over
a number of states, cou1d not hope to achieve the uniformity of
regu1ation that was both desired and needed, and the system, designed
as it was to deal with genera1 prob1ems of law, proved inadequate ta
the task of solving complicated economic problems.
To state it simply,
it was incapable of giving continuous and expert attention to the
pressing prob1ems of the times.
What was needed was either a special
body of law or a new device which could concern itself solely with
regulatory problems.
Finally, there was at this time a distrust of the courts on the
part of those groups seeking reforme
The courts tended to be composed
of men of property, men who were conservative by nature and whose
philosophy inclined towards laissez faire individualisme
It is not entirely inaccurate to characterize the Supreme
Court during the latter decades of the nineteenth century
as the "property court", a term frequently used. The
emphasis of this Court as we1l as that of the judiciaryl3
generally, was upon the protection of private property.
Accordingly, agrarian and other interests as they incteasingly found
their desires b10cked by the judicial process, began to seek other
devices in the hope that they wou1d provide a more
~athetic
understanding
l3peter Woll, American Bureaucracy (New York:
and Company, 1963), p.94.
W. W. Norton
15
Simi1ar1y, p1acing regu1ation in the Congressional sector or
in one of the White House departments was a1so rejected.
for this was the need for f1exibi1ity in regulation.
One reason
Only in a device
essentia1ly new could the' three functions of government be combined,
an arrangement that was highly va1ued.
Aiso the ability of Congress
to take on the additiona1, and time consuming, work or regulation was
questioned.
And lastly, those who wished to keep regu1ation a non-
po1itical matter and who va1ued stability in policy hesitated to place
it in an executive department where there would be constant politica1
turnover and where those invo1ved would be under possible political
pressure.
Essentia1ly, those who sought regulation favored a new device
and an independent commission seemed to have the MOst to offer.
was independent, impartial and objective.
lt
As an instrument of
regu1ation it had the advantage of appearing moderate, its very
independence making it more 'acceptable to those who viewed government
expansion with distrust.
In short, it seemed the most appropriate
method to handle the new and essentia1ly difficult task of regu1ation.
CHAPTER III
HIS TORY AND PRESENT STRUCTURE
OF THE COMMISSION SYSTEM
The first actual attempt at regulation was essentially legislative.
As mentioned earlier, the American government had, after the Civil War,
embarked on a program of subsidies, designed to aid expansion, in the
form of charters and loans.
Unfortunately, it soon became apparent that
such largess was in many cases rewarded by outright exploitation.
In an
attempt to remedy the situation, legislatures began passing laws
restricting and delineating the use of such charters, culminating in the
late 40's and 50's in the passage of a body of general laws under which
railroads might be incorporated and their rights and obligations defined.
(It should be noted at this time that Most of the early history of
regulation deals with railroad abuses.)
In the case of abuse, action
was taken through the courts, a system which shortly proved less than
adequate, if for no other reason than the process was too slow.
Apart
from this, the legislatures themselves were having difficulty in
incorporating and passing legislation quickly enough, and a more
flexible method was sought.
Ad hoc commissions designed to aid the
legislature were created.
1
Robert E. Cushman, ~ Independent Regulatory Commissions
(New York: Oxford University Press, 1941), p.2l.
16
l
17
These commissions exercised three main functions:
supervision of
charters, inspection of roads, and arbitration of disputes.
They were
designed to provide the legislatures with the facts necessary to deal
with the problem? This method had certain inherent defects.
First of
aIl the commissions were ad hoc and what was needed was samething which
~ould
work on a permanent basis.
Secondly, even if they could provide
the legislatures with aIl the necessary facts to deal with the problem,
there was the question as to whether or not the legislatures were
technically competent to handle the matter.
And finally, the time
needed to collect information and produce legislation was still more
than long enough to allow the tight-knit railroad management to find
ways to circumvent the new rules that were passed.
to try a more permanent solution.
The time had came
Consequently, the next attempt at
regulation involved the setting up of permanent state commissions.
State commissions tended to fall into two groups:
the advisory
commission of the Massachusetts type, and the Western, or strong,
commission.
The advisory commission was similar to the ad hoc
legislative commissions already described, its main distinction being
that it cambined a number of their functions in one board.
power to investigate, report, and reconunend rates
b~t
It had the
"enforcement of
its reconunendations was dependent almost entirely on the force of
public opinion. ,,3
The Western, or strong, commission on the other band was the
first real attempt at establishing a true regulatory body.
from
Bo. special~lock
Stenuning
of laws known as the Granger legislation the
2Ibid ., p .22 •
3Fainsod, Government, p.245.
18
commission was able to inspect, collect facts, and make reports, and
apart fram this it possessed actual rate making powers.
The basic
model was that of the Illinois Railroad and Warehouse Commission which
was created in 1871 and vested in 1873 with the power to prepare a
schedule of maximum rates for both freight and passenger transportation.
State commissions, although a definite improvement on their
predecessors, also suffered certain deficiencies as far as adequate
regulation was concerned.
Although modeled on two main types, there
was still sufficient variety to create difficulties.
It did little
good to regulate strictly in certain areas if other states continued
to be lax, especially when in a number of states there was no regulation
at aH.
A further problem which early regulatory bodies faced was that
the industries with which they had to deal were powerful econamic
bodies.
They were quite capable of dominating such commissions as
were established, and where such domination was unsuccessful, the high
degree of
a~tagonism
under which the commissions had to work in the end
accomplished much the same results by rendering the commissions
ineffective.
The Granger legislation met intense railroad opposition.
Railroads warned that they would be compelled to abstain
from further construction because sufficient capital
would not be available for investment in states imposing
such restrictions. Some roads openly defied the laws and
refusecl to obey their provisions. Others appealed to the
courts, claiming that the legislation was unconstitutional.
Still others applied the statutory provisions in such a
fashion as to make their incidence as obnoxious as possible,
aIl inconveniences suffered by shippers and passengers
being attributed to the law. Sometimes cries of econo~
4Ibid ., p.246.
",JO
......... _
4
19
were raised as a means of cutting the appropriations and
reducingthe effectïveness of the regulatory commissions.
In almost every instance ~ustained efforts were made to
repeal or modify the law.
Final1y in 1886 this charade was ended.
prior to this time the courts
had held that states could regulate private property in the public
6
interest. 'However, in 1886 the Supreme Court in its famous Wabash
decision
7
"essentially overruled this by holding that any firm engaged
in interstate commerce could not be regulated by the states through
which it passed."
8
National regulation, if there was to be any
regulation at aIl, was now a necessity.
The first national commission was the Interstate Commerce
Commission.
Created in 1887 as the body through which the Interstate
Commerce Act would be administered, it was charged with seeing that
rates were "just and reasonable", and that there was no discrimination
in the form of rebates and special rates.
The commission itself:
could hear complaints, investigate upon its own motion,
require production of papers and testimony of witnesses,
make findings and reports and issue orders and appeal to
circuit courts if carri§rs failed to comply with its
orders or requirements.
However, due to the negative conception of regulation then in force and
the attitude of the courts, the Interstate Commerce Commission, as it
then existed, proved inadequate.
For example, it was not al10wed the
positive power to set future rates, and enforcement of its orders lay
5Ibid ., p.246-247.
6
MUnn v. Illinois, 94 U.S. 113, at 126 (1877).
7
Wabash, St. L. & P. R. Co. v. Illinois, 118 U.S. 557 (1886).
8
Woll, Bureaucracy, p.35
9
.
Redford, Government, p.374
20
with the courts, not with the commission itself.
But, the judiciary at
this time displayed a somewhat hostile attitude to regulation at aIl and
allowed new evidence to be presented in the cases brought before it,
with the result that it effectively undercut what authority the
Commission did possess.
The situation as far as rates were concerned
was remedied by the passing of the Elkins, Hepburn and Mann-Elkins Acts
in 1903, 1906, and 1910 respectively, but it was not until after 1920
that regu1ation began to take a positive turn.
With the passage of the Transportation Act of 1920, the philosophy
of regulation changed.
Up to this time it had been negativistic,
concerned for the most part with correcting past abuses.
Now it became
promotional.
The Transportation Act represented a change in the phi10sphy
of regu1ation in the sense that its main emphasis was not,
as in the earlier regulatory acts, on restrictions and
prohibitions designed to control the practices of carriers,
but rather on insuring the development and maintenance of
a virile national railroad systemlBith sufficient earnings
and adequate to serve the public.
Once this step had been taken, the trend went forward with increasing
momentum.
~
1940 the Commission had jurisdiction not on1y over
railroads but motor carriers and in1and water transportation as weIl,
and its jurisdiction had been extended from rates to finances and
organization.
Comprehensive regu1ation was becoming an established
facto
The Interstate Commerce Commission was the first real experiment
with a national regu1atory body.
Its success was to have great
10
George A. Graham and Henry Reining, Jr., Regu1atory
Administration: An Exploratory Study (New York: John Wiley and
Sons, 1946), p.173:
21
significance.
been tried.
Had it failed, it is likely that another device would have
Instead eight more commissions patterned on its model were
created in succeeding years.
(See table below.)
TABLE 1
COMMISSIONS AND THEIR JURISDICTION
Commission
Date Created
Area of Regulation
Interstate Commerce
COlmnission
1887
Railroads, motor carriers,
domestic water carriers,
oi 1 pipe Unes
Federal Reserve Board
1913
Formulation and execution
of monetary policy and
fsupervision of banks
Federal Trade
Conmission
1914
Antitrust and trade practices
Federal Marittme Board,
preceded by U.S.
Shipping Board and the
U.S. Marittme Conmission
1950
Ocean-going transportation
Federal Power Commission
1920
HYdro-electric power and
natural gas
Federal Communications
Commission, preceded
by the Federal Radio
Couunission
1934
Radio, television, telephone
and telegraph communications
Securities and Exchange
Commission
1934
Security and stock market
exchanges and the regulation
of public utility holding
and investment companies
Civil Aeronautics
Board
1938
National Labor
Relations Board
1935
Domestic and foreign air
carriers
Labor problems
As can be seen from the list mentioned above the nine regulatory
commissions have a varied jurisdiction.
However, although differing in
some respects, they do have several couunon characteristics.
First,
22
they aIl receive their authority fram a general statute or directive
which empowers them to regulate a particular section of the economw in
the public interest.
This statute usually contains sorne standards or
guide and stateswhat area is to be regulated.
For example, the SEC is
concerned mainly with the regulation of securities.
The Most over-
whelming characteristic of this statute, however, is the amount of
discretion which is left to the connnission..
For example, the 1940
Transportation Act declared it the general transportation policy of
Congress to:
provide for fair and impartial regulation of aIl modes of
transportation subject to the provisions of the Act, so
a~~nistered as to recognize and preserve the inherent
advantages to each; to pramote safe, adequate, econamical,
and efficient service and foster sound economic conditions
in transportation and ~mong the several carriers; • • •
aIl to the end of developing, coordinating, and preserving
a national transportation system by water, highway, and
rail, as weIl as other means, adequate to meet the needs
of the commerce of the United States, and of the Postal
Service, and of the national defense. ll
Such discretion as this was deemed necessary in or der to provide the
commissions with sufficient flexibility to handle the assigned tasks.
Furthermore, it was expectedthat each particular commission would
set up its own standards for guidance.
Secondly, aIl nine
connnissio~s
exercise similar functions.
They
aIl are engaged in quasi-legislative or quasi-judicial activities.
A
few, such as the Iee, exercise sorne purely executive functions as weIl.
In general, the commissions are empowered to carry out investigations,
make recommendations, formulate rules and regulations with the force
llTransportation Act, 54 Stat. 598 (1940), cited by Redford,
Government, p.388
23
of law, issue orders and seek out and try such cases as came before them.
In particular, they may be engaged in licensing, mapping out air or land
routes, or exercising same kind of price control, but their activities
are aIl basically of a regulatory nature.
Thirdly, aIl independent regulatory commissions have certain
structural qualities in common.
They aIl have a plural board with the
number of members varying fram five to eleven.
The appointment is for
a staggered term with a range of five to fourteen years, the normal term
being fram five to seven.
Members are removable for the most part only
for malfeasance, neglect of dut y, inefficiency, or cause.
Further, most
commissions are bipartisan with the stipulation being that no more than
a majority of members may be fram the same party.
Finally, the
commissions have similar internaI structures, being usually divided into
bureaus or panels operating on a professional or functional basis.
Fourthly, aIl nine commissions are independent.
They exist
outside of the executive branch of the government and are not subject
to Presidential control in the same way that departments are.
Lastly, the relationship of the commissions to the other branches
of the government is basically the same for aIl nine commissions.
This
relationship is notable in that jurisdiction is divided, no single
branch having complete authority or control.
The format is as follows.
In a sense, the most fundamental relationship is that of the
commissions to Congress.
Congress is responsible for the creation of a
commission and the only one which can see to its demise.
It is in at
the start and the finish, and is also responsible for delineating a
cammission's area of jurisdiction.
For example, in the basic statute,
24
it outlines the primary area of responsibility such as the regulation of
railroads or trucking lines.
Later, it May add to or decrease this
jurisdiction by way of further statutes or directives, or it May
. delineate the procedure to be followed and thus determine the method
through which regulation will be carried out.
In addition, Congress
May request that the commissions carry out specifie duties of a purely
executive nature sucn as the inspection of equipment with regard to
safety.
Lastly, the Congressional relationship has special weight in
that it is Congress which passes appropriations.
The effect of this
is significant as the budget obtained by a commission determines to a
large extent its ability to regulate.
Inadequate budgets, for example,
contribute to delay and stagnation, whereas adequate budgets allow for
innovation and improved methods.
Accordingly, the creation of favorable
atmosphere in Congress towards its work is of prime importance if a
commission is to be successful.
One such way this can be done is
through the commission's relationship to the appropriate Congressional
committee.
In MOSt cases the relationship is a close one since Congress
exercises MOSt of its supervisory powers via these committees and the
commissions gain political support from them.
In conclusion, the
relationship of the commissions to Congress is of prime importance,
influencing as it does much of their ability to regulate effectively.
Presidential control is exercised in four main ways.
aIl the President is directly concerned with personnel.
First of
He appoints
the members of the commissions and in certain cases May also remove
them.
In Most commissions the removal power is subject to statutory
limitations, mainly malfeasance in office, neglect of dut Y, or
25
inefficiency.
clear.
12
Bowever, rulings on the removal power are not totally
Consequently a threat of removal may cause commissioners to'
follow a President's wishes more closely.
In addition to the basic power
of appointment the President appoints the chair.œen of aIl commissions
except the ICC.
This power is important in that it provides the main
link between the White Bouse and the commission in terms of policy
communications.
Secondly, the President may in certain cases have express
power over specifie activities.
For example, under the Civil Aeronautics
Act, "the President has explicit authority to approve the action of the
Board in granting, modifying or refusing certification or permits for
overseas or foreign air transportation by domestic or foreign carriers."l3
This is no mean power as may be illustrated by the Trans-Pacific Air
route case.
years.
This case has been under consideration for a number of
The case was first reviewed in the 1950's by President Eisenhower
who rejected the CAB's proposaIs on the grounds of foréign policy.
Later,
in 1968, the case came up again Under the Johnson administration.
At this
time President Johnson accepted aIl the board's proposaIs except that
concerning the Tokyo route.
14
This had been awarded to American
12
For most commissions statutes provide for removal only for
neglect of duty, malfeasance in office or for inefficiency. Bowever,
the power to remove is unclear in the case of those commissions in
which there are no statutory limitations. Further, it is presumed
that where a President found a commissioner inefficient the court
would not consider whether such a finding had a basis.
13Commission on Organization of the Executive Branch of the
Government, ~ Force Report ~ Regulatory Commissions, Appendix li
CWashington, D.C.: Government Printing Office, 1949), p.14
l4There was some concern over President Johnson's decision with
regard to the Tokyo route and suggestions of improper influence in
awarding the South Pacific route to Continental. Bowever in contrast
it should be noted that President Johnson's ties were as strong with
American Airlines as they were with Continental yet he rejected the
award of the Tokyo route to American. David Sanford, "The TransPacific Air Route Tang le" , ~ Republic, 160 (15 February, 1969), 17.
26
Airlines but was rejected because Japan Air Line resented the competitive
intrusion.
15
The latest event in this tangle has been the reversal of
the award to Continental by President Nixon.
airlines
b~ve
been cleared for operations.
In the meantime four
Still unresolved, however,
is the court appeal by Continental against the reversal of the decision
by President Nixon.
16
Thirdly, the President exercises managerial power via the Bureau
of the Budget because aIl requests for appropriations must first pass
through it before going to the appropriate congressional
This allows the President to make
recomme~dations
financial and general organization of commissions.
co~ttees.
with respect to
Finally, the President
is able to exercise a significant degree of control over commissions
simply because of his political position.
Next there is the relationship of the commissions to the
judiciary.
Basic a lly , this is
Olle
of judicial review.
The courts
review proceedings to make sure that they have been conducted in
accordance with procedures required by the statute and due process of
law; that they do not exceed the powers conferred by the legislature and
that decisions or orders are supported by substantial evidence in the
record.
17
Judicial review is the least significant of the three
relationships for, despite the earlier hostility of the courts, the
l5sanford, "Air Route Tang le " , p.16.
Evening
l6Vern Haughland, "Pacific Runs Affirmed for Four Airlines",
~ (Washington, D.C.), 27 May, 1969, p. F-lO.
l7Commission on Organization of the Executive Branch of the
Government, Regulatory Commissions, Appendix!, p.1S
27
judiciary now tends to support commission decisions unless there is
substantial proof of willful misdirection of regulatory powe!s.
The agencyls decision on facts will not be looked at to see
if it is right or wrong; the court will review to
determine whether there is substantial evidence to support
the conclusion of the agency--or differently stated, whether
there is in the record of facts rational basis for the
conclusion. 18
Further.
j
even in the case of a commission decision being overruled, the
courts have no authority to pre scribe a new ruling, but may only send
the case back to the commission, whereupon the commission may either
enact a new ruling or decide simply to let the matter drop.
Finally, commissions are involved in one more basic relationship,
that of the commission to its regulated industry.
In certain respects
this relationship is the MOSt complex of aIl, involving as it does a
number of unmeasurable factors.
For example, suggestions for improving
regulation often come as a result of the interaction of the commissioners
and their clientele.
In a case such as this, determining who is
primarily responsible is a difficult matter.
Secondly, the fact that the
regulated industry is often a source of political support and strength as
weIl as a group to be regulated often gives rise to the question of
exactly who actually regulates.
In other words, the relationship becomes
so close that the two groups seem to become one entity.
Lastly, this
relationship is complex because of the nature of the task.
Regulation
in the United States proceeds on the basis that there will continue to
be private management of major industries.
must regulate a private sector of the
18
Redford, Government, p.565.
This means that coumissions
econ~
in the public interest,
28
a factor which greatly increases the difficulty of their job.
The above pages have dealt with the basic structural and
organizational patterns of the nine independent regulatory commissions.
As has been noted, their functions are both varied and complexe
The
question which remains is how well-fitted, given such basic structure
and historical background, are these commissions to carry out the
regulatory tasks to which they have been assigned?
certain expectations were stated.
the cases that came before them.
At their inception,
One, was the expeditious handling of
Another was their fmpartiality and
ability to regulate in the public interest.
Based on these and
expanding expectations such as the promotional aspects of regulation,
is the independent regulatory commission in need of modification?
CHAPTER IV
THE PROBLEMS IN COMMISSION REGULATION
In a developed industrial state regulation of business enterprises
and whole sectors of the economy is often taken for granted.
regulation does not just happen.
However
The problems involved are large and the
machinery employed to keep the whole process going is extremely complexe
But before deciding on the regulatory system to be used, certain basic
questions merit consideration.
One of the first decisions that must be made is whether or not one
will have a planned economy.
At the present time aLmost everyone expects
that some type of planning will be employed, but how much is a debatable
point.
For example, should the government institute five year plans, or
should it confine itself to giving a slight push in the "right"
direction every now and again?
And between these two points of view
there is a continuum of compromise solutions which different strategies
may favor.
The question of priorities, that is the allocation of scarce
resources, presents another area of concern.
This usually involves the
question of privately owned enterprise as opposed to state controlled
industries.
And here again the subdivisions are numerous.
Should a
state have some of each, and if so what sections of the economy belong
to the private sector and what parts to the public sector, and what
happens when the priorities change?
29
With technology constantly changing,
30
such decisions are not easily made, and further, the hoped for results
may not occur as in the case where flexible managment is needed but the
priorities of the state demand that industry be run by an unimaginative
bureaucracy.
In this respect ideology plays a role.
different ends in mind.
Different countries have
In each case, however, if regulation is to be
effective, the machinery involved must be appropriate to those ends.
It
must further the governmental philosophy of the state, not hinder it.
Closely involved with ideology iu the problem of time.
A country which
is in a hurry has no time to let its regulatory process develop slowly
and accidentally over a period of two hundred years or more.
It needs a
system of regulation which will provide predetermined goals quickly and
with a minimum· of disruption.
Basic problems involved in regulation are then planning, what type
of enterprise, time, and the ends of the country under consideration.
In
every case effective regulation demands a structure which is suitable to
the task and various devices from Crown Corporations to nationalized
industries have been tried by different countries in the attempt to find
such a structure.
In the üliited States the preferred method has been the
independent regulatory commission.
It is the purpose of this chapter to
examine such problems as occur as a result of this system.
Change in Regulatory Thought
In recent years there has been an increasing concern about the
suitability of commissions as regulatory instruments.
This has been due
in part to a change in the nature of regulatory thought and in the scope
of governmental action.
When regulation first appeared, regulatory
31
thought was characterized by a somewhat negative philosophy.
soughtWéDe éSsentialnr-:'L) of a corrective nature.
The goals
A more positive
approach such as regulation in terms of future problems was not
encouraged.
This trend was further enhanced by the fact that the
concept of government at this time was a limited one.
Governmental
intervention in the private sector was not appreciated, so that although
some action was finally deemed necessary there was an attempt to limit
it as much as possible.
Set within this context the independent
commission appeared to be the most appropriate method through which
regulation could be achieved.
Said to possess the advantage of being composed of experts, it was
believed that the commission could of fer scientific solutions to pressing
economic problems.
Moreover, certain advantages were believed to follow
the separation of functions princip le.
Each commission would in this
way become thoroughly acquainted with a particular sphere of the economy
and would thus learn to deal with it more effectively than if its scope
were widened to include more than one sector.
As non-political agencies
the stability and continuity necessary for regulation in the public
interest was assured.
And finally, commissions as independent agencies
would minimize such governmental action as would be taken.
In aIl,
commissions seemed eminently suitable for the task of regulation
assigned to them.
In the present day context, however, their
appropriateness can be questioned.
Regulation has now gone beyond the negative aspects of its
earlier days.
Promotional as weIl as restrictive duties are being
exercised by the commissions.
For example, the CAB is supposed to
32
"foster aviation and an air transportation system adapted to the present
and future needs of domestic commerce."
1
Secondly, views on the appropriateness of governmental action
have changed.
Although there are still accusations of too much
governmental interference, it is none the less true that demands on
government are increasing.
Governments are enjoined to act positively
to prevent such disasters as inflation, unemployment and misuse of
natural resources.
Politics and economics are increasingly intertwined.
Both the above changes present certain difficulties with regard
to an independent regulatory commission.
The promotional activities
me an higher demands on the commissions themselves, demands which they
may find difficulty in fulfilling due to their insulation from each
other and from the executive departments.
Further, the government, in
order to satisfy the demands made on it, cannot afford to let a large
area of the economy remain in relative isolation from its own policies.
Basically the problem is that the theory on which the commissions were
organized bas become outdated and with it, possibly, the system arising
from it.
This was a theory which suggested that economics and politics
were separable, that no close correlation between the two was necessary
and further that such correlation might be harmful in itself.
The commission movement rejects the idea of the
interdependence of economic policies and regulatory and
promotional programs affecting the economy. While
broadly conceived economic policies and promotional
programs are regarded as necessarily having to be
administered by executive agencies, regulatory policies,
lCommission on Organization of the Executive Branch of the
Government, Regulatory Commissions, ApEendix !, p.70.
33
it is held, must be administered by agencies that
2
remain uninfluenced by other governmental activities.
But with the growing complexity of government and with its
increasing involvement in economics, separate compartments are no
longer viable.
MOreover, the theory of regulation as it exists now,
envisioning promotional duties and long range future planning no longer
supports such piecemeal regulatory action.
And accordingly, the
existence of independent agencies regulating large parts of the economy
is questionable.
It is possible that based as they were on a negative
approach to regulation and set up as independent units they may be
unable to cope with the more comprehensive tasks DOW assigned them.
InternaI Difficulties
Some of the problems of commission regulation arise as a result
of internaI difficulties in
ccâpoa1t:ilon;~
structure.
In certain cases
the structure makes it difficult for commissions to regulate effectively.
First of aIl, the fact that commissions have a plural membership is not
an unmixed blessing, for it means that decisions are reached as a result
of group action.
advantages.
Original1y, this was thought to provide definite
Group decision making meant that each member would have the
benefit of the others' opinions on a particular case.
As a result, the
decision reached would probably be better because it would be based on
the combined judgement of aIl the commissioners.
Further, group de lib-
eration limits arbitrary action because concurrence by a majority of
members is necessary and each member must, therefore, convince the
2
Marver H. Bernstein, Reguiating Business ÈZ Independent
Commission (Princeton, N.J.: Princeton University Press, 1955),
p.283.
34
others of the soundness of his views, whereas a single head of an agency
may make his own view the prevailing one.
On the other hand, group action does have certain disadvantages.
An excessive amount of time is consumed when each member must discuss
aIl the details of every case before a majority decision can be reached.
At the present tfme even minor cases may take as long as three years
before a decision is reached.
The growing volume and complexity of cases
necessitates a speedier means for reaching decisions, yet the deliberative
process is still the main one used.
Even in cases where the chairman is
vested with the power of organization and supervision, an organizational
change which was hoped to remedy this problem, one finds that the group
process is still being used for most matters, either because some members
fear that the chairman will do too little or that he will do too much.
The result is that a whole board wastes precious tfme discussing small
details.
For example, Louis Hector, writing about the decision process
in the CAB, asserts that
aIl letters of any substance from the Board are cleared
with aIl five members; aIl statements or intergovernmental
memoranda are cleared. In fact any document which leaves
the Board undergoes not only substansive but also stylistic
clearance by the whole membership. The members spend hours
in full Board meetings debating the phrasing or even the
tone of the letters.
Theoretically, the Board should agree by majority vote
on a general policy and. then leave it to the chairman and
the staff to draft the documents, fill in details and
apply the policy to routine cases. l am told that it has
never worked that way. Certainly it did not during ~
service on the Board. The CAB and apparently other
regulatory agencies spend many heurs on routine licenses,
exemptions, permits, approvals, waivers, interventions,
and even minor personnel matters. 3
3Louis J. Hector, 'h'roblems of the CAB and the Independent
Regulatory Commissions", ~ ~ Journal, LXIX (May 1960), 936.937.
35
The problem here is essentially one of lack of proper delegation
of more routine regulatory tasks.
As mentioned above one reason for th1s.
May be fear on the part of the board members of losing something in the
way of status or importance.
Another is the intense legalistic attitude
which characterises Most of the boards' proceedings.
With Most cases
the p:,-ûcea.l,lre fo 110wed is one of hearings, briefs and studies, a11
characterised by a legalistic style, and with the board participating
fully tbroughout.
Then at the end the board assesses the situation and
comes to a decision.
This type of decision making process is favored
because it is felt to be best in preserving due process.
Delegation, on
the other band, is suspect because it is suggestive of arbitrary decision
making, and even such delegation as does occur is often nullified asa
result of poor communication between the board and its staff.
A good example is the Seven States Area investigation, used to
formulate a plan for local air service for the states of North Dakota,
South Dakota, Nebraska, Iowa, Illinois, Wisconsin, and Minnesota.
this instance, an examiner was appointed to study the case.
the geographical scope of the case but no policy guidelines.
In
He was given
After two
years he submitted a 658 page document which was subsequently dismissed
by the CAB because they felt the examiner bad been restrictive in his
-4
proposaIs.
Similarly, in the Trans-Pacifie case the CAB again followed the
routine procedure of hearings, briefs, and studies as weIl as submitting
the case to an independent examiner.
Once again the board and the
examiner disagreed, with the examiner being overruled.
4Ibid ., pp. 932-934.
In both cases an
36
immense duplication of work was involved which with efficient management
could have been avoided.
The difficulty is that in many cases the
examiner is not as weIl acquainted with the overall industry situation
and consequently bis opinions and the board's will differ.
Thtabbâiog
the case he should be given adequate guidelines to help with bis study.
A second and more significant problem is that a procedure of
hearings and briefs, ending before the board in an oral argument and
then a discussion by the board itself, is not necessarily the most
efficient way to arrive at a decision or the most likely to serve the
public interest.
For the most part, although the hearings are open to
aIl interested parties, only the major companies appear.
Naturally
enough their arguments are presented in such a way as to put them in
the best light but this does not necessarily mean that aIl the facts
of the case will appear.
A more efficient way to handle the problem
would be to start with concrete policy guidelines set by the board.
A11 research aspects could then be delegated to its staff, freeing them
to use modern data collecting methods.
The facts could then be
anal~sed
and formulated into a plan appropriate to the policy guidelines set.
With proper communication between the staff and the board, difficulties
could be worked out as they arose.
He.arings could then be used for the
more appropriate purpose of deciding wbich airline should be allotted
which routes.
Besides the actual fact of delay and the inefficiency involved,
there is a side effect to the deliberative and hearing process which
may have a somewhat more serious effect.
Because of the time needed to
resolve individual cases the commissions have too little time to plan
37
properly for future problems.
Instead they tend to concentrate heavily
on decisions of the day-to-day cases without fitting them into a
framework of more basic issues of program standards and planning.
5
The
end result is that regulation tends to become stagnant and unable to
keep up with the fast moving industrial segment that it is supposed to
supervise.
Adding to the above and preventing effective regulation
commissions is the rapid turnover in membership.
~
Originally it was
believed that the fairly lengthy terms of five to seven years for Most
commissioners would provide for stability and continuity in policy, and
it was expected that a tradition of reappointment would occur, thus
making the terms even longer.
fulfilled.
Such expectations, however, have not been
In Most commissions the average tenure of the commissioner
is about one-ha If of a full terme
For example, in a fourteen year period
the FCC lost seventeen members, one of whom served eleven years and
another nine.
years.
The remaining fifteen averaged about three and one-half
6
The reasons for such high turnovers vary.
One is that Many
commissioners regard their position as only a stepping stone.
They
either hope to move higher on the political ladder or enter the industry
which they regulate.
The attraction to industry is especially hard to
combat, for not only is the compensation better in the way of salary,
5commission on Organization of the Executive Branch of the
Government, Regulatory Commissions, Appendix !, p.22.
6Ibid ., p.24.
38
but also the job is likely to be more permanent.
Similarly a cabinet
post holds more allure than being simply one of five or seven
connnissioners.
It has also been suggested that high turnover may be the result
of dissatisfaction with the job that they have to perform.
For men of
high capability the inefficiency of the commissions' operative methods
soon drive them to seek positions elsewhere.
No competent executive--Government, military or business-can tolerate for long the inefficiency and the confused
administration of the regulatory agencies as they exist
today. An executive accustomed to getd.ng a job done
cannot be content with procedures which preclude both an
intelligent attack on general planning and policy programs
and an expeditious handling of routine business • • • •
Men tend to move on to other positions where there is not
only a job to be done but where also they will have the
tools to do the job. 7
Rapid turnover in membership is cause for concern in almost any
working situation.
It is especially bad, however, when the concept of
regulation involves supervising industries which are privately owned.
Such industries need to know in advance the basic policies of the
agencies with which they are concerned in order to competently execute
their own plans and programs.
tremendous.
The impact if they do not can be
For example, if a gas company were to make plans for
expansion of its pipelines, it would need to know in advance that such
expansion would be permitted.
Further, it needs the assurance that
su ch plans will not be frustrated by sudden basic changes in policy
resulting fram rapid personnel changes.
7
Hector, "Problems of CAB", p.958
Lacking such assurance, the
39
industry may stagnate or develop a hostile attitude to any regulation
at aIl, either of which result would effectively impede regulation in
the public interest.
In addition, rapid turnover presents internaI difficulties within
the commission itself.
It means that members do not stay long enough to
acquire the knowledge necessary to regulate competently, and further
that incoming commissioners do not have the benefit of learning from
experienced members.
Both limit the abiiity of the
commissi~n
to handle
the economic problems that come before it.
Another internaI factor which inhibits effective regulation is
the dependence of commissions on the professional.
In establishing
commissions the early bias was for finding a scientific answer to
economic problems.
Accordingly, Dt was felt that commissions would be
most effective if they were staffed by experts who would be capable of
providing empirical solutions.
effective.
In certain areas this policy is very
For example, expertise can be very helpful when the problem
involves technicalities such as deciding on the cost factor inherent in
opening up a new air route.
However, there are areas where the expert
solution is not quite so satisfactory.
It has long been recognized that one of the weaker areas in
commission regulation is in that of long range planning.
It is possible
that part of the problem may lie with the fact that commissions are
staffed by professionals.
The expert, it has been suggested, is more
capable of applying settled policy.8
His professional training is such
8Bernstein, Regulating Business, p.113.
40
that he is mor~ closely concerned with the details of his work than
the broad plan in mind.
Such training in itself, as a result of the
depth involved, may lead to the development of a relatively restricted
or narrowed viewpoint so that his ability to grasp new and varied
situations is limited.
The task of planning caiis for a very different kind of
ability fram that which the efficient commissioner acting
in a quasi-judicial or administrative capacity has or
ough~ to have.
A commissioner's attention is riveted
upon individuals and how their rights and interests are
affected in concrete cases. He is not likely to see
the town for the houses, and it is not his bl!siness to
do so. Experience indicates that broad policy planning
is often best done by laymen rather than by experts, by
men who view things a~ainst a broader background than
that of a technician.
Staffing by experts may also present problems on the political
level.
A distrust of politics inherent in early regulatory thought led
to the belief that regulatory commissions wou Id function better if they
were staffed by impartial experts and not by politicians.
regulatory process is not separable from politics.
However, the
With the growing
expansion of government into the economic sector, regulation has become
part of an intensely political process.
For example, the well-being of
the economy is now regarded as being the responsibility of the
administration in power.
And since agencies regulate large parts of
the economy, the y too come under intense pressure to perform weIl.
order to do so more than professional knowledge is involved.
the expertise principle may present severe liabilities.
In
In fact,
As a professional
imbued with a particularistic type of training, the expert may find it
difficult to deal with primarily political groups such as congressional
9
Cushman, Commissions, p.732.
41
committees and the White Rouse.
Yet it is imperative that he obtain a
rapport with these bodies in order to obtain the political support
necessary to carry out regulatory programs.
He May have to show, for
example, that political as weIl as economic advantages will occur as a
result of certain policies, especially if his plans are going to cost
money.
And this requires more than a knowledge of the facts.
It
requires a sense of timing, of knowing where and how to apply pressure,
of whom to see, and of how much and what kind of support will be
necessary in or der to make oneself heard.
A similar process is involved
in dealing with the regulated industries themselves.
To sum up,
effective regulation calls for a definite knowledge of what is and what
is not politically advisable.
Appointment of commissioners on the basis of merit alone
overlooks the imperative that the head or heads of an
agency win popular support for the agency's policies and
programs. This is a legitimate and necessary political
role which must be fulfilled by an agency head. He
cannot afford to rely exclusively on expert knowledge of
complex situations and the devisi~ of objective
solutions to regulatory problems. IO
A final difficulty in commission structure which impedes
effective regulation is that of its internaI organization.
load of MOst commissions is extraordinarily heavy.
The work
Competent disposaI
of the problems before it requires that commissions have an efficient
administrative system.
In this area MOst commissions are sadly lacking
since there is little attempt made to systematize cases on the basis of
importance.
basis.
Instead they are dealt with on a first come, first served
This plus the fact that the majority of commissions still
lOBernstein, Regulating Business, p.ll3.
42
insist on going over many minor details themselves, rather than
delegating them to appropriate staff personnel, makes for an imêffie±ent
working situation.
Moreover, such delegation as does occur lacks
proper supervision, thus hindering the positive effects which delegation
otherwise would have.
Inefficiency in administration in commissions is a serious
problem.
In itself it leaves the commission open to intense pressure
on the part of individuals to expedite their particular cases.
pointed out by the Task Force Report this is not beneficial.
As
It may
result in certain cases receiving more advantageous treatment and in
addition it may lead to Congressional interference on behalf of
individuals, aIl of which further complicates the administrative
problem for the commissions.
ll
Along with this inefficient administration
adds to such delay as already exists in the
commi~3ion
structure.
And
both situations lessen the ability of the commission to control its own
environment.
When a large backlog occurs, the commissions no longer
have the time to map out broad programs.
Instead, they become swamped in
simply trying to keep abreast of the daily details of their work.
Such
a development is grave when the job is one of regulating private
industry.
In the end it may result in the commissions being unable for
aIl practical purposes to regulate at aIl, either because by the time it
does decide on certain cases they have already become outmoded, or
because through its inefficient management it has sufficiently angered
the industry concerned to make the necessary working cooperation
impossible.
llcommission on Organization of the Executive Branch of the
Government, Regulatory Commissions, Appendix ~, p.44.
43
InternaI difficulties within commissions must not be lightly
dismissed as mere procedural.inadequacies.
In the end, the ability
of commissions to regulate competently rests to a large degree on the
adequate functioning of the commissions themselves.
The Problem of Independence
At the start of regulation it was not expected that independence
would cause any great difficulties.
In fact, it was believed that
independence would promote regulation in the public interest since each
agency would be able to develop a stable and continuing policy free
from the frustrations which would occur if commissions were under the
control of changing political heads.
It was fully believed, at this
time, that the economy could be divided into separate sectors and that
effective regulation could be achieved by supervising each of these
units individually.
The commissions were established to protect the public
against abuses or to handle particular problems which
had been revealed; in either case, it was thought that
a separate and independent course of action was possible.
Thus the conventional assumptions werethat problems
could be handled in isolation, often by judicial processe~
and that political leadership and executive coordination
would be both unnecessary and dangerous. 12
However, in the present context of regulation this basic supposition
can be questioned.
Within the commissions, independence presents serious problems
with regard to policy formulation.
12
It limits the planning facilities
Emmette S. Redford, ~ President ~ ~ Regulatory Conmission~,
Report Prepared for the President's Advisory Conmittee on Government
Organization in the Capacity of Expert Consultant to the Advisory
Committee, 17 November 1960, p.5.
44
of the commdssion by placing them in a situation where they tend to
lose the benefit of an exchange of ideas with other agencies or
departments.
w~re
This might not be quite so serious if central planning
not so badly needed.
However, if the public is to benefit at
aIl it is necessary that commissions be concerned and aware of the
overall picture.
Unfortunately their existing independent status
mitigates against such awareness as i:s indicated by the large nmnber
of criticisms lodged against commissions concerning their neglect of
the broad perspective.
A recent example of such behavior pattern can be found in the
actions of the ICC with regard to rail mergers.
As pointed out in a
recent staff study of the Department of Transportation, the ICC has
been guilty of randomly approving rail mergers.
13
According to the
study not only has there been no overview of the public interest in
rail mergers but those proposed and approved were simply not the best
of possible and more efficient alternatives.
This is au uüfortunate
situation and one which has occurred in part due to the fact that the
commission has been able and has had to operate in isolation from other
commissions and agencies.
A consequence of this situation is that
agencies must operate without definite political support.
The effect
of this on planning is significant because it tends to encourage a
kind of lethargy within the commission.
extremely powerful economic groups.
have nobody to turn to.
Most commissions deal with
In the face of hostility they
As a result, many commissions become overly
l3Stephen M. Aug, "U.S. Agency Study Critical of ICC on Rail
Mergers", Evening ~ (Washington, D.C.), 17 January 1969, p. C-13.
45
cautious in the performance of their duties.
Instead of attempting to
promote vigorous new regulatory policies they tend to withdraw into
the more secure area of applying already settled policy.
".
A good example is the case of renewal of television licenses.
Licenses can be withheld on the grounds that the holder is not
fulfilling his obligation to the public.
However, in most cases, the
question of withdrawing the license does not come up, and even where
it does the commission tends to rule in favor of the status quo as in
the case of station WLBT in Jackson, Mississippi (accused of violating
. ) 14
.
doctr1ne.
t he f a1rness
In e ff ect, t he
. i
Comm1SS
on, rat he r t han
promoting the interests of the public, may protect the property of the
licensee.
Havingruled on something, they are likely to stick with
that ruling.
In recent months this tendency has been somewhat reversed,
as is illustrated by the case of WHDH-TV, Channel 5, in Boston in which
the license was transferred to a new applicant in order to lessen the
.
concentrat10n
0 f t he news me d·1a. 15 WHDH was a subsidiary of the Boston
Herald-Traveler, a local newspaper.
The question to be raised, however,
is whether or not this trend will continue.
In the meantime the WHOH
case is only one of the many hundreds of stations which are still being
automatically renewed.
Nicholas Johnson, a present FCC commissioner
has described the licensing process thus:
14liA Farce at the FCC", Editorial,
1968, p. A-14.
Washington~,
9 July
l5Simon Lazarus, "Signs of Life at the FCC", New Republic, 160
(22 February 1969), 16.
46
The FCC gathersat ringside and offers to referee. At the
sound of the bell, the licensee jumps in the ring "and
begins shadow boxing. At the end of three minutes he is
proclaimed the winner by the FCC majority, found to have
been serving the public interest in his communitY7 and
given a three year license renewal,16
Moreover, the situation is now complicated by a new rule change which
lessens the time that an interested party has for filing a competing
application.
Critics of the rule suggest that it is in direct response
to industry pressure resulting from the WHDH case.
17
Similarly, new ideas are apt to be regarded with suspicion and
hesitancy and have their effectiveness limited by a commission's attempt
to fit them into established patterns, as is illustrated by the FCC's
attitude to community antenna television (CATV).
CATV is a system
whereby viewers can obtain programs from channels outside their local
area.
Generally it consists of a sensitive antenna which can capture
far away broadcasts.
These signaIs are then amplified and transmitted
by cable to the homes of subscribers who_pay for the service,
For the
most part the Commission bas viewed CATV with suspicion and its rules
have made its operation difficult.
For example, under the recent
rulings CATV operators must ob tain permission from copyright owners
before importing distant signaIs into the hundred largest metropolitan
areas, despite the fact tbat the Supreme Court has ruled that such
signaIs are in the public domain and need not be paid for.
Furthermore,
the rules eliminate "leapfrogging" as the CATV systems in certain areas
l6Kenneth Ikenberry, "FCC's Johnson Focal Point of Broadcast
Controversy", Evening ~ CWashington, D.C,), 4 May, 1969, p. E-2.
17
Stephen M. Aug, "'New Left' Plans to Attack FCC on License
policy; Commission Adopts Rules Favored by Broadcasters", Evening
~ CWashington, D.C.), 16 May 1969, p. B-4.
47
have to retransmit programs of the stations closest to the area served
before they are allowed to import signaIs fram far away.
the FCC would like to see
~
18
In general,
operate as a common carrier on any
rem,dning channels not utilized for carriage of broadcast signaIs.
19
Essentially it has tried to fit cable television into the unsuitable
broadcasting framework.
Frederick W. Ford, a former FCC Cbairman and
now President of the National Cable Television Association, has
characterised the FCC policy in this way:
The commission's CATV policy has always been hampered
by the stricturès of outmoded concepts. The commission
has failed to recognize that ~ is not broadcasting
and such failure is cbaracterized by attempts to fit
CATV into the crusty allocations policy which has
failed to provide optimum television service. 20It may be surmised that one of the reasons the Fee has followed
this
pat~ern
is due to the fact that it knows it would have to face
alone b.eavy and hostile pressures from existing television broadcasters
should it favor CATV.
And as stated at the outset, it must do so in
the ansence of definite political support.
For example, the commission
deve10ps relationships with Congress tbrough cooperation with relevant
e.ongressiona1 committees and through persona1 contacts with Congressmen
and Senators.
At the same time these same men and committees are a1so
under pressure and in close contact with the major broadcasters.
Because they control the chief means of communication, broadcasters can
18"Two Views Emerging on Cable Television", Evening ~
(Washington, D.C.), 4 February 1969, p. A-19.
19Stan Benjamin, "FCC Weighs Ru1es on Cable TV as Hearings
End", Evening ~ (Washington, D.C.), 5 February 1969, P. B-8.
20"Two Views Dnerging", p. A-l9.
48
make themselves felt, and felt significantly.
Accordingly, if the FCC
wishes to pramote samewhat opposing ideas or explore new avenues of
communications which are felt to be contrary to the desires of the
industry, it is to its benefit to bring an equally strong support in
favor of such innovations.
It must either rally strong and united
consumer and constituency support, a difficu1t feat, or White Rouse
aid, a type of help that May be regarded with suspicion by Congress as
an infringement of the proper place of the executive.
In practice,
therefore, the position of the commission is often that of an agency
independently trying to make itself felt in the face of immense pressure
with little to help it succeed.
Aiso hindering its ability in this direction is the difficulty a
commission May experience in obtaining an adequate budget.
requests must pass through the Bureau of the Budget.
independent commission is at a disadvantage.
AlI budget
Rere again the
Having no major body to
plead its case, it often receives on1y minor attention at the bands of
the Bureau relative tothe demands of the Defense Hepartment and the
widely publicised needs in damestic areas.
have no problem in obtaining their
bas~
Basically, the commissions
appropriations.
In terms of
expansion, however, or getting money for new ideas, samething which it
would be hard to put a value onol"°!guarantee returns, the situation
becames samewhat more difficult.
For example, in the fiscal year of 1960
with 1,628 registration statements filed with the SEC, only 978 employees
had been approved by the Bureau, as versus 1950 when 496 registration
statements were filed and the Bureau approved 1,130 employees.
21
2lJames M. Landis, Reporot ~ Regulatory Agencies ~ ~
President-Elect, Committee on the Judiciary, U.S. Senate, 86th
Cong., 2nd. sess. (Washington, D.C.: Committee Print, 1960), p.6.
At
49
this point it should be pointed out that the Bureau is not solely to
blame.
Often the agencies themselves reduce their appropriation
demands upon advice or Congress itself cuts them.
The point is the
agencies would stand a better chance were they stronger and had definite
support.
Independence also causes problems in interagency coordination of
programs and policy especially since agencies have overlapping
jurisdiction.
For example, the FTC and the Department of Justice rule
on similar cases since the one deals with unfair trade practices and
the other with monopoly.
If conflicts between the two arise there is
no permanent machinery through which the difficulties can be ironed out.
Usually, they are resolved through informaI conferences.
However, the
very fact that two agencies can rule separately and differently on the
same case does make long range regulatory planning more difficult
because unless the. policies of each are weIl and frequently coordinated,
,they may end in pursuing opposing programs.
A recent example of such working at cross purposes can be found
in the proposed merger of American Broadcasting Company with
International Telephone and Telegraph.
This merger was approved by a
4-3 majority of the FCC, but frOID the point of view of the antitrust
division of the Justice Department the case had serious antitrust
implications and should not have been passed.
At its insistence, and
after a delay of about three months, the case was reopened.
22
The
intense bickering that occurred between the two departments before
8.
22"ITT and ABC Merger", ~ Republic, 156 (25 February 1967),
"ITT-ABC Hearings", ~ Repubiic, 156 (22 April 1967), 4.
so
the case was finally terminated is illustrative of the difficulties
that can arise when two agencies have jurisdictionover the same case
but without proper means for coordination of policy and decision.
Secondly, many of the agencies exercise supervision over related
fields.
And again the need for adequate coordinating facilities
arises.
Illustrative of this is the field of transportation where there are three
boards, the CAB, the ICC, and the FMB.
These groups may have conflicting
policies with regard to the proper development of national and
international transportation.
In fact, it has been suggested that the
inability to effect interagency coordination has been responsible for
the lack of any policy as to the nature of competition that should exist
between the forms of transportation and also the carriers themselves.
23
Similarly, lack of coordination bas hindered the development of
an adequate communications system.
several agencies:
Here jurisdiction is divided between
the FCC, the State Department and the National
Aeronautics and Space Administration, to cite only a few.
With the
importance of international communications increasing it is necessary
that there be some combined agreement made as to what long range policy
should be.
Otherwise, the optimum use of communications facilities
will not be made.
Su ch problems in coordination and long range planning as those
cited above are difficult to solve when the agencies concerned are
independent.
In theory differences are supposed to be ironed out
through legislation but the problem solving effect of congressional
23Landis, Regulatory Agencies, p.25.
51
statutes appears to work quite different1y in practice.
statutes are often in themse1ves conf1icting.
In fact, such
Even when they are not,
they are so vague as to a110w the commission to proceed most1y on its
own discretion.
This factor has been one of the major reasons why so
much trouble has occurred over the ABC and ITT merger.
As pointed out
in a recent article, the hazards of permitting the merger are hard to
pinpoint because so litt le is known about the connections between the
communications business and other industries in foreign countries.
24
Moreover, as neither the Congress nor the FCC has even laid out
clear1y the dimensions of the prob1em, regu1ation is 1arge1y haphazard.
Even where machinery is set up to coordinate po1icy, the
prob1em is not solved because there are groups who oppose agency
participation in it, usua1ly on the grounds that it will mean an
increase in ex· parte influence on the part of the executive.
For
e xamp le , the House Committee on Government Operations objected to the
presence of the CAB on the Air Coordinating Committee for these
reasons.
25
This was an executive cammittee that was established in
1946 to provide for coordination of aviation and government po1icies
and it involved the State Department, the CAB, the War Department, the
Post Office, the Navy, and the Commerce Department.
26
Fina1ly, independence of commissions impedes the executive in
its formulation of a national economic policy.
At the time of their
conception it was not expected that there would be conf1icts in this
24
25
"ITT and ABC Merger", p.8.
Hector, "Prob1ems of CAB", p.952.
26New
~ Times, 20 September 1946, p.47.
52
area.
Limited government was still the byword of the day.
The
situation at the present time is somewhat different.
Their functions, with variations, and with exceptions,
have become re1ated to the broadest objectives of the
government: national defence; a competitive econ~
adequate and efficient transportation and communication
faci1ities; maximum employment, production and
purchasing power. 27
For example the Emp10yment Act of 1946 now states that it is the
function of the Council of Economie Advisors
to deve10p and recommend to the President national
economic policies to foster and promote free
competitive enterprise, to avoid economic fluctuations
or to diminish the effects thereof, and to maintain
emp1oyment, production and purchasing power. 28
In order to effect such recommendations, however, the President must
first see that they are put into legislation and then executed.
The difficu1ty in doing this is increased when some of the
agencies concerned are independent.
Although it is true that most
agencies in an actua1 confrontation with the White House will accede
to its request, there is still a considerable and possib1y harmfu1
delay before this end is achieved.
Moreover, some agencies have
sufficient support from their c1iente1e groups to enab1e them to
refuse a presidential request, such as the time when the ICC managed
to defeat the bill that wou1d have allowed the President to appoint
its chairman.
In general, the existence of independent commissions
further comp1icates any coherence in national economic 1egislation
which the White House may try to achieve.
27Redford, President ~ Commissions, p.8.
28
Emp10yment !s.E., .!!.:!.:.~, sec. 1023, c and d (1946) cïted
by Redford, Pre-sident ~ Commi-ssions, p.28.
53
The commissions enjoy power without responsibility; they
also leave the President with responsibility without
power. Placed by the Constitution at the head of a
unified and centralized Executive Branch, and charged
with the dutY to see that the lawsare faithfully
executed, he must detour around powerful administrative
agencies which are, therefore, both actual and
potential obstructions to his effective overall
management of national administration. 29
In conclusion, independence in commission regulation is a serious
problem.
In many ways it prevents effective planning.
The gravity of
this cannot be underestimated since adeqüate planning is a prerequisite
to the type of comprehensive regulation in which the United States
government is engaged today.
The Problem of the Public Interest
An equally important feature in regulation is the extent to which
attention is paid to the goal of regulating in the public interest.
Presumably government is supposed to be for the people.
Granted that
each individual cannot èxercise personal supervision over every
decision made in his name, the outcome should nevertheless indicate
that implicitly his desires and aspirations were given consideration.
This involves the search for the public interest and independent
regulatory commissions as weIl as any other government sector are
charged with regulating to this end.
done.
Definitions of the public interest and its importance vary
considerably.
people.
However, this is easier said than
In fact variations are probably as numerous as there are
Three main strands of thought are somewhat identifiable
29president's Committee on Administrative Management, Report
of the Committee, Administrative Management ~ ~ Government .2!. ~
United St·ates (Washington, D.C.: Government Printing Office, 1937),
p.36.
54
however.
In his book,
~
Public
Inte~est,
Glendon Schubert has
classified these as the idealist, the rationalist and the realist.
30
The different and rather vague conceptions that each involve indicate
the difficulty any one administrator might run into in trying to
establish some concrete method of determining and giving weight to the
public interest.
Idealism goes back to early philosophies of the purpose of the
state.
It presupposes that the community is imbued with common
interests and ideals.
These may be latent but they are nevertheless
present.
The public interest is never merely the sum of aIl
private interests nor the sum remaining after
canceling out their various pluses and minuses. It
is not wholly separate from private interests, and it
derives from citizens with many private interests;
but it is something distinctive that arises within,
among, apart from, and above private interests,
focusing in government some of the most elevated
aspiration and deepest devotion of which human beings
are capable. 3l
In idealist thought then administration has value in that it is there
to bring these interests to the fore.
The task of the administrator
is to manipu1ate the economic and po1itica1 considerations of the day
for the purpose of strengthening and fostering this community of
interest.
They will seek for the public interest by looking for
po1icies that are for the common good. They will not
be deterred by the fact that it may be on1y 95 or 85
or sorne other percentage of the public that actua1ly
benefits, nor by the fact that there is some ti1ting
of the sca1es in favor of seme groups against others,
.. 3QQlendonSchubert, The Public Interest: A Critique of the
Theory of ::!: Political Concept (Illinois: The Fres Press, 19bo)-:-1Ii?au1 App1eby, Morality and Administration in Democratie
Government (Baton Rouge, 1952) eUed by Schubert, PiibUe Interest,
p .118.
55 .
nor by the fact that there will be no scientific
way of determining whether their search was
successful.
This search will be for the ways in which the
expectancies of the cammunity may be realized • • • •
The point is that whatever their origin and basis,
they are indeed interests of the public at large,
and the search for the means to implement them is
part of man's search for the public interest. 32
Idealism thus presupposes that the public interest is a concrete and
obtainable goal which, through manipulation by interested administrators,
can be realized.
The rationalist theory of the public inter est with respect to the
bureaucracy appears to dwell mainly on the operational apparatus.
For
this reason the independence of the regulatory commissions is regarded
as an anomaly because it has the effect of making their search for the
public interest that much more difficult.
Rationalists would like,
therefore, to place commissions either in an integrated executive or
under stricter Congressional surveillance, depending on which body
they feel should take precedence.
One's choice is determined according
to the desire to place in power whatever group one feels to be more
representative of the people, and therefore entitled to direct and
guide the public interest.
For this reason the Brownlow Cammittee on Administrative
Management, holding to the idea of executive preeminence, wished to see
what they called the "headless f'ë>urth branch of the government"
integrated with the rest of the executive branch.
Yet despite their
concern about the means, rationalist theories of the public illterest
are similar to the idealists in one respect.
32
Redford, Government, pp. 51-52.
They also believe that
56
the public interest has substance in itself.
It is a sought after goal
which, although difficult to define, is nevertheless real.
The hope is
that through integration with one of the three branches of government
the public interest will take on more concrete forme
The public interest can scarcely be identified and
defined short of effective coordination of the various
regulatory programs with each other and with national
economic policy. As regulatory policies are fitted
into a coherent program of national regulation of
economic affairs, the nature of the public interest
becomes less abstract and less dependent upon the
limited experience of the individual commission. 33
Realist public interest philosophy, differs significantly from
the other two.
In realist thought the public interest as a concrete
goal is minimized and eliminated as much as possible.
Public administration in actual practice is a process
whereby one individual acting in an official capacity
and in accordance with his interpretation of his legal
responsibilities applies a statute to another individual
who is in a legally subordinate positizn. The public as
such is not concerned in the process. 3
In a case su ch as the above the administrator is involved in resolving
a struggle between competing interests.
His basic task is to bring
about a compromise in which the main result is harmony.
As such the
public interest as an ideal to be followed does not concern him
because he views the problem in terms of competing groups or
individuals.
The public interest becomes a conglomerate of various
and competing interests.
To hold out the public interest as a criterion is to
of fer an imponderable. Its value is psychological i
33Bernstein, Regulating Business, pp. 162-163
34E• Pendleton Herring, Public Administratio~ ~ ~ Public
Interest (New York: McGraw-Hill Book Company, 1936), p.25.
57
and does not extend beyond the significance that each
responsible civil servant must find in the phrase for
himself. Acting in accordance with this subjective
conception and bounded by his statutory competence
the bureaucrat selects from the special interests
before him a combination to which he gives official
sanction. Thus inescapably in practice the concept
of public interest is given substance by its
35
identification with the interests of certain groups.
However, even in breaking it down to the point where special interests
eqt~al
public interests, realist thought poses problems.
administrator is not a mechanical toy.
The
His philosophy will have a
bearing on his actions.
It is at this point that realist thought converges towards the
other two theories and one finds the administrator seeking for the
"public will".
The difference is that he will not find it as a
community of interest, but will realize it only in terms of his own
responsiveness to values that have been inculcated in him as an
individual in a society.
The connection lies in the belief that in
some way through such responsiveness the basic values of society will
be drawn into administrative policies.
It does not follow that an administrator in making a
decision. consciously thinks of himself as a guardian
of the constitutional understandings of the American
people. Depending upon the nature of his position he
May or May not do so. The influence of these largely
unorganized interests is normally of a more unconscious
character. 36
The major difference between the two is that the idealists and the
rationalists regard the public interest as having form in its own
35Ibid ~, p .23
36David B. Trtnnan, The Government Process (New York: Alfred
Knopf, 1951), p.449, cited by Schubert, Public Interest, p.176.
58
right and as being something which should be actively sought after,
whereas in realist thought it somehow drifts in unconsciously in the
process of resolving the more immediate interest groups' conflicts.
As indicated above, definitions of what the public interest is
vary.
In fact the question is raised as to whether it, as a term, has
any value at aIl.
Nevertheless, because of the emphasis placed on it,
it does have an impact.
For example, its influence is very strong
throughout aIl of regulatory history.
terms of the public interest.
Regulation was conceived of in
Every basic statute of aIl the nine
commissions includes this concept in some forme
In fact, it is
difficult to conceive of regulation without this term.
If one does
not regulate in the public interest just what does one regulate in
terms of?
One can, of course, regard this as just being an anonymous
term which may be broken down to Mean simply the specific groups
concerned at the time, but regulatory philosophy indicates that more
than this was expected.
Commissions were supposed to seek out problems
before they arose, and were expected to take the initiative in
correcting abuses, not wait for individual groups to bring them to
their attention.
As their promotional duties increased they were
expected to plan ahead so that regulation wou Id benefit the largest
number possible.
AlI this indicates that something other than simply
the reconciliation of group interests was involved.
in fact,
crG~ted
Commissions were,
with the idea of maintaining and fostering an ordered
society where, although great emphasis was placed on individual
achievement and growth, it would not supercede to the extent that it
would Mean harm to the whole.
They were to regulate for the good of
59
the public at large, not for any one particular or combinat ion of
interests.
Yet in the actual practice of regulation there is little
that helps a commission determine exactly what this is, let alone
promote it.
In theory, commissions are supposed to obtain the help of
Congress in deciding what standards are to be used as a guide to the
public interest.
In practice, however, auch standards as are embodied
in the regulatory acts are extremely vague, such as the Transportation
Act of 1913 in which the ICC is charged with prescribing just and
reasonable rates, taking into account the effect of rates on the
movement of traffic, the need of the public for an adequate and
efficient railroad transportation and the need of revenues sufficient
to enable the carriers under honest, economic, and efficient management
.
37
to prOV1·d e suc h serV1ce.
The vagueness is necessitated by two facts,
the first being that Congress cannot personally deal with the details
of transportation regulation and must therefore leave the ICC with a
sufficient margin of discret ion to allow flexibility in its approach,
and the other occurring simply as a result of the hazards involved in
getting legislation passed.
effort.
The majority of legislation is a compromise
To define something strongly would be to risk destroying any
chance the legislation has of becoming law.
As a consequence,
legislation is often worded very loosely in order to offend everyone
as litt le as possible.
However, since basic conflicts have not been
settled before the legislation reaches the commissions it leaves the
3748 Stat. 211, 221, cited by Redford, Government, p.383.
60
burden on them.
to be
pursue~,
Although the statute states in general terms the ends
it does not weight one goal ab ove another.
In practice,
this leaves the commission open to intense pressures on the part of the
regulated industries.
Without the aid of clearer guides and lacking
strong resources, most commissions came to regard the public interest
as being synonymous with the interests of the industries that they
regulate.
In its search for the proper equilibrium among interested
parties, the regulatory commission is supposed to be
guided by its legislative mandate. In the case of the
"big six" agencies, the Lelevaut statutes tend to provide
only the most general guide. Left thus to its own
resources, which are apt to be weak by comparison with
those of the regulated industry, an agency may well be
guided by dominant forces in the industry inits
determination of the public interest. Thus the public
interest may become more private than public. 38
The above is especially true in view of the fact that the public
interest is not adequately represented before the commissions.
who do appear are usually only contesting clients.
Those
The consumers or
the large block of the public show little interest and rarely appear.
One solution to this is the formation of consumer groups.
Such groups
have to be willing, however, to do more than just meet annually and
voice their complaints.
They need to be organized and be willing to
lobby as hard as other interested parties, a condition that has
previously been regarded as wishful thinking.
has been a push in this direction.
their impact on the FCC.
Recently, however, there
Citizens groups have been making
They have been appearing at the triennial
licensing deliberations and have been making themselves heard.
38
york:
Bernard Schwartz, ~ Prof-essor
Alfred A. knopf, 1959), p.49.
~ ~
It is
Commissions (New
61
not necessary that these groups contest every license or even a majority
of them, their main importance lies in the fact that by appearing they
open channels of communication with the commdssions and present them
with something concrete in the way of the public's interests that they
May use as a counteracting weight with respect to the industry's
desires.
Similarly, groups such as Nader's Raiders May have an effect
on the public interest in that by criticizing the commissions they bring
to light areas of operation which are in need of revision.
The commissions' inadequacies as planning bodies is a second
factor limiting their ability to regulate in the public interest.
Not
only is it necessary for a commission to keep abreast of the rapid
technological changes in the industries which they regulate, they must
also keep ahead of them.
Otherwise, they are presented with a fait
accompli in the form of an established mode of industrial operation.
When this occurs the difficulty involved in pursuing an aggressive plan
of action is simply further increased.
And as a consequence, commissions
May lapse into a kind of lethargy where all their energies are expended
in simply maintaining the status quo with the result that the positive
search for the public interest is abandoned.
In order to forestall
this situation the commissions need to plan effectively.
Furthermore,
planning is needed in order to bring legislative mandates up to date
so that commissions have sufficient substantive authority to handle new
situations.
In the end, the capacity of the commissions to plan
properly is closely related to its ability to maintain a spirit of
" """
"
1n1t1at1ve
and an aggress1ve
searc h f or t h e pu bl""
1C 1nterest. 39
39Bernstein, Regulatin~ Business, p.274
62
Unfortunately, there is much in the commission system which inhibits
planning, as suggested in the previous section, and this means that in
the last resort their ability to regulate for the public good is
similarly limited.
Aiso inhibiting commissions in their search for the public
inter est is the limited jurisdiction under which they are forced to
operate.
Constant association with one industry leads to the development
of aparochially oriented type of knowledge.
mainly in the light of their own
expe~ience
Commissions view problems
in a particular industry.
In terms of servicing the public this is not particularly beneficial
since the effects of policies in one regulatory agency often have
bearing on developments in another.
It is necessary therefore that
regulatory policies in each agency encompass a broad view if the public
interest i8 to be served.
type of broad viewpoint.
Limited jurisdiction discourages just this
Further, limited jurisdiction means a
limitation in power not only with respect to programs which overlap
into other fields but also within the agency itself.
Thus, even if an
agency were to formulate broad programs designed to promote the public
interest its capacity to do so is circumscribed because it lacks the
substantive authority necessary to initiate the required details.
For example, the ICC has in recent years been trying to improve
the situation in the railroads with regard to passenger service.
As
yet, however, the attempt has been unsuccessful, one reason being that
it is not clear whether the commission has the power to tell the
railroads how to run their service.
40
4°"1969 Chief of ICC Views Mergers and Figures Warily",
Sunday Star· (Washington, D.C.), 12 January 1969, p. R-16.
-'----=--
63
Finally, the position of the commissions withrespect to their
regulated industries makes it difficult for them to regulate in the
public interest.
It is quite common for the bodies that they regulate
to become one of the prime sources for the facts on which they base
their decisions.
Needless to say, such facts will be primarily in the
interest of the companies concerned.
Nevertheless a close relationship
between the two parties is encouraged due to the practical working
situation.
Because commissions must regulate privately controlled
bodies they must have the support, or at least the cooperation, of the
groups concerned.
Of necessity this means that there will be close
contact between the heads of the agencies and their counterpart in the
business sector.
In this situation it is easy for the ends of the two
to become so similar that they are synonymous.
not harmful.
Contact by itself is
It is a fact of regulation and one that one would not want
done away with even if it were possible.
Without a close relationship
the whole business of regulation would be an impossibility.
What is
needed, however, is a diversification so that the contacts are spread
out fairly evenly throughout the system, so that different views
receive equal hearing.
This Weuld be an optimum environment but it is
extremely difficult to achieve.
The economic groups with which the agencies have to deal are
extremely power fuI and can bring pressure to bear in a number of ways
with the intent in mind of either pressurin5 or persuading the
commission to favor their demands above other interests.
For example,
they can evade the rules just enough to create a backlog of work.
They can refuse to volunteer information, thus slowing down the
commission in its collection of data.
They can complain loudly to the
64
news media about unfair treatment and thus try to
their way.
s~ay
public opinion
They can protest against the appointment, or reappointment,
of a commissioner in such a way as to suggest that if he is reappointed
there will be a crisis in the industry concerned.
They can appear to
follow the rules but do so in such a way as to make the result
unpalatable.
on the trains.
This has been the case with respect to passenger service
A number of the trains have wished to discontinue
their service but have not been allowed to do so by the IOC.
In this
case passenger service 1s then offered but it is such that it deters
passengers from taking it.
As a result, the trains end up with a
deficit which they can then use to prove that passenger service is
unprofitable and should be discontinued.
Finally, they can push for
legislation which will mediate any regulations that they dislike.
An
example of this is the current legislation before Congress ta change
the rules governing licensing for radio and television stations to the
effect that a station must be proven not to be operating in the public
interest before its license is revoked.
making most licenses a permanent fixture.
This would have the effect of
Faced with this type of
pressure a commission may find that
the principal conditions of its survival may be its
willingness to accept the statement of the parties
in interest concerning the nature of the regulatory
problem and the way in which the demands of the
rival parties should be resolved. 41
MOreover, the commission finds little to help it combat this pull
towards seeing the desires of the industry and its own as being the
same.
As already mentioned, the relationship between the two is very
4lBernstein, Regulating Business, p.156.
65
close, samething which tends to 1ead natura1ly to viewing prob1ems in
the same way.
Furthermore, because of the pressures invo1ved once an
agency has estab1ished a working re1ationship with its c1iente1e group,
there is a re1uctance to advance any programs which will upset it.
Enhancing this tendency is the fact that most consumer groups are
passive, and consumer views are according1y not strong1y represented.
Apart fram this there are po1itica1 reasons which keep an agency
tight1y bound to its c1iente1e groups.
1argeat interest group is in
~atby
The fact that the commission's
with its goals aids an agency in
getting measures which it wants passed, and in getting money to achieve
its objectives, whereas dissent and trouble can on1y Mean difficu1ty
with respect to investigating committees and annua1 reports.
In
practice, the agencies' po1itica1 support cames fram the groups that it
regu1ates and it according1y behooves an agency to keep this re1ationship
smooth1y operating.
This factor becames even more important in view of
the fact that the agency often receives 1itt1e he1p in the way of
Congressiona1 support with respect to difficu1t or contradictory
1egis1ation.
Once Congress has passed a piece of 1egis1ation, which is
in itse1f usua1ly a
compromis~,
the agency is expected in the face of
the same groups that 1ed to the compromise to make it workab1e.
As
apt1y stated by FTC chair man Paul Dixon (referring to consumer
protection 1aws) the main need of the connnissions is for "more powerfu1
resources and for a more powerfu1 and sympathetic constituency up there
on the Hi 11. ,,42
~
42 Consumer Law Passage Kids Public, Dixon Says", Evening
CWashington, D.C.), 25 April, 1969, p. A-2.
66
Regulation in the public interest is a difficult feat at best.
As pointed out at the beginning of this section, the public interest
is in itself a nebulous term, a factor which makes regulation in its
name very hazardous.
It is, therefore, extremely important that the
body that 1s given this task have at least the inherent capacity to
perform it.
Unfortunately, certain features of commissions strictly
limit their ability in this area and accordingly, leave in doubt their
capacity to perform the prime requisite of regulation.
The Problem of Legalism
One of the greatest advantages that the independent regulatory
commission was supposed to provide was an expeditious way to solve
cases.
As mentioned in Chapter l, regulation via the courts was a
costly and slow procedure.
Also it placed regulation in an essentially
passive role, as the courts had to wait for cases to come to them
before they could act.
The independent
regulato~y
commission was a
device through which it was hoped MOSt of this cou Id be eliminated.
What has occurred, however, is somewhat different than expected.
Primarily decision in the regulatory agency has become as slow and
arduous as it earlier was in the courts.
Reasons for the above vary.
However, one can be traced back to
an inherent hostility to administrative justice.
Because MOSt
agencies prosecute as well as judge, a' _ fear of arbitrary decision
making by administrative tribunals developed.
In order to combat
this, agencïes tended to adopt procedures as court-like as possible
hoping thereby to achieve the necessary responsibility to perform their
functions adequately.
,...,
01
Leettheir decisions be invalidated commissions have
generally tended to prave everything by traditional
methods no matter how essentially unnecessary the
proof may have been. 43
However, although this did ally fears in some cases, the push for
judicialization did not cease.
The main force behind the movement to judicialize was the
American Bar Association.
As far back as the early part of the
twentieth century men, such as Roscoe Pound, had suggested that
administrative tribunals might take on Star Charnier characteristics.
44
There was, therefore, a constant push to formalize procedure which
culminated in the Administrative Procedure Act of 1946.
In brief, the
Administrative Procedure Act required that where hearings were required
that they be conducted in accordance with certain judicial -standards,
Notice must be given of formaI administrative proceedings.
and adjudicating functions must be separated,
Prosecuting
And a hearing examiner
is to be appointed to make the initial decision which is then subject
to review by the board, and within limits of appeal to the courts,45
The Administrative Procedure Act had little impact on actual
commission procedure, since commissions had already separated
prosecuting and adjudicating functionsin the majority of cases,
Further, the act did not caver the numerous cases in which settlement
was made by informaI procedures,
43
Its importance instead lies in the
Walter Gelhorn, Federal Administrative Proceedings
(Baltimore: John Hopkins Press, 1941), p,86,
44wol1 , Bu reaucracy, p. 98 •
45
.
Ibl.d:-, pp. 10 1-102 •
68
fact that it representsa theory existing both inside and outside
commissions that the procedure in the agencies should be as courtlike as possible.
It is this belief that has led to difficulties in
commission regulation.
There are several ways by which commissions can formulate
policy.
One is by issuing rules of either a legislative or descriptive
nature.
A second method is formulating policy through operating
decisions.
A third is getting recommendations through Congress with
respect to specifie statutes.
And finally, policy is developed by
precedents formed in case-by-case decisions.
In the ory therefore there
are a number of means by which policy can be made and the use of which
method should be flexible and appropriate to the situation.
Despite
this fact, due to a tendency to judicialize the most prominent method
of making policy is through case-by-case administration.
This"method,
although valuable, has several drawbacks especially if used inappropriately
or incorrectly, a situation which too frequently occurs in agency decision
making.
Case-by-case decision making is primarily a time consuming and
costly method.
This is especially true when no ùroad policies have been
enumerated beforehand and unfortunately the mere number of cases to be
decided prohibits such proad policy planning.
This was pointed out as
being a weakness in commissions as far back as 1949.
The time of the members of sorne [agencies] ts 50
occupied in disposing of the daily case load that
they have little chance to consider the program of
the agency as a whole or to decide where its time
and resources can be expended to the best advantage.
69
As a result, the agency tends to devote,its efforts
and attentions to the immediate question at the
expense of Many basic issues or problems. 46
The record of seme commissions today indicates that this is still a
pressing problem.
For example, it is estimated that the FPC, which
decides its rate cases by a hearing process, will be twenty years
behind in its decisions by 1980.
47
Thus, not only is it likely to
fall behind when it comes to large questions of policy, it is also
possible that it May not even be able to keep up with the details.
This
development is harmful both in terms of the regulated industries and the
public.
In terms of industry it me ans that the needed ::pproval for
expansion May not be forthcoming within a time rea,sonable enough to
allow a company to embark on its program, and this in turn May Mean that
the consumer will have to pay higher rates than necessary for such
utilities as natural gas.
Further, the Mere cost of taking a case
through commissions when the decision May take up to five years is
prohibitive in terms of smaller companies.
Larger corporations can
afford the delay and in fact May benefit from it, as in a case of a
route change of one of the major airlines.
however, needs a fairly quick decision.
not forthcoming.
The smaller businessman,
Unfortunately this is usually
In fact, commissions MaY, as a result of procedure
employed, become just as costly and slow as the judicial system was
criticized for being at the start of regulation, with the same
resultant bias instead of the hoped for impartiality.
For example, it
46commission on Organization of the Executive Branch of the
Government, Regulatcry Commissi~ns, Appendix !, p.4l.
47
Woll, Bureaucracy, p.96.
70
is estimated that in such cases as the Seven States Case before the
CAB and the Phillips Petroleum Company rate case before the FFC that
the ,total costs must have run into the millions.
48
Costs such as
these are definitely prohibitive in terms of the small businessman.
They mean that to be successful in a petition for an
important certificate of public necessity and convenience
or a television or radio license the petitioner must be
well supplied with funds, which the petitioner must be
willing to wager his chances of being successful. The
result is that in many situations the small businessman49
is practically excluded from an opportunity to compete.
The 1ack of time to consider basic issues due to the pressure of
cases to be adjudicated also may 1ead to accusations of arbitrariness,
exactly what commdsiions hoped to avoid by adopting judicial procedures.
When each case is decided on its own merits without reference to a
broader policy, individüa1 decisions may be inconsistent, a situation
which could definitely be called unfair.
According to Louis Hector such inconsistency has been prevalent
in CAB decision making.
For examp1e in 1955 and 1956 air carriers were
awarded routes basica1ly on the premise that they were weak and needed
strengthening, despite the fact that other carriers cou1d provide better
service.
50
Then in 1958 the board overruled its examiners and began
'
'
awar d ~ng
routes on t h e b as~s
0
f b etter
, 5 1 This was done with no
serv~ce,
advance notice and "carriers who had prepared and argued their cases on
48L and'~s, Regu1atory Agencies, p.9.
49 Ibid • , p .10
50
Hector, "Prob1ems of CAB", p.940.
51'
Ibid., p. 941
71
the basis of a policy applied consistently in route cases for three
years, suddenly found that the rules had been changed in the middle
of the game."
52
Hector concludes that one reason for this development
was a lack of a general policy on the part of the board and a tendency
to proceed by pure case-by-case administration.
Actually the board has almost no general policies
whatsoever. Only a few minor matters have been
covered by published general policy statements. In
almost aIl fields of economic regulation, the Board
proceeds on a pure case-by-case basis with policies
changing suddenly, without notice, and often with
no explanation or any indication that the Board
knows it has changed policy. 53
Results such as the above are not necessarily an indication that
the case-by-case method is an improper method for formulating policy.
What they do point out, however, is that such a method May be harmful
if it is used to su ch an extent that it supercedes other means of
making policy such as the issuance of general rules.
Attachment to judicial procedures has additional drawbacks in
that it places the commission in a procedural strait-jacket and limits
the flexibility of its approach.
In other words, judicial procedure is
sometimes used to determine facts w:iich might be more easily and
efficiently gained by the use of modern technological data gathering
methods.
For example, the CAB has used the hearing method to determine
not only which carriers should fly certain routes, but whether such
routes are necessary.
54
In this case, strict adherence to the judicial
method limited the commission's flexibility to deal with basic
52 Ibid ., p.94l.
53 Ibid ., p.942.
54"
Landis, Regulatory Agencies, p.4l.
72
questions of facts by more expeditious and scientific means.
A side product of being trapped by inflexible procedures is
that commissions may become passive.
One of the reasons that commissions
were preferred as regulatory instruments rather than the courts was that
they could initiate action.
~ever,
when a commission becomes back-
logged with cases to settle, much of its ability to seek out problems is
removed.
Instead it becomes concerned with merely getting through the
detailed work at hand.
This is detrimental to the prime work of
commissions, that is to regulation in the public interest.
OVer-concern
with detail means that large problems are quite possibly nct foreseen
nor adequately prepared for and in certain cases it has been left up to
the regulated industries to point out the need.
For instance, the CAB
in preparing 'its route map waited until private applications came before
, b e f ore tak'1ng act10n.
,55
1t
Similarly, when an overall transportation
plan, as concerns the ICC, has been a problem, the task has usually been
assigned to an outside agency, such as the Federal Coordinator, due to
the seeming inability of the commission to handle the problem.
In situations such as the above, the extensive use of the judicial
approach has been harmful.
And although some judicialization of
procedure is necessary in order to insure due process, commissions may
now be over judicializing to the extent that other facets of the work
such as planning are suffering.
Conclusions
This chapter has dealt with problems that occur in regulation by
independent commissions.
55 Ibid ., p.41
Some of these problems arisè due to the
73
inherent nature of regulatory commissions, such as their isolation
from each other and fram other units of government.
Other difficulties
occur due to their internaI management and due to procedure employed
such as case-by-case policy formation.
In general, the overall effect
of these problems on the commissions themselves has been to limit their
ability to regulate effectively.
Unfortunately, more far reaching and
unexpected difficulties, having to do with the dynamics of the political
system, have also resulted as a by-product of this system.
Traditionally, the operations of commissions were never regarded
as having a vital effect on the political system.
If anything,
commissions were regarded as being completely separable fram politics.
Implicit in the development of the commission movement
is the notion that the political process is susceptible
to fraud and corruption and hence that regulation must
repudiate and avoid involvement with politics. Escape
from politics is regarded as both desirable and
56
essential to the development of effective regulation.
Today this is no longer a viable assumption.
AlI regulatory agencies are intensely involved in a type of
political struggle.
For example, the ability to license such things
as radio networks means that they have the final say over programs
worth millions of dollars.
Similarly, the Mïami-New York air route
is worth a fantastic sum to the carrier involved.
Accordingly, the
struggle for goods such as these is going to be intense.
Politics
of a sort will be involved and the main question to be asked is just
what kind will prevail?
Will the parceling out be allotted in sympatby
with national goals and aspirations or will it be done on an independent
56 Bernste1n,
.
·
B·
Regu lat1ng
uS1ne,!!, p. 282 •
74
basis without regard to its effect on other parts of the politicaleconamic system?
It is the author's opinion that such regulation as
there is should be in accordance with the programs and policies of
the elected representatives of the people.
The President, Congressmen
and Senators were elected via the democratic system as representatives
of the people for the purposes of putting into effect the wishes of the
majority.
MOreover, as legal governing bodies they are in the pùsition
to do so.
Accordingly, their
abili~
and power to effect such demands
should not be undercut by other governing agencies whose existence
stems from a partial delegat10n of power rather than election •
. Regulation should be regarded as being an important part of the political
system and should operate in close contact with it.
However, the very
nature of the regulatory system as it now exists makes this difficult.
First, there is the fact of independence.
The major problem
with independence is that it causes difficulties in communications
between the commissions, the executive, Congress, and among the agencies
themselves and other government departments.
This is extremely serious
because the operations of one do have an effect on the other.
words, there is dynamics involved.
In other
If the national government embarks
on a program of expansion in order for this program to be effective it
must first be put into legislation and then executed.
Independent
regulatory agencies can have an effect on White House policy in both
these areas.
By inaction they can nullify the effects of legislation.
For example, the FPC for a long time refused to assume its
responsibilities under the Natural Gas Act and to use its powers to
getabreast of its docket.
57
Similarly, with regard to legislation
57Landis, Regulatory Agencies, p.55.
75
in certain areas, the independent commission by virtue of its clientele
support may do much to deter it from being passed at aIl.
In a
situation such as this, it is apparent that regulatory operations are
having an effect on the workings of the political system.
MoreOVE~r
,
by virtue of its independence the commission is more or less free to
operate in this manner.
Usually, it must be admitted the case is not
quite so extreme, but even then independence may inhibit the proper
working of the political system.
Due to their independent status, the two-way flow of information
and policy suggestions between the agencies and the rest of the
government is not as attainable as it should be.
For example, feelings
about the White House supplying policy directives are mixed.
There is
still some feeling that this constitutes undue interference with the
traditional status of independence of commissions.
Even were such
directives to be encouraged, there would still be difficulties, as there
is at the present no formaI mechanism allowing for this type of
communication.
The same difficulty occurs with respect to legislation.
Theoretically, Congress is supposed to implement the basic statutes
of the agencies as the need arises.
to attain.
In practice, this seems difficult
Numerous suggestions are made by commissions to Congress
but little is done about them.
58
In part, the independent status of
commissions is responsible for this.
Legislation in order to get
through Congress needs to be strongly backed.
58 Bernste1n,
.
R
·
eguIat ory B
uSJ;ness,
p. 292 •
In this respect,
76
commissions are often lacking as they have no official ally in either
the White House or Congress itself.
Their main source of support is
usually their clientele group and this is often the group Most
interested in keeping the situation as it is, if for no other reason
than they are familiar with it and have learned to operate within the
existing framework.
In summary, the necessary rapport between commissions and the
rest of the government is to some degree lacking.
is the independent status of commissions.
One reason for this
Their very isolation makes
them difficult to reach.
Similarly, the type of procedure employed by commissions aiso
makes national policy integration and formulation difficult.
For
example, the fact that commissions operate by case-by-case proceedings
makes overhead directives by the President difficuit because this is
the one area where he should not
case between private
p~rties.
interfer~in
the adjudication of a
Furthermore, the tendency to use case-
by-case procedure to the exclusion of other methods means that
formalized standards to which Congress couid reply are often not
forthcoming.
In order to implement statutes, it is first necessary
that there be concrete rules established as a basis from which to
proceed.
Congress is not sufficiently expert in itself to provide
such rules.
It needs agency direction and help.
However, when MOst
agency policy formulation comes as a by-product of adjudication of
private cases, the record is often too muddled to provide the needed
basis.
}~d
the appropriate interplay between Legislative and
administrative action 1s hindered.
77
The above are only sorne examples of the need for close
coordination between regulatory agencies and its political counterparts.
In brief, such coordination is necessary for effective regulation.
MOre
than this, however, it is also necessary for the optimum working of the
political system.
have increased.
Demands on government over the last one
~undred
years
It i8 expected, for example, to manage the economy to
the extent that'inflation, unemployment and depressions have as limited
an effect as possible.
Further, it is supposed to foster national
growth and expansion and provide for the needs of its people.
The
execution of th9 aboveuasks requires the formulation and application of
broad economic and social policies.
Regulatory agencies by virtue of
their statutes and via their operations also apply such policies.
As a
result, their rulings can have a significant effect on the policies of
the national government.
Accordingly, for the national government to
succeed in its tasks, it needs the close cooperation of these agencies.
It needs agency help in the formulation of policies.
As agencies,
immediately concerned with certain sections of the economy, they may
have a better idea as to what will work and what will note
of ideas between the two groups should be constant.
Interchange
In short,
regulation and regulatory commissions should be regarded as a vital
part of the political process.
Their actions as weIl as the governments
de termine such things as whether or not competition is to be a national
goal, whether transportation policy will involve expansion, or whether
inflation or deflation is to be encouraged.
Consequently, the effective
operation of the political system depends to a large degree on its
relationship to the commissions.
In short, it needs a responsible
bureaucracy, a development that is hindered as a result of certain
traditional ideas governing regulation and regulatory commissions.
CHAPTER V
A CASE STUDY:
THE ITT AND ABC MERGŒ.
The previous chapter has dea1t with the major prob1ems that occur
in a commission system of regu1ation and some of the effects that resu1t
because of it.
The purpose of this chapter is to examine one of the
more recent cases that has appeared before a commission with the
intention of i11ustrating some of the more pressing difficu1ties.
The se
are basica11y the prob1em of conf1ict and coordination and the prob1em
of the public interest.
Subsumed under these are severa1 minor areas of
di fficu1 ty •
The case in question is that of the merger proposed in 1965
between International Telephone and Te1egraph Corporation (ITT) and
American Broadcasting Company (ABC).
This was a $2.8 billion merger,
the 1argest as yet presented to the FCC.
The controversy over it
1asted two years and invo1ved a number of interested parties, which
were respective1y the FCC, the campanies proposing the merger, the
Justice Department, and the public at large.
interest of each was the fo110wing.
In shortened form, the
The FCC was responsib1e for
ru1ing on the transfer of the seventeen te1evision and radio stations
invo1ved from ABC to ITT.
The Justice Department was invo1ved because
of the possible anti-trust implications of the merger.
were of course interested in merging.
78
The companies
And the public had an interest
79
because of the possible effects of the merger either good or bad.
The
case is a complicated one and is illustrative of the many pressures
under which a commission must operate.
Chronology of the Case:
1965-1968
1965
Dec.
7
Dec.
20
ITT announces plans for a merger with ABC (III, 3:3).
1
Reasons for the merger are cited. They are as
follows: ITT wishes to have a domestic revenue
equal to its international revenue. It is the
policy of ITT to achieve this via acquisition.
The merger with ABC is regarded as being a
continuation of this policy. The claim is made
that ITT research will provide a definite boon
to ABC with respect to "its broadcast-telecast
effo~ts.
Against these advantages there are
those who fear that the ITT image will intrude
on ABC programing. (III, 3:3)
1966
April 28
Holders back ABC merger with ITT. Claims are
made that the consumer will gain because ABC
will, with ITT1s help, become a competitive
network. Further ITT claims that ABC management
will be left alone as much as possible. However,
financial circles think otherwise. (61: 3, 6)
July
22
The FCC seeks assurance from ITT that it will not
engage in broadcasting activities if allowed to
merge with ABC. It demands this assurance in
writing. Co~ssioner Kenneth A. Cox urges an
immediate hearing on wbat he calls the most
important transfer application in FCC history. (10: 2)
Aug.
19
An oral hearing is asked for.
Not aIl the
commissioners are happy. Commissioner Bartley
wanted a full hearing instead to explore aIl
phases of the proposed merger. (67: 3)
3AIl entries are from the New York Times on the date
shawn; citations are indicated parenthetICally.
80
Sept. 20
OfficiaIs of the two merger candidates delivered
prepared statements and were subjected to a
lengt~ cross examination by the full commission.
Commissioners Nicholas Johnson and Kenneth Cox
try to pin down specifie technological advances
and financial commitments and also how the public
would be served by allowing the merger. The
replies are indefinite.(65: 1)
Oct.
22
The FCC is to defer action on the ITT merger
pending a Justice Department study. (62: 4)
Oct.
29
Senator wayne MOrse asks that the FCC delay its
decision until Congress returns in January. He
says that there is no need for a quick decision.
As more than half of ITT' s income comes from
foreign operations its control of ABC could
conflict with the aims of the FC Acts toinsulate
domestic mass media from foreign influence. (38: 3)
Oct.
31
Senator GayloréNelson, chairman of the MOnopoly
Subcommittee of the Senate Select Committee on
Small Business asks that the FCC consult the
Justice Department before making a decision. (54: 4)
Nov.
1
Pressure for a full study mounts in Congress.
The move came as a result of a report that the
commission would make its decision on the
strength of an oral hearing which lasted only
two days. A full formaI hearing is asked for by
Senator Philip A. Hart, Chairman of the Senate
Anti-trust and MOnopoly Committee. (53: 1)
Nov.
4
FCC members question the proposed merger. The
action came as a result of the mounting
congressional pressure. Information was sought
on the following details: The nature of ITT's
foreign subsidiaries and affiliates and any
significant business connections of aIl the
directors and principal officers; any joint
ventures with foreign governments including any
rights the foreign interests have in the event
of emergencies; the long range co~tracts or any
other long term agreements ITT might have; aIl
confiscations since the corporation's inception
~ foreign interests.
(78: 4)
Nov.
5
Donald F. Turner, head of the Anti-trust Division
of the Justice Department said a preliminary
investigation had turned up.indications of a
possible anti-trust violation with respect to the
merger and asks the FCC to postpone their
decision until the department completes its study.
(31: 1)
81
Nov.
24
Two connnissioners ask for more information. They
claim that the data provided bf ITT last week is
unclear and incomplet~. (74:1)
Dec.
10
The integrity of ABC is pledged
Dec.
22
bf
ITT.
(74: 5)
The merger is approved by a 4-3 majority of the
FCC following the receipt of a letter from the
Justice Department stating that there were many
possible bad effects to the merger but that these
were "speculative" and that the Justice Department
was not at the present time contemplating bringing
suit. The commission states that it will take
ITT's assurances at face value but that it will
keep the company's performance under surveillance.
The reason given for approving the merger was the
need of ABC for more funds than were available to
it in the. absence of financial assistance from
ITT. Dissent against the majority·decision
centered around two factors. Nicholas Johnson
argued that ABC is in good financial shape citing
that it had made plans for expansion before
deciding to merge and that it was capable of
executing them without the help of ITT. MOreover,
ITT made no specific commitment with respect to
financial assistance. Secondly, he felt that the
merger was against the public interest and that
it had been passed with undue speed. The Justice
Department was also unhappy with the decision,
stating that its letter had not been a clearance
and that it was still continuing its study. It
was felt that ITT's heavy involvement in CATV
systems and its position as a leading manufacturer
of electronics and communications made it a
leading contender for independent entrance into
broadcasting if the merger were disapproved. (1:7)
1967
Jan.
19
The Justice Department requests that the FCC
postpane the effective date of the merger and
that it reopen its entire proceedings on the
case. The petition stated that the commission
had violated the law under which it operates by
holding only a brief hearing, that it had failed
ta examine the crucial facts of the merger and
that it based its approval on an assumption that
the department believed to be false, namely that
ABC needed the money. The Justice Department
claims that it was ITT which was going to receive
money from ABC. Further, the petition stated
that ITT had previously tried to enter the
82
broadcasting field and that the Supreme Court
had ruled that the elimination of a potential
new campetitor could be grounds for holding a .
merger invalid. In Congress the suggest±mlœs
been made that as ITT has business around the
world it might come under considerable pressure
to reflect the viewpoints of those governments
in ABC's news. (1:4)
Jan.
20
ITT voluntarily postponed its planned merger for
two weeks re1ieving the commission of having to
make the decisiun of whether or not to order
such a de1ay. (63:5)
Feb.
2
The FCC agrees to let the Justice Department
present whatever evidence it has that the merger
is not a good one. However, it states that the
department is at fault for not objecting to the
merger.when it shou1d have, namely thirty days
after the case was accepted last April. The
FCC said that it was first informed in November
despite the fact that it had solicited an
opinion in June. (1:7)
Feb.
16
The Justice Department cites evidence that ITT
hoped to profit fram ABC instead of the reverse.
The c1aim is a1so made that the disadvantages to
the merger outweigh the advantages that cou1d be
gained from 1eaving ITT as a potentia1 separate
campetitor. (1:6)
Feb.
18
Nicholas Johnson, one of the Jissenting commissioners
states that the merger might jeopardize the integrity
of home news due to ITT's extensive foreign holdings.
He a1so criticizes the commission for rushing the
application through, stating that the FCC routine1y
conducts more extensive inquiries into the
application for transfer of a license for a single
radio or television station than it did for the
transfer of the seventeen stations involved in
this case. (28:2)
March 17
The FCC orders new hearings on the merger. The
Justice Department will be permitted to participate
in the hearings. (1:7)
April 11-12
The hearings revealed that ABC has a triple '!A I
credit rating and therefore could finance its plans
without the help of ITT. Further, top officials at
ITT testified that ITT expected a large raise in
its profits if it merged with ABC. (93:1), (28:5)
83
April 21
Three reporters covering the case allege tbat lTT
used improper pressure in an attempt to gain a
favorable reporting of the case. This has bearing
in view of the fact that lTT has pledged that it
will not interfere with the in~egrity of ABC news
coverage. (45:1)
April 22
ABC suggests to its affiliate stations that the
stations attempt to enlist the support of members
of Congress in pramoting a favûrable atmosphere for
the case. A large amount of mail is reported to
have been received by the commission in favor of
the merger. (36 :1)
April 25
ABC claims that it needs the merger because of its
poor positions with respect to the other two major
networks. (86 :5)
May
23
The FCC staff challenges the assumption of the two
companies that the merger was needed to give ABC
the capital to improve its programs. The companies
have claimed that the merger will favor the public
interest by making ABC competitive. The staff claims
that ABC does not need the merger to enable it to
develop new types of programs and further that ABC
has cited no new plans with respect to program
innovation, news or public affairs coverage should
it receive the capital. The Justice Department is
also attacking the merger on the grounds that it is
unnecessary and that it would eliminate lTT as a
potential campetitor. The FCC staff found no
evidence of lTT being a potential competitor. (95:1)
May
30
The FCC staff recommends against the merger if the
principal grounds for the merger is ABCrs need for
capital. (9 :2)
June
2
Thomas B. Fitspatrick, chief of the Hearing Division
of the Commissionrs Broadcast Bureau, stat~s that
the public interest would not pe served by approval
of the merger. (83 :1)
June
3
lTT reaffirms its pledge with respect to ABCrs news
policy. (63 :1)
June
23
The FCC reaffirms its original decision. The reason
stated is that the merger will enhance competition
by giving ABC greater resources to compete with.
The commission also imposed a condition to the effect
that lTT do considerable technical work in improving
the UHF channels. The commission found no evidence
that lTT was a potential competitor in view of the
fact that it drew back from CATV for reasons
84
unconnected with the merger. ABC has promised
program innovations as a result of the increased
resources.
Dissenting to the decision are Commissioners
Robert Bartley, Renneth Cox, and Nicholas Johnson.
They dissented because they did not believe the
record of the case supported the conclysions, and
that where it did, it could be found only in the
testimony of the witnesses who had direct economic
interest in theoutcome. (1:2)
July
21
The Justice Department files an appeal.
that it will fight the case. (1 :2)
ABC says
July
25
lTT and ABC decide to put off the merger until
the courts rule. Originally they had indicated
that they would fight the postponement. (7a3):
Sept.
8
The Justice Department asked the Court of Appeals
today to limit the merger on the grounds that
there was no way the commission could insure the
independence of ABC news after the merger without
coming dangerously close to the type of program
censorship that is barred by the First Amendment;
that the reasons for the commission's decision
were invalid; that it would be difficult for the
commission to police lTT with respect to the
condition imposed about the UHF channels as aIl
the commission could do would be to refuse renewal
of lTT's license and that it would be difficult to
do so on the basis of the company's having failed
to live up to the "vague and uncertain standards
regarding UHF development" set forth in the
commission's order approving the merger; and that
some conduct in the case had been reprehensible
on the part of lTT and related to the matter of
leaving ABC news alone. (30:1)
Oct.
3
The FCC states that the Justice Department erred
when it said that it would be unable to require
lTT to live up to its commitments. lTT accuses
the department of trying to establish a policy
that would bar any company with extensive
foreign business interests from ownership of an
American television or radio station. (28:2)
Oct.
18
The U.S. Appeals Court studies the challenge to
the lTT and ABC merger. (93:5)
Dec.
30
The case is still undecided and will go over into
1968. Either party may withdraw on Dec. 31. (31:2)
85
1968
Jan.
2
ITT withdraws from the merger. The reason given
is that the continuing delay in const.mlmatà~')gtithe
merger had convinced the board that it would
not be in the best interest of the company's
stockholders to pursue the project further.
Since the beginning of the merger ITr stock has
risen from $68 to $116. Originally lIT had
expected to pay roughly $500 million for ABC on
the basis of 1.14 shares of ITT stock for each
ABe share. At the present time on the same
ratio it would cost ITT about $620 million. ABC
says that now that it is over it plans to move
vigorously and forcefully into strengthening and
expanding the company's interests and growth. (1:7)
As indicated by the chronology, the case of the ITT and ABC
merger is far from clear.
Certain problems, however, are evident such
as the difficulties arising out of the overlap in jurisdiction between
the Justice Department and the Fee.
Although the Fee can not rule on
a merger directly, it was responsible for transfering the seventeen
stations in question fram ABe to ITT, and since the merger hinged on
this the Justice Department was involved in that it had to approve
the actual merger of the two companies.
cannot take place without the other.
Basically, the one action
The two parties have to be in
agreement if the merger is to go through.
In a case of this size
this means that in practice there should have been close coordination
between the two until the case was finished.
In this particular case
the needed coordination and communication was lacking in several
instances.
First, the Justice Department did not notifY the FCC of their
interest in the case until weIl after the specified time.
When they
did do so they requested a postponement until they had completed
their study.
This first delay lasted three months.
Secondly, there
.......
86
was the matter of 1ack of understanding between the two departments.
For examp1e, the FCC be1ieved that the let ter fram Donald Turner
stating tbat the possible bad effects of the merger were on1y
speculative and that the Justice Department was not at that time
considering pressing suit was a clearance.
conc1uded the case and approved the merger.
On this basis the FCC
The Justice Department,
however, did not regard this let ter as being a clearance and short1y
afterwards asked the commission to reopen the case.
The case was
fina11y reopened on March 17, 1967 after a de1ay of another two months.
On June 23 the new hearings were conc1uded and the FCC approved the
merger again, reaffirming its original decision.
However, at this
time the conf1ict between the two departments was still not resolved
and the Justice Department filed an appeal with the Court of Appeals.
On
December 30, after a delay of two years and without a court ruling,
ITT withdrew fram the merger.
The above case indicates very obviously the difficulties that
can occur when two departments have overlapping jurisdiction.
It was
especially bad in this instance since the disagreement between the two
was so complete.
Compounding the problem was the fact that there was
no formaI mechanism by which this disagreement could be resolved, short
of taking the case to court.
The FCC cooperated with the Justice
Department in that it reopened the case at the Department's request.
In the end, however, it disagreed with the Department and ruled
accordingly.
With better coordination the dispute between the two might
not have been quite so bitter and continuing.
wou1d not have prec1uded the ending.
-
However, even coordination
The two departments disagreed
87
funàamentally on the means of carrying out the goal of fostering
competition, a not unlikely event considering its vagueness.
The Fee
was concerned with improving the stability of the network situation,
whereas the anti-trust division of the Justice Department was concerned
with the anti-trust implications of the merger.
Aided by the fact that
the interests of each were somewhat different, and lacking clearer
standards, the two parties reached opposite conclusions. And as neither
party had absolute jurisdiction, there was no method by which the
disagreement could be either harmoniously or expeditiously resolved.
The second problem area illustrated by this case has to do with
difficulties involved in regulating in the public interest.
As pointed
out in a previous chapter, congressional guidelines are of little help.
In the case of the ITT and ABC merger they were ambiguous enough to
.
-...
,
permit different agencies to come to completely opposite conclusions
while supposedly seeking the same ends, that is of maintaining adequate
competition in the communications field.
MOreover, in this case there
was the added twist of an unknown factor, the connection between the
communications business and industries in foreign countries.
One of
the major points of dissent in the case was that ITT receives over
half of its revenue from foreign sources and that consequently it might
be put under pressure to try to influence domestic news to give a
favorable reporting of events in the countries where it conducted
business.
follow.
On
this point the Fee had no congressional guidelines to
Nor had it developed on its own behalf a framework from which
to view the case.
These two factors combined le ft it with litt le
choice than to take the assurance of ITT that it would leave the
integrity of ABe news alone, trusting that it would be able to
88
correct the situation later'should the results prove unsatisfa«tory.
This
~.ase
also illustrates how tempting it is for a commission
to equate the public inter est with maintenance or support of the
status quo.
That ITT should wish to merge with ABC seemed to be the
solution to one of the biggest headaches that the FCC has, namely that
ABC has always claimed that it runs a poor third to the other two
networks due to lack of resources.
Instead of restricting the field
with respect to competition the merger seemed to be the solution to
strengthening it since the combined resources of both companies would
be available for use.
And it seemed less risky than openingthe field
up with a fourth competitor so that it might run into the same
difficulties as ABC a few years hence.
Furthermore, political support in the case of an unpalatable
decision appears to have been rather seant.
For example, although the
case was supposed to have an effect on the public interest, no consumer.
groups came forward, either to support or object to the decision.
Congressional interest in the case was split.
In these circumstances
the FCC accordingly reached the obvious conclusion.
It supported the
merger, thereby retaining the support of its clientele group while
keeping the industry within a familiar, existing framework.
The above paragraphs have cited evidence pointing out the
difficulty in regulating in the public interest and the temptation
that a cormnission faces to accede to the desires of the industry which
it regulates.
Sorne of the problem, however, rests in the commissionls
method of operation.
Many mergers are approved without reference to a
larger framework as in the case of the ITT and ABC merger.
In this
89
case the only general notion of policy was a vague idea of fostering
competition.
action.
Basically, approval of the merger was a piecemeal
Encou~aging
this type of approach was the traditional use of
the hearing procedure, collecting as it does masses of somewhat
connected and at the same time unrelated cases without fitting them
into an orderly plan of development on which it can support and justify
its decisions.
In the ITT and ABC merger the FCC made no attempt to
move away from such traàitional modes of operation, and lacking a
concrete plan from which it could relate the merger to other factors
in the communications field, it accordingly left itself open to the
type of pressures that it came under.
The pitfalls an
indep~ndent
commission faces in trying to
regulate in the public interest are numerous.
The goals it is supposed
to seek are vague and the pressures it must face are great.
Moreover,
a commission receives little real support in its attempt to balance the
competing interests into something that can be considered to be in the
public good •. In this situation it is not surprising that the commission
falls back on traditional ways of operating.
Behaving in this manner
may not necessarily result in a progressive plan of action but it tends
to keep the survival factor high.
If the commission is to actually
regulate competently and forcefully in the sense of being the leading
innovato.r in the field, it needs the security of sound political
support other than that provided by the industry that it regulates.
In conclusion, the ITT and ABC merger case aptly illustrates two
of the major problems that beset an independent commission, that of
trying to regulate without adequate jurisdiction and coordination with
other agencies, and of trying to regulate in the public interest when
the very term is so ambiguous so as not to provide any concrete
definition at aIl.
CHAPTER VI
SUGGESTED METHODS OF REFORM
Proposed solutions to the problems presented by regulation by
independent commissidns tend to fall into definite categories.
There
are those that deal with changes in the internaI organization of
commissions.
Proponents of this type of solution wish to maintain
regulation by commissions and feel that they are basically an
effective instrument but that their efficiency wou Id be increased by
some organizational changes.
There are also those who have become
disgruntled by commission operations.
Advocating a large alteration
in the present commission structure, they usually suggest a separation
of functions.
The last category is reserved for those who value
regulation by commissions but feel that significant unity and
coordination with national policies is lacking.
In this case the
retention of the commission is advocated but the establishment of some
sort of supervisory board which could coordinate policies is aiso
recommended.
AlI of the above proposaIs have both merits and defects.
It is the purpose of this chapter to examine just what they are.
The strongest advocate for procedural changes has been the
Hoover Commission.
It found the independent regulatory commission a
useful device for certain types of regulation, but that certain
90
91
features such as the administration of commissions cou1d be better
arranged.
1
In genera1, the Hoover Commission recommended that
essentia11y executive tasks be transferred to the departments
concerned,2 that administrative direction be vested in the office of
the chairman, that statutes be amended to permit de1egation of routine
pre1iminaryand 1ess important work,3 and that commissions attempt to
improve their procedures by greater use of informaI hearings, pretria1
conferences and the shortening of hearings in genera1 as much as
- 4
possible.
Through the above operationa1 changes it was hoped that much of
the inefficiency of commission regu1ation cou1d be eliminated.
For
examp1e, it was fe1t that remova1 of pure1y executive duties to
departments wou1d 1essen the work10ad of the a1ready overburdened
commission and provide more time for substantive work. 5
In 1ine with
this end it was believed that by i:-vesting:.. ':-L.~ administrative duties in
the hands of the chairman and by increased use of de1egation much of the
inefficiency and de1ay in commission operations could be e1iminated.
1Commission on Organization of the Executive Branch of the
Government, Regu1atory Commissions·, Appendix,!, p.28.
2Ibid ., p.29.
3Commission on Organization of the Executive Branch of the
Government, ~ Independent Regu1atary Commissions. A Report to
the Congress (Washington, D.C.: Government Printing Office,
March 1949), PP. 4, 9-10.
4Commission on Organization of the Executive Branch of the
Government, Regu1atory Commissions, Appendix ,!, pp. 54-55.
5Ibid ., p.30
6Ibid ., pp. 43-51
6
92
And finally, by greater use of informaI procedure, it was hoped that
the amount of ttme taken to reach a decision on a case could be
shortened. 7 In the end, it was expected that with better administration
and delegation the commission would have more
t~e
to devote to planning
and research, and that in this way the overall performance of commissions
would be increased.
8
Operational changes su ch as those recommended by the Hoover
Commission do have a value.
In Many instances they could tmprove the
speed and quality of the work, but the result is not necessarily
For example, Louis Hector, a former member of the CAB,
guaranteed.
does not feel that vesting organizational duties in the office of the
chairman has done much to improve administration in the CAB.
Instead
he has found that as a matter of practice the chairman still only
performs the Most routine ministerial duties without full board
consultation.
9
The ultimate value of such changes as those recommended
by the Hoover Commission depends on how one views regulation.
If one's
view of the nature of regulation demands that it be closely integrated
and related to governmental policies in general, then recommendations
such as those of the Hoover Commission fall short, for in essence, they
leave the status of the independent regulatory commissions unaltered.
Commissions are still independent bodies deciding on policy issues
which will have an effect on larger and important segments of the
economy.
7
~,
8
~,
9
PP. 54-56
pp. 42-43.
Hector, "Problems of CAB", p. 936.
93
The second category of proposed solutions to commission
regulation involves more drastic changes.
Essential1y what is
recommended is a separation of commission functions, usual1y along the
following lines:
aIl the administrative duties of the commission will
be placed in a regu1ar bureau or division of a department, headed by a
chief with career tenure who is directly responsible to the Secretary,
and through him to the President.
This section wou Id be responsible
for formu1ating ru1es, initiating action, investigating complaints and
holding prelimdnary hearings.
10
In addition to this, the establishment
of a judicia1 section which would be concerned with pure1y judicial
activities and which would act as an impartial independent body is
recommended.
11
If a judicial section were not advisable an alternative
solution would be to send judicial aspects to a special administrative
court.
Two groups advocate separation along the above lines a1though
for distinct reasons, namely those that are concerned with strengthening
presidential coordination and planning, such as the President's
Committee on Administrative Management and those that are concerned with
the fairness of judicial activities of commissions.
this viewpoint is the American Bar Association.
Representative of
Because of their
distinct interests the reasons for their advocacy of separation vary.
Administrative theorists ho1d that such a separation would
create effective responsibility for the administrative and policy
l°President's Committee on Administrative Management, Report
of the Committee, Administrati~ Management, p.37.
11Ibid ., p.37.
94
determining aspects of the regulatory job.
12
It would encourage
active policy formulation, since in order for the two sections to work
together, or for the administrative section to work in harmony with an
administrative court, explicit and detailed policy guidance would be a
13 .
necessity.
Furthermore, it would allow for coordination of
regulatory policies in a unified and rational basis with those of the
chiefexecutive, and remove the likelihood of either function being
performed poorly because of the conflict of interest.
The merger of the duties of investigator, prosecutor,
and judge in the one organ makes the exercise of the
latter function in a truly judicial manner almost
impossible to achieve. In addition, the vesting of
judicial duties in an organ charged with administering
the law renders the proper exerciae of the
administrative function a hard one. From the point
of view of the public interest, indeed, this aspect
of the problem is, in many ways, the more important.
Adequate executive coordination is rendered difficult
by the vesting of vital administrative duties in
the se organs, which are free from accountability to
the President, because such independence is deemed
necessary tg the proper exercise of their judicial
functions. l
Judicial theorists on the other hand advocate separation for
the following·reason.
They feel that the merger of functions mitigates
against natural justice and that even where it does not do so in actual
practice the very fact that the two functions are performed under one
agency means that the litigant may still feel that there 1s a bias
against him.
11:
J.J
l2 Ibid ., p.37
13
Samual Krislov and Lloyd D. MUsolf, ~ P01itics ~
Regulation (Boston: Houghton Miff1in Company, 1964), p.161.
14Ibid~, pp. 157-158.
15Ibid~', p .156.
95
The merits of the above solution to regulatory problems are
basically two.
Placing commissions in executive departments should
lead to better coordination with executive policies.
Also, the
existence of a separate judicial section might les sen some of the
confusion that now exists with respect to precedents and standards in
case-by-case procedures.
However, serious difficulties .also might
occur with an alteration as drastic as this.
Many of the judicial decisions of commissions have a greater
effect than just the outcome between two parties, as in the case of
reparation on a rate case where requests for the setting of future
rates are often involved.
Decisions on problems of this kind would
undoubtedly have a bearing on the public interest as weIl as on the
two parties involved.
In other words, decisions on rates may involve
matters of policy that reach beyond the immediate case.
Close
coordination would therefore be of the utmost necessity, but as
mentioned by the administrative theorists, coordination is already
a problem.
Thus, instead of providing benefits the separate existence
of a judicial section could mean additional troubles as a consequence
of the increased complexity of the process.
Purely political factors also render separation difficult.
Gongressional committees, for example, are normally interested in
retaining their control over commission operations.
Consequently,
Congress may be somewhat hostile to the suggestion of placing commissions
in executive departments since it would incur a further loss of power
to the executive branch.
16Ibid~, p.IIS
Evidence of this type of hostility can be
96
found in the fact that many of the recommendations of the Hoover
Commission and those of President Kennedy having to do with increased
presidential power over agencies were rejected.
17
A similar reaction
could also be expected fram interest groups that profit as a result of
the independent status of commissions.
Essentially, such a change
would mean a reallocation in the power structure between the President,
Congress and the interest groups and for this reason proposaIs along
the lines of separation are likely to meet with opposition.
In conclusion, even were su ch opposition overcame and
commissiGn~
transferred to the executive departments, the expected results would not
necessarily occur.
Much of the commission!s power now stems fram its
clientele support and the support of Congressional groups.
the executive department would not lessen such support.
Transfer to
As a result,
agencies with a long tradition of independence might still be able to
maintain their position, and fragmentation and opposition with respect
to policy objectives could still occur.
Finally, there are proposed solutions which involve leaving the
commission system much as it exists now but providing for better
coordination of agency programs and for formulation of policy than now
exists.
Usually recommending the establishment of seme type of
supervisory board or boards, most proposaIs along this line suggest
~.
that such a board should be located in the executive office of the
White House.
In brief, it is r,ecommended that individual centers
concerned with particular areas of the economy should be created and
that managerial functions now located in the Bureau of the Budget be
transferred to such centers.
17
Woll, Bureaucracy, p.163.
97
A major advantage attached to this proposaI is that it would
give the independent commission an official ally, a factor which
provides several benefits, one of them being to help in getting more
adequate budgets.
It has been suggested that the present location of
managerial functions in the Bureau of the Budget does not help in this
case due to the very existence of the Bureau as the watchdog of potential
expenditures and that the end result, instead of cooperation, is
hostility between the agencies and the Bureau.
18
In the same context such a center should aid in getting the
legislative suggestions of the commissions through Congress.
As the
situation now stands, suggestions are first approved by the Bureau of
the Budget and then passed on to appropriate
e.~ongressional
e;ommittees.
The fact that these committees are involved in other areas means that
the time they devote to commission problems i8 of necessity limited.
An official center, however, concerned solely with commission regulation
would be able to devote aIl of its time to such problems.
Boards of this type would also offer a permanent means by which
agency policies could be coordinated with other agencies and departments
and additional1y provide a more tangible method through which policy
suggestions from the White Rouse could be passed to commissions and
vice· versa.
Finally, it is possible that the task of large scale
planning could be located in these centers and thus fil1 the void that
now exists in commission regulation.
The greatest advantage accruing to the proposaI for the
establishment of a supervisory board is that it does not radical1y
18Lan dO1.S, Regu l atory Agenci-es, p. 82.
98
change the present system.
As a result, its impact would be moderate,
a fact which ought to make it more palatable to those involved with
regulation.
Furthermore, it would leave commission status much as it
now exists, thus
satis~ing
those who believe that the independence of
commissions provides a needed check against susceptibility to political
whims.
The most serious defect to the above proposa! is that it further
extends and complicates the regulatory process.
Aiso the question can
be raised-as to the ability of such a board to supervise the numerous
sectors of regulation.
How much of a drawback these are, however,
depends on what one considers the most important need in regulation.
Proponents of this type of solution are concerned basically with large
policy matters and from this standpoint, this type of proposaI seems
to provide the most satisfactory answer of those suggested by official
studies.
CHAPTER VII
CONCLUSION
As pointed out in the preceding chapters, the independent
commission system of regulation poses Many problems.
Depending on
one's viewpoint, however, the system can be said to operate poorly,
indifferently or weil.
For instance, if one is concerned with
technical competence, the commissions must be-eaid to operate at
a high level, posseseing an expert staff, aithough some structural
changes would help in this respect.
However, from the point of view
of serving the public interest and planning for the future, and all
that this implies, the independent commission must be said to be
deficient on balance.
The reason for this bas to do with basic
premises that have been made about regulation theory, namely that
government and the economy are separable, that politics and
administration are separable, and that commissions serve no political
purpose.
These basic premises dictated the establishment of an
independent commission staffed by experts aud having limited
jurisdiction.
However, l feel that these assumptions are no longer
valid, and that in fact the exact reverse holds true.
Consequently,
it follows that the traditional model is likely to prove inadequate
in present circumstances.
The commissions are in fact being asked
to pèrform a far more difficult role without an appropriate change
in structure.
99
100
Given the fact that government and the economy are not separable
units, is the present status of commissions a liability or an asset?
To my mind it is a liability.
Because the government is now deeply
concerned with economic factors the focus of regulation has altered.
Instead of being preventive, it is positive.
It seeks to manipulate
the economy in such a way that it will serve broad national policies.
Where does this leave the commissions?
nowhere.
To begin with, they
la~k
Somewhere in the middle of
the simple power of jurisdiction
necessary to carry out broad policy directives.
For example, one
such policy directive is the dictum to develop a transportation
network adequate to the needs of the nation.
Transportation, however,
is divided between three independent commissions, and the jurisdictional
power of aIl three is limited with respect to the other two.
The end
result is that no one group has the power to design a broad transportation
plan.
Each can only design one segment of it hoping that it will in
some way mesh with the plans of the other two.
That this is a
recognized fact can be inferred from the establishment of a Department
of Transportation and also proposaIs to integrate the three commissions.
And aithough the Department of Transportation May in itself be Inadequate
to the task it stands a better chance in view of the fact that it can
at Ieast design a comprehensive plan.
Similarly, where does the independent status of commissions
leave them with respect to positive regulation?
rather than helBs.
Essentially, it hinders
Positive regulation is concerned with the whole
spectrum of the economy, yet commissions deai only with one small
section at a time.
This is a situation which Ieads to the development
101
of parochial attitudes rather than the broader out look which is
needed.
It aiso means that a coherent policy becomes more difficult
to obtain, being formed as it is by many groups independently.
In
conclusion, the present status of commissions was best suited to
preventive rather than positive regulation and should be modified
accordingly.
Another failure arises from the inahility to recognize that
administration is a political matter.
This leaves commissions in a
rather odd situation, ignoring as it does one rather large factor,
namely the interplay of various interest groups involved.
The
commission is in effect in the position of a middleman situated
between government on the one side and the clientele group on the
other.
This is a tremendous responsibility, but there is nothing in
the commission's structure to indicate that it even performs this
function.
This is due to the fact that the traditional model of a
regulatory commission involved mainly the prescription of rules so as
to prevent abusive practices.
Now,however, co:nmissions are being
asked to transmit national policies downwards, to bring new ideas to
the fore, and to keep both sides informed and cQoperating.
Administration of this sort, of necessity, involves politics.
The
question is where should the emphasis be?
~
this time commissions are adept at keeping their own groups
at least moderately happy,
How weIl they serve the other purpose of
bringing new ideas to the fore and reporting reactions to various
policies and proposaIs is another matter.
At the present time
commissions find it rather difficult to get themselves listened to
102
in the capital.
This is not their fault as there is simply no
established channel that they can go through which would be
sympathetic to, and interested in, their ideas.
namely, the
Burea~
Those that do exist,
of· the Budget and the congressional committees are
involved in many other matters and have a limited amount of time that
they can devote to commission regulation.
The result is that
commissions become simply one of several groups lobbying either the
Congress or the White Rouse.
structure.
This is a basic failing of the whole
Polieies involve execution as weIl as legislation, and it
is to the national interest that appropriate communication existe
The assumption that commissions do not serve a political purpose,
and further should not, is damaging.
true.
In reality the reverse holds
Commissions in fact perform one of the most
esse~tial
of aIl
political roles, that of maintaining stability, establishing consensus,
and in general keeping the existing political system a thriving force.
It i6 true that with respect to the total political system they are a
rather small segment of it.
They are, however, a segment that has a
direct influence on the public's well-being.
Through the granting of
licenses, the fixing of passenger routes, establishing rail and air
costs and through the establishment of investment rules to cite only a
few examples, they impinge on the daily lives of most citizens, whether
or not they are recognized as having such effect.
It is ta the benefit,
therefore, of those at the top of the political structure to employ
regulatory commissions in such a way as to enhance the political
possibilities involved rather than to ignore them.
The present
structure of commissions for the most part ignores this ppssibility and
in fact is set up ta minimize it as much as possible.
103
In summation, the present commission structure, based as it
i8 on outdated theory, is inadequate to the tasks now assigned it.
Consequently some modification in the structure is necessary in
order to encompass the new factors involved.
The most suitable
arrangement would be the establishment of some type of supervisory
board.
In brief, a supervisory board performs the function of
coordination and broad policy planning.
Be~ond
this, however, it
inherently recognises and allows for the changes in regulatory
thought which have occurred.
Essentially, it provides a means
whereby governmental policies can be coordinated with economic
realities and whereby the political aspects involved in regulation
can be given weight and utilized.
For example, one of the major defects of the present commissions
system with respect to the coordination of the governmental sphere with
the economic is the limited jurisdiction and independent status of the
commissions.
this.
The existence of a
s~pervisory
board mitigates against
It does so because one of the basic functions is that of broad
policy planning.
Because its perspective is broader, it can limit the
parochial effect which comes with long association with one industry.
Similarly, a supervisory board allows for the political aspects of
administration.
It establshes a formaI channel of communication both
upwards and downwards.
It permits the directions needed to utilize
commissions as political instruments.
Many merits attach to regulation by commission.
problems involved they can
pl~
Despite the
a valuable role with respect to the
104
rest of the political system.
What is needed is a modification in
structure which will permit them to operate at their highest level
,.
and at the same time be in accordance with the patterns of thought
governing the remainder of the American political system.
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~W~a~sh~1_'n~g~t_o_n~,
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