IN in this era of deregulation, books about regula- tion continue to appear, testifying to the continuing controversy over its legitimacy in American society. In Prophets of Regulation, Thomas McCraw, a professor at Harvard Business School, has taken a novel, stimulating approach to this well-worn subject. By tracing the careers and economic-political ideas of four central figures in the evolution of the administrative state -- Charles Francis Adams, Louis Brandeis, James Landis and Alfred Kahn -- he hopes to illuminate some relationships between individuals and regulatory change, between ideas and regulatory techniques, that have previously been neglected and obscure.
The task is a daunting one. The public lives of these men span half the life of the Republic, from the first stirrings of American industrial might after the Civil War to the current breakup of the Bell System in the wake of seismic technological shifts. During this period, virtually everything relevant to regulation was fundamentally transformed. The popular conceptions of the government's role in society, techniques of public administration, theories of economic behavior, the scale and style of public and private institutions and the politics of regulation that animated and constrained Charles Francis Adams were almost unrecognizable to Alfred Kahn a century later. Still, McCraw's effort to clarify the nature of regulation by carefully integrating biography, history of ideas and regulatory strategy pays handsome dividends. Fortunately, each of these "prophets" wrote extensively, even compulsively, about the theory and practice of regulation. McCraw skillfully melds their words and actions into a series of revealing intellectual portraits.
The book's structure provides a clue to McCraw's own ideas about regulation. Individual chapters on each man are introduced and bridged by short chapters summarizing the political, economic and intellectual changes that altered the context within which succeeding regulators had to work. A final chapter attempts to place the long evolution of regulation in an even broader historical and theoretical perspective. The book's configuration suggests two conclusions. First, regulation, although historically conditioned, has been strongly influenced by the ideas and actions of particular individuals. Second, regulation reveals important continuities over time even as it grapples with strikingly new contexts and challenges.
McCraw's account of Charles Francis Adams' regulatory career is especially fascinating because it is not widely known. Adams, the grandson and great-grandson o presidents and son of a presidential aspirant, understood earlier than most the convulsive changes that railroads would wreak on American society. Displaying the same self-promoting careerism that Brandeis or Landis would later perfect, Adams became an expert (and muckraker extraordinaire) on railroads, lobbied for creation of a railroad commission, drafted the enabling legislation for it, and had himself appointed to it in 1869. In office, Adams developed ideas about regulation that prefigured developments generations later. Mindful of the fundamental contradiction between our fragmented constitutional structure and the requirements of effective regulatory administration, he proposed an expert, long-term corps of regulators who would judiciously use publicity, voluntarism and negotiation techniques to implement policy goals. His understanding of the peculiar economic and administrative difficulties of regulating natural monopoly led him to propose innovative strategies, including a Tennessee Valley Authority-type "yardstick" experiment in limited public ownership.
Brandeis' regulatory ideas reflected the massive consolidation of basic industries that occurred toward the end of the century. McCraw contends that Brandeis, celebrated as "the people's lawyer" and an implacable foe of business, in fact represented the interests of small business. In misunderstanding the complex relationship between firm-size and efficiency, Brandeis actually sacrificed consumer welfare and hastened further economic consolidation. McCraw's analysis of Brandeis' career, especially his role in shaping the Federal Trade Commission and antitrust law, reveals tangled contradictions caused by incandescent passion, political genius and simplistic economic ideas.
The star-crossed James Landis -- a Brandeis and Frankfurter prot,eg,e, professor and later a dean at Harvard, whose meteoric rise ended tragically in alcoholism and prison -- emerges as a remarkably resourceful and imaginative regulator. An architect and leader of the New Deal agencies, Landis wedded analytical brilliance to an unusual talent for institutional and legal design and implementation. Through creative crisis-mongering, shrewd manipulation of economic incentives, artful negotiation, institutional innovation and careful structuring of self-regulation, Landis (with some help from his friends) constructed the widely admired apparatus of securities regulation that we have today.
By the time Kahn became a regulator in the mid- 1970s, America confronted very different economic and technological conditions. Public disillusionment with much regulation had become intense. The story of Kahn's remarkable success in mobilizing this discontent to secure adoption of his economic theories -- airplanes, he once quipped, are nothing but marginal costs with wings -- is well rendered and worthy of repetition. Kahn's example demonstrates not only how academic theories have shaped the politics of regulation, but how personality, craft and salesmanship can be used to bring ideas to fruition.
In the end, McCraw does not dispel the persisting puzzles of regulation but deepens them, reminding us that broad historical currents and idiosyncratic particularities interact in wonderfully unpredictable ways. Although technological change traditionally implied more centralized regulation, that assumption is today discredited, and many regulatory structures that it spawned lie in ruins. On the other hand, environmental risks generated by new technologies seem to vindicate the old premise. Apparently, Oliver Wendell Holmes' remark about law -- that "no general proposition is worth a damn" -- also applies to regulation.