Henry Manne’s subtle but important influences on environmental law
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Henry Manne had little to say about environmental law and policy. Yet he had a significant impact on the approach that others took to those topics. These indirect influences on environmental law and policy were threefold. His creation at George Mason University of a highly successful, specialized, law school curriculum demonstrated that law schools could not only survive, but thrive with a subject-matter or methodological focus. His central role in introducing economics to the law school curriculum had a significant and lasting impact on legal education in general and environmental law in particular. And his study and advocacy of markets as effective institutions for the allocation of scarce resources has contributed to the development of environmental law and policy, notwithstanding a predisposition among environmentalists and government officials for a command and control approach.
KeywordsHenry Manne Environmental law Law & economics Legal education
JEL ClassificationA230 K32 Q0
1 Specialization in legal education
From the beginning of his tenure as dean of George Mason University School of Law in 1986, Henry Manne undertook to structure the entire curriculum around economic analysis of law. Existing faculty were expected to have or develop an understanding of economic analysis, new faculty were recruited on the basis of their economics credentials, and all students were required to study economics during their first year of law school. These were remarkable achievements. No law school had ever required the study of a non-law subject, nor had any law school demanded that the vast majority of its faculty be fluent in a non-law discipline.
Anyone who knows modern American legal education will understand the challenge Manne faced in transforming an existing, traditional, law school into a law and economics law school. While law school deans once exercised nearly unlimited powers, that era had long since passed by the 1980s. Faculties had effectively captured the American Bar Association’s accreditation process requiring, among other things, faulty governance. Law students had managed to gain an official role in everything from admissions to budget to curriculum. Somehow Dean Manne was able to reinvent George Mason’s law school and in the process put it on track to a top 50 ranking among the nation’s over 200 accredited law schools.
When I became dean of Lewis & Clark Law School in 1993, Dean Manne advised me to aggressively pursue my school’s already existing focus on environmental and natural resources law. In his view, such specialization was the only path to national prominence for a local school of our history and standing. Although we never required that all of our students study environmental law, we expanded our environmental law curriculum, hired additional faculty with environmental law expertise, added innovative co-curricular and extra-curricular programs, and aggressively recruited students interested in environmental law. The results were as Manne predicted. We gained national recognition, ranking consistently as the number 1 or 2 environmental law program in the nation, and we rose in the general national rankings relative to other law schools in our region.
While no other law school has embraced a specialized curriculum for all of its students as George Mason did, numerous law school’s have followed the George Mason lead by creating specialized programs to complement their traditional curricula and, more importantly, to recruit students. Today there are as many as 40 law schools claiming specialized expertise in environmental law, many of which also offer advanced degree programs in environmental, energy and natural resources law. Henry Manne proved that such specialization could be successful. In the case of my law school, it allowed us to recruit many quality students who would never have come to Lewis & Clark without a top-ranked environmental law program.
Manne institutionalized specialization in law and economics in another important way by launching programs for judges and law professors. He launched a ‘law and economics summer camp’ for law professors in 1970 and followed that with a program for judges that still runs through the Law and Economics Center at the Antonin Scalia Law School of George Mason University. The law professors program spread law and economics to law schools across the country with impacts discussed in the next section. While there is no way to know with any precision how the program for judges influenced judicial decision making,1 there can be little doubt that it expanded the intellectual horizons of the many judges with no prior exposure to formal economics. Understanding economics could only help judges faced with interpreting and enforcing environmental regulations often designed to correct for market failures.
What is also certain is that the judges program, and others modeled on it, became highly controversial. Critics alleged that the programs were funded by corporate and other special interests and that the pro market/pro property rights perspective of the lectures would bias future judicial decisions.2 Defenders, who clearly had the better argument, responded that a better-educated judiciary could only be a good thing and that federal judges (over half of whom had attended the program as of the late 1980s) are, if anyone is, independent minded individuals.
2 Impact on legal education in general
For well over a century, the basic mode of instruction in American law schools has been the case method introduced by Harvard law school dean Christopher Columbus Langdell. While there have been modifications to Langdell’s strict reliance on the reading of appellate cases, the only truly significant pedagogical change in the last half century has been the establishment of law clinics in which students represent real clients under the guidance of a licensed practitioner. But because clinical education is costly, due to the necessarily low teacher-student ratio, all law students learn most of what they know about law from reading casebooks and participating, or not, in what purport to be Socratic classroom dialogues.
In addition to the adoption of clinical methods, there has been a small handful of other significant developments in American legal education over the last half century. Although they continue to rely on Langdell’s case method, law faculties have largely abandoned his law-as-science approach in favor of an instrumentalist view of the law. Their instrumentalist understanding of law has led them to focus much of their instruction not on “discovering” the law, as Langdell would have it, but on training students in the use of law to achieve political ends. Because the vast majority of American law faculties are dominated by political liberals, their advocacy approach favors liberal ends.
A reaction to the liberal instrumentalism promoted by law school faculties was the creation by students of a conservative/libertarian organization called the Federalist Society that now has chapters at almost every law school in the country, lawyer chapters in most cities, and a national organization with significant influence, particularly on federal judicial appointments by Republican presidents. By sponsoring conservative and libertarian speakers at law schools across the country, the Federalist Society has altered the discourse on law school campuses. So much so that a counter, though far less successful, organization, the American Constitution Society, was formed to compete for student attention.
The efforts of the Federalist Society and of the minority of law faculty preferring either apolitical objectivity or conservative/libertarian ends were greatly assisted by the, by then, widespread study of law and economics in which Henry Manne played a leading role. There has been nothing of greater influence on the substance of legal education over the last half century than the introduction of economic analysis into American legal scholarship and teaching. Many individuals, including Ronald Coase, Henry Simons, Aaron Director, Guido Calabresi, Gary Becker, Harold Demsetz and Richard Posner made important contributions to the emerging field of law and economics. Henry Manne did as well, but he also set out to institutionalize the discipline by establishing a law and economics center that finally landed at George Mason University. While much of the early work was done at the University of Chicago where Manne studied under Coase, by the 1990s there were few law schools that did not offer at least a course in law and economics.
But it was not the courses in law and economics that had the greatest impact on legal education. It was the widespread inclusion of economic analysis in traditional courses like torts, property, antitrust, regulated industries, securities and even criminal law—and the embracing by legal scholars of economic analysis in their studies in almost every area of law. There were other efforts to integrate social sciences like sociology and anthropology into the law school curriculum, but nothing took root like economics.3 Henry Manne was instrumental in making that happen, including bringing economics into the then emerging study and teaching of environmental law.
3 Impact on approach to environmental problems
Henry Manne’s career spanned the first several decades of the modern era of environmental law. While there is little in Manne’s writings that speaks directly to the launching and development of the plethora of environmental laws we have today, his indirect influences have been substantial. As one of the founders of the discipline of law and economics, Manne contributed to widespread reliance on economic theory to explain perceived environmental problems. As a consequence, the substance of many environmental regulations reflects economic theory and is often justified (not always persuasively) with reference to economic theory. Finally, as noted above, Manne’s influence on legal education encouraged and facilitated the kind of specialized curricula of which environmental law is a prominent example.
Manne’s leading role in the introduction of economic analysis to the study of law paralleled and deeply influenced the development of environmental law. His studies of private markets as allocators of scarce business resources under corporate law contributed to our understanding and resolution of environmental and natural resource problems. Although many environmentalists prefer to think of their concerns in moral and philosophical terms, the undeniable reality is that environmental problems are resource allocation problems.
The precursors of modern environmental law were founded on a combination of early Twentieth century preservationist and conservationist philosophies. Preservationists, people like George Perkins Marsh, Henry David Thoreau and John Muir, urged that nature should be preserved for its own sake and for the sake of human spiritual well being. Conservationists, like Gifford Pinchot and Theodore Roosevelt, counseled cautious use of resources with the objective of producing, in Pinchot’s words, the “greatest good for the greatest number in the long run.”4 While these distinct views led to occasional policy disagreements—for example over the future of Hetch Hetchy Valley in Yosemite—they shared in common a conviction that government, and particularly the federal government, is essential to both preserving and conserving natural resources.
The preservationists embraced Congress’s 1872 creation of Yellowstone National Park and urged other such reservations of unusual and spectacular landscapes. That these early parks were called reservations reflected that they were reserved or withdrawn from the public lands otherwise available for private acquisition under a wide array of federal laws. From the beginning the preservationists’ idea was that these lands would be retained and managed by the federal government. Private ownership of these rare landscapes was thought to be the path to their destruction.
While people might disagree about what constitutes destruction, the lands would almost certainly have been managed differently in response to market, as opposed to political forces. So if the objective was to preserve lands in a largely undisturbed state, the preservationists were correct in believing that government ownership and management were the best approaches in most cases.
With regard to the public lands of the American west, the conservationists followed the lead of the preservationists in establishing reservations for the protection of timber, water, wildlife and eventually grazing resources. While the reserved lands, like the parks, were to remain in public ownership, the resources were to be developed by private users pursuant to agreements with the federal land management agencies. Thus markets were to play a role, but only within parameters determined by government planners.
By the middle of the Twentieth century, with the publication of Rachel Carson’s Silent Spring,5 concerns about the effects of pollution on human health led to a dramatic expansion of the political agenda of the preservationists and conservationists. A new environmentalism was born calling not only for public ownership and management of resources but also for public regulation of private resources. The Clean Air Act (1970), Clean Water Act (1972), Toxic Substances Control Act (1976), Comprehensive Environmental Response, Compensation, and Liability Act (1980) and other laws relied on a command and control approach to protecting human health and preserving the natural environment. Governmental commands were based on the view that human health must be protected at any cost, and historic polluters were held responsible for cleanup costs with little regard for traditional standards of fault and reasonableness.
As the not insignificant costs of these regulatory regimes became clear, the environmental-protection-at-any-cost perspective was challenged. The economic analysis of law and regulation practiced by Henry Manne and the other founders of the discipline of law and economics provided a basis for both challenging and justifying environmental regulations. The arguments Manne had made in 19666 against the restriction of insider trading in information markets had equally forceful application to markets for scarce natural resources. While economic analysis by bureaucrats could never displace the market as an efficient producer of information and allocator of other scarce resources, it could assist bureaucrats and policy analysts in making at least rough assessments of the consequences of regulatory regimes.
As Manne observed four and a half decades after his 1966 book on insider trading, “the types of decisions and the knowledge required for correct industry or sector-planning decisions—as, for instance, with the Securities and Exchange Commission, or the National Labor Relations Board, or the Environmental Protection Agency—are the same in a regulatory regime as in a centrally planned economy.” After referencing Friedrich Hayek7 for the proposition that “the technical expertise necessary to make efficient allocational decisions is, of necessity, simply unavailable” to government regulators, Manne went on to observe that “[n]o sort of Darwinian survival process operates automatically to weed out bad decisions and allow good ones to survive as it does in the private sector…. Apart from a totally unjustified belief in the skills and good faith of our regulators, there is no rigorous or logical way to justify much of their work”8—but not all of their work. When faced with the magnitude of the information challenges posed by the ambitious agendas of the seminal environmental laws, those seeking to justify the work of the environmental regulators were quick to embrace economic theory. Even many who initially believed that environmental regulation could be founded entirely on the sanctity of nature and human life were persuaded that William Baxter was correct in making the case for optimal (as opposed to zero) pollution in his 1974 book People or Penguins.9
Another important parallel between Henry Manne’s work and environmental law was his recognition of the role of property rights in corporate control. Manne argued that corporations function as entities for allocation of property rights10 rather than what Paddy Ireland describes as “unproblematic conflict-free, profit-maximizing, productive ‘black boxes’.”11 Manne credited a lecture by Armin Alchian for opening his mind to the role of property rights in corporate governance: “[I]t was like a light bulb went off in my head, it was incredible. All of a sudden, everything that I had done intellectually for thirteen years came together, with this one idea of Alchian’s about the real nature of property rights and the Misesian notion of people making choices, with every choice being a tradeoff, meaning that there is a cost—what you give away is the cost of what you get.”12
The same light bulb went off in the heads of at least some teachers, students and practitioners of environmental law, sparked by the emergence of economic analysis as a staple in some law schools. They realized that environmental protection is not a costless, unalloyed good. What you give away is the cost of what you get. There are opportunity costs to environmental regulation. The challenge for policy makers is to achieve the most public good at the least public cost. Manne’s argument that the market in shareholder property rights in corporations leads to improved corporate management applied as well to environmental resource management where property rights exist or could be created.
Manne also understood that, like property rights, liability rules play a significant role in the allocation of scarce resources. As Coase had illustrated with the example of adjacent confectioner and doctor offices, the initial assignment of liability, for what are merely reciprocal costs imposed by each on the other, will dictate the allocation of resources when transactions costs prevent exchange. Assigning liability for environmental harms was thus recognized as a policy tool providing ex post compensation for damages and, equally importantly, ex ante incentives to reduce pollution. Environmental laws founded on this understanding of the economic effects of liability assignment include the Comprehensive Environmental Response, Compensation, and Liability Act in the United States and the European Environmental Liability Directive in Europe.13
Few of those thinking seriously about environmental problems through the final decades of the Twentieth century would have recognized a significant connection between Henry Manne’s theoretical work and their policy proposals. But there can be little dispute that Manne’s ideas on the role of markets in the allocation of scarce resources and the importance of property rights to markets played a significant, if indirect, role in introducing economic analysis to the environmental law and policy arenas. Two economics-inspired approaches found particular applicability to environmental problems: cost–benefit analysis and externalities or market failure analysis.
Cost–benefit analysis, employed enthusiastically by one of President John Kennedy’s best and brightest, Defense Secretary Robert McNamara, was relied on in recognition of the unintended, negative consequences of many environmental regulations. But this approach required regulators to do what Hayek convincingly demonstrated they could not do, that is acquire and synthesize the information necessary to determine who is affected by a particular regulation and then assess the costs and benefits borne by those affected. Notwithstanding the impossibility of truly accurate cost and benefit assessment, cost–benefit analysis persisted as a better-than-nothing approach to the evaluation of environmental regulations and projects—particularly in the context of water resources development.
The second and more pervasive economics tool applied to environmental regulation has been externalities analysis. Most environmental law casebooks provide a basic explanation of externalities theory. Many even include reference to, if not excerpts from, Ronald Coase’s The Problem of Social Cost.14 The environmental law literature is filled with externalities analysis, although some environmental law scholars have eschewed any reference to economic theory in favor of a firm stand on the high ground of moral principle.
The appeal of externalities analysis to environmentalist lawyers and environmental law professors (the vast majority of whom see their mission as educating environmentalist lawyers rather than lawyers prepared to advise business clients and property owners faced with compliance) lies in the prospect of advocating for environmental regulation in the same economic terms employed by opponents of regulation. Externalities analysis leads to recognition that there are costs and benefits arising from polluting activities that have not been accounted for in the transactions leading to those activities. This market failure, usually attributed to high transactions costs, is then said to justify regulatory intervention where net social welfare is diminished as a result of usually dispersed, and therefore uncompensated, external costs.
By embracing externalities analysis as an explanation for environmental regulation, environmental advocates implicitly accepted the economists’ claim that well functioning markets lead to the efficient allocation of scarce resources. This acknowledgement, in turn, led some environmentalists to embrace reliance on regulatory use of ‘market mechanisms’ to incentivize environmentally beneficial, private sector, actions. The concept of free market environmentalism, described by Terry Anderson and Donald Leal in their book by that title,15 moved gradually from academic theory to regulatory reality in the form of tradable emissions permits, congestion pricing, water marketing and numerous other measures designed to expand markets and thereby internalize environmental costs.
As Manne reminded us in his 2012 article on economics and financial regulation, the modern administrative state, even when said to be correcting for market failures, does not escape Hayek’s knowledge problem. Measuring external costs and benefits experienced by millions if not billions of individual actors remains as impossible as ever. Whether regulating the financial affairs of corporations or the environment-impacting activities of businesses, regulatory agencies are engaged in what Manne described as “planning or resource allocation on a very detailed micro scale…. it is central planning and non-market resource allocation nonetheless.”16
Manne also understood and warned of the rent-seeking that always accompanies regulation. “Ever since George Stigler elaborated the modern ‘interest theory’ of regulation,” wrote Manne in 1985, “scholars have been well-advised in seeking the explanation for a particular regulatory position to ask who would be benefitted most by the rule.”17 He suggested that a “binge” in insider trading regulation “is another attempt by regulation to reallocate wealth… from corporate officials to financial service people….”18 Whether environmental regulations are founded in market failure theory, science-based balance of nature theory or moral claims about the sanctity of nature, rent seeking will always be a reality. Large businesses often benefit from environmental regulations that disproportionately burden smaller businesses. Lovers of rural landscapes often benefit at the expense of property owners constrained by land use and growth regulations.
One topic on which Manne wrote with little apparent influence on environmental law and policy is corporate social responsibility. Many environmentalists have pressed the idea that corporations have environmental stewardship responsibilities that trump their economic responsibility to shareholders. Some corporate officials have embraced the social responsibility concept even where it means less stock value or return to shareholders. Writing in 1972 Manne noted that claims of corporate social responsibility had a long though “not… distinguished intellectual career.”19 The claims ranged from responsibility for charitable contributions to support of educational institutions to the fine arts and employee welfare programs. By the early 1970s, said Manne, these and other assertions of corporate social responsibility had “taken a back seat to two new issues—safety and ecology.”20
Manne pointed out that social responsibility advocates beginning in the 1930s looked to regulatory mandates, but “the discovery that industry leaders were most frequently behind… ‘public interest’ legislation… made many observers considerably more cynical about the real effects… regulation may be having.” It was, therefore, “not surprising… that an intellectual community, traditionally biased against unfettered free markets, but disillusioned with government regulation, should propose nongovernmental, yet nonmarket solutions.”21
Corporate social responsibility advocates assume that corporations are “amorphous entities which… can be saddled with any amount of moral obligation,” ignoring that “competition, a vital force in most industries, still prevents individual companies from behaving in a significantly altruistic fashion.”
“Shareholders have entrusted funds to corporate managers exclusively for the purpose of maximizing the shareholders’ return. Use of these funds for any other purpose is simply an involuntary taxation of the shareholders to serve general social purposes more logically financed through government.” In other words, there is a moral problem.
Accepting that serious mistakes in plant location and waste disposal were made in the past on the basis of then existing governmental rules and incentives, “it is illogical to fix moral responsibility for those historical governmental derelictions on the present shareholders, customers, or suppliers of a given corporation.”
“[E]ven if the problem of nonmarket allocation of resources could miraculously be solved, as modern socialist planners might allege, there is certainly no reason to believe that the typical top management of large American corporations has either a workable model of the empirical data necessary to make such decisions in a socially efficient manner.”22
Of course many, if not most, advocates of corporate environmental responsibility are not persuaded by Manne’s arguments. They believe that planners can solve the nonmarket resource allocation challenge through collaborative processes in which they play a major ‘stakeholder’ role. But Manne’s economic arguments with respect to the idea of corporate social responsibility for the environment remain unchallenged and might yet influence the future of environmental law and policy.
Henry Manne wrote almost nothing about environmental law and policy. But there is little doubt that he thought about it and thought about it clearly. Environmental protection is a scarce resource allocation problem and Manne understood such problems. He understood the nature and magnitude of the information problem and the associated limits on central planning. He understood the centrality of property rights to the functioning of markets and the role of markets in the efficient allocation of scarce resources. And he understood the importance of economics education for teachers, students and practitioners of the law. To the extent environmental law has evolved from a central planning, command and control, approach to one of reliance on markets and the wisdom of individuals looking after their own best interests, Henry Manne gets some of the credit for insisting that we think about law wearing the green eyeshades of the economist.
Robert Prentice suggests that, despite Manne’s efforts, “law and economics has found… little purchase in judicial opinions.” Chicago Man, K-T Man, and the Future of Behavioral Law and Economics, 56 Vand. L.. Rev. 1663, 1773, fn. 578. But from my personal experience teaching in seminars for federal judges sponsored by the Foundation for Research in Economics and the Environment I would conclude that the judges were generally fully engaged and eager to think about how economic thinking might inform their decisions relating to environmental law.
See, Douglas T. Kendall and Eric Sorkin, Nothing for Free: How Private Judicial Seminars are Undermining Environmental Protection and Breaking the Public’s Trust, 25 Harv. Envtl. L. Rev. 405 (2001).
After noting that “Manne and other neoclassical enthusiasts have left their mark on law and legal education,” John Mixon states that “[a]s a rite of passage to respectability, today’s law schools appear to require at least one economist on their faculty” Neoclassical Economics and the Erosion of Middle-Class Values: An Explanation for Economic Collapse, 24 Notre Dame J. L. Ethics & Pub. Pol’y 327, (2010).
Gifford Pinchot, Breaking New Ground 39 (1947).
Rachel Carson, Silent Spring (1962).
Henry G. Manne, Insider Trading and the Stock Market (Free Press 1966).
Freidrich Hayek, “The Use of Knowledge in Society,” 35 American Economic Review 519 (1945).
Henry G. Manne, Economics and Financial Regulation, Regulation 20, 22 (summer 2012).
William F. Baxter, People or Penguins (Columbia University Press 1974).
Henry G. Manne, Mergers and the Market for Corporate Control, 73 Journal of Political Economy 110 (1965).
Paddy Ireland, Defending the Rentier: Corporate Theory and the Reprivatization of the Public Company, at 16, https://kar.kent.ac.uk/185/1/Defending_the_Rentier.pdf.
Peter G. Klein, Mises Wire, https://mises.org/blog/henry-g-manne-rip.
Directive 2004/35/CE of the European Parliament and of the Council of 21 April 2004 on environmental liability with regard to the prevention and remedying of environmental damage.
Ronald Coase, The Problem of Social Cost, 3 Journal of Law and Economics 1 (1960).
Terry Anderson & Donald R. Leal, Free Market Environmentalism (Palgrave 1991, 2001). It should be noted that Anderson is a vehement critic of much externalities analysis and of the very term ‘externality’.
Henry G. Manne, Insider Trading and Property Rights in New Information, 4 Cato Review 933, 941 (1985).
Id. at 942.
Henry G. Manne, The Social Responsibility of Regulated Utilities: An Essay Dedicated to Wilber G. Katz, 1 The Collected Works of Henry G. Manne 302 (1996).
Id. at 304.
Id. at 305.
Id. at 306–308.