Glory, Glory Fans United? Part 2 of 2

Following is Part 2 of 2 of 'Glory, Glory Fans United,' my critique of Professor Margalit's analysis. Special thanks to Christine Wecker for her thoughts and notes on Ebbsfleet United. As always, feedback is appreciated. Though as a fan of many sports, not least among them football, I appreciate Margalit’s analysis and conclusions, as a pragmatist and an amateur economist, I cannot ultimately agree with them. I put forward four main reasons for this; three based on examples, and the final based upon economic theory. The first is simply that one of his case studies actually provides an example of a wildly successful club whose fandom is likely very happy with its results over the past few years, rendering Margalit’s initial assumptions invalid. Secondly, there are practical examples of clubs who have attempted to integrate fans into ownership and management that have failed extraordinarily. Third, there are examples where fans have shown that their voice can be heard by ownership short of an ownership stake, invalidating the conclusion that voice is not possible short of a property interest where loyalty is prevalent. Finally, the economics of modern football are such that highly capitalized owners are almost necessary in order to have success on the pitch, and the type of personality that often accompanies such deep pockets does not often suffer the type of influence Margalit advocates for. However, and probably uniquely for a critique, I debunk these arguments myself. Unfortunately, I still conclude that Margalit’s excellent ideas are unfeasible. This is because the structure of the modern game itself makes universal adoption of them essentially impossible. Allow me to begin with Margalit’s main example of the problems inherent in modern football; Manchester United F.C. As ‘ManU’ is a globally recognizable club, The Red Devils were a savvy choice to represent some of the problems in modern football. After all, there was uproar from the diehard fans and shareholders of the team when American Malcolm Glazer purchased the team in 2005. However, the facts show that since that time, the club has won 3 Premier League Titles, 2 League Cups and the Champions League among several other lesser trophies. This on the pitch success may be masking issues though, as one of the truer maxims I have come across is that ‘winning cures everything,’ leading to its normally vocal fans giving the ownership some slack (hopefully not to hang themselves with) while the trophies continue to pile up in the Theatre of Dreams. Notably, despite its recent on the pitch success, the club is saddled with a tremendous amount of debt (as is Liverpool, another club with American owners, and whose anthem provides the titular namesake of the article), was forced to sell one of the most popular, widely recognizable and marketable players in the world over the summer (Cristiano Ronaldo, incidentally to one of Margalit’s examples of good ownership structure in Real Madrid), and is perhaps available as a contrary example purely because of its extraordinary pedigree and recent success. Therefore, let’s put aside ManU as an example of why Margalit’s suggestions might not be necessary, at least because the club’s debt may yet prove to be an issue going forward. Additionally, it is almost certain that a future lack of success would cause fans to become more vocal, as they have at Liverpool, a club with as glittering a pedigree as Manchester, but similar debt problems which are unfortunately unaccompanied by recent English or European success. As even the special example of Manchester United fails to prove that current ownerships structures are desirable, let’s assume arguendo that Margalit’s suggestions are therefore necessary. The next step in critiquing his article would be to show that his suggestions are not possible. First, I would point to a practical example of a creative ownership structure failing rapidly and epically. This is provided by a lesser English club, Ebbsfleet United. The until recently named Gravesend & Northfleet gained international recognition over the past few years with a novel idea; give ownership, and also operational input to the fans, via an internet takeover. After initially gaining enough online pledges to make the idea feasible, money was collected and a majority stake was acquired. After some initial success, the club has fallen on hard times, sold most of its players, and may need to go into receivership. [i] [ii] [iii] However, just as ManU could prove to be a current exception which in the future proves that Margalit’s ideas have validity, Ebbsfleet might be an exceptionally poor example of unique ownership structures which does little to disprove Margalit’s ideas. Among reasons that it provides a poor example are the fact that it was a wide array of internationally based owners who put in the initial capital for the project, not the type of interested local, long time fans Margalit identifies. Additionally, fans were likely given too much control of day to day decisions, with online voting providing a forum for fans to critique and influence the most minute of decisions made by the club’s management. Also, the aforementioned forum for discussion was likely less than optimal, as geographically disparate owners tried to make major decisions using web-based chatrooms and polling. This, in retrospect (and perhaps at the time in the manager’s and player’s minds) smacks of reality T.V. club ownership, and not the solid, long term thought processes required for solid management of lemonade stand, never mind a football club. Therefore, my initial critique of Margalit's ideas has gone the same way as my critique of the necessity for his ideas and the dodo. What then, of examples where voice is actually heard? I would point to Italy, where fan groups often have the ear of ownership due to their power and longstanding support. However, support for this notion can quickly evaporate when it is considered that these fan groups are often identified as nationalist, racist, and classist ultras who operate in an environment of corruption obvious to even casual observers of Italian football and are often granted their influence at the business end of a blade. [iv] [v] Examples can be also provided where voice is not heard, such as aforementioned Liverpool, where American owners saddled the club with debt in a leveraged buyout transaction, and whose fans have little say with ownership. Additionally, Margalit’s examples of clubs where fans do have a voice, Barcelona and Madrid, have been very successful historically and recently. Therefore my second critique, that voice is unnecessary, is also debunked due to two main facts. First, examples of fan groups having a voice short of a property interest are often accompanied by unsavory side effects. Secondly, proven examples of fans being integrated into ownership often provide proven examples of successful clubs. What then, of a final critique based upon purely economic analysis? This theory would point to clubs needing deep-pocketed owners to arrive and both save them from debt and provide fresh capital for player purchase and development. Here we have the recent example of Roman Abramovich purchasing Chelsea, or several even more recent examples of clubs being drowned in Middle Eastern petro-dollars with varying levels of success. In this analysis, it would be impossible to expect such individuals to part with fortunes if they did not have complete control over their clubs, and were forced to in some way share decision-making with anyone other than their hand-picked managers and executives. This is because the risk that they put in should be in some way manageable by them, via absolute control, as the safeguard that their potential return could be reflective of their investment. However, many would point to this type of situation creating an untenable current environment in football where there are haves and have-nots and clubs are forced into impossible debt situations to keep up. Owners themselves have recently concluded that this type of situation is not desirable, and many have banded together to try and ensure that future owners cannot put limitless resources into their playthings. The result of this has been the recent restrictions approved by governing body of European football, UEFA. [vi] Therefore, with new restrictions, it would appear at first blush that economic incentives alone are not a valid reason for not giving fans a voice. This is because there are only so many billionaires looking for playthings, and if they have limits on spending, there may be less financial risk. However, limits on spending are linked to revenues, meaning that some clubs, in order to keep up with the tremendous budgets of the lucky few with incredibly wealthy owners and large revenues, still need to put themselves in unsustainable economic positions to keep up, leading to an untenable situation for the game itself and an almost certainty of losses for most owners. However, without some sort of financial reward, why would anyone want to invest heavily in a club? And if they did, why would they share control? So, even new rules put into place by UEFA do not ultimately solve the problem of giving fans a voice, as there will still be economic disincentives for the vast majority of owners for doing so. Therefore, my ultimate conclusion is not that Margalit’s reasoning is flawed, or that his ideas are anything less than brilliant, but perhaps that the current environment of the game itself makes his ideas impossible to integrate. What would make them more feasible is a radical shift in the rules of club ownership and management; namely a salary cap. If clubs had salary caps similar to those imposed on teams in various American sports, they would be forced to be more fiscally responsible, the tremendous disparities between the biggest and the smallest clubs would be alleviated to an extent, and ultimately in the context of this essay, would allow fans to have a greater say in their clubs. This is because the economic reasons to maintain dictatorial control over all decisions by the club would be alleviated due to less inherent risk that currently comes in the form of high debt and financial losses. Basically, if all clubs were financially viable entities with similar resources to work off of, there would be less short term risk for owners who could then look more closely at the long term voice of the fans, resulting in a structure similar to Margalit’s economic/social partnership. UEFA’s current proposal for clubs to live within their means is a start, but clubs have very different means, making the situation of smaller clubs unmanageable. There would also be issues to work through, as big clubs would be certain to fight such a proposal. Additionally, as Europe’s footballing community is inextricably linked via major continent wide competitions, caps would need to be viewed in light of maintaining the balance of power throughout the whole region, not just nationally. This would, however, be easier with the common currency of many of the countries. What of claims that successful clubs would be penalized by their successes? A salary cap would not stop spending on youth programs or infrastructure. And what about player salaries? Arguably all but those at the very top end of the spectrum would be just as well off. One need look no further than American baseball to see that the most fiscally successful clubs are still able to spend money on players and do well on the field, while still allowing so-called small-market clubs to make playoff appearances and even win championships.[vii] A salary cap and its potential impact on spending in other places, such as youth programs, could even arguably have a positive impact on several other controversies in the footballing world, such as that over ‘home grown’ players, and the current issues over clubs buying youth players using less than savory means that are sometimes arguably, sometimes blatantly against the rules. Ultimately I agree with Margalit on many things; however, it is not possible to separate good ideas from the realities of the modern game. Therefore, as a fan, I cannot see hope in his excellent ideas until many things change in the game, changes that may unfortunately only become possible after the game itself is harmed by financial collapse. [i] http://www.telegraph.co.uk/sport/football/2299705/Ebbsfleet-United-A-team-of-my-own.html [ii] http://www.ebbsfleetunited.co.uk/index.php?option=com_content&view=article&id=90&Itemid=166 [iii] http://www.twohundredpercent.net/?p=1215 [iv] http://www.sudanvisiondaily.com/modules.php?name=News&file=article&sid=18132 [v] http://www.guardian.co.uk/football/2005/apr/13/championsleague2 [vi] http://www.guardian.co.uk/football/2009/sep/15/uefa-platini-spending-football-clubs-europe [vii] http://www.helium.com/items/501300-do-baseball-salaries-buy-championships?page=3 (though the author argues that money does buy championships, his statistics point to much more inclusion in the winner’s circle of baseball than, for example the English Premier League with its Big Four)

Trade with India

Here is an interesting interview with Aileen Nandi, who is responsible for looking after U.S. business interests in south India. http://trade.gov/press/publications/newsletters/ita_0909/palm_0909.asp#continues

Glory Glory Fans United?

This summary is the first of two postings critiquing a very interesting article with novel ideas regarding the interest that football (soccer) fans have in their teams. Keep your eyes open for Part 2, my analysis of the conclusions. I recently came across a very intriguing article authored by an Israeli property law professor, Dr. Avital Margalit of the Bar-Ilan University in Ramat Gan. In the article, “You'll Never Walk Alone”: On Property, Community, and Football Fans, Margalit suggests that fans across the globe can gain and should retain a greater voice in the operations of their beloved clubs in an age of growing private ownership. Avital Margalit, “You'll Never Walk Alone”: On Property, Community, and Football Fans, 10 Theoretical Inq. L. 217, 223 (2009). Or, in other words, ‘Modern football has become a battlefield between market and community, and where community is not able to prevail, at a minimum it should be accommodated. The realm of property law is the proper means of achieving this goal.’ Id. 219-220. Why is this concept of a voice for the community so important? According to Margalit,

‘The fans of a football club constitute a community. This community of fans is a constitutive attribute of the club. It is part of the meaning of the football club as a resource. However, besides the cases of football clubs that are organized as members' associations, the fans rarely have a meaningful say in the running of the club. As the history of modern football proves, the interests of the fans in the club and in the continuance of their community often come under threat.’ Id. 217

Though most fans would share the idea that modern football has robbed them of some of their say in club affairs, and would perhaps be able to espouse it as passionately if not so eloquently, Margalit’s innovation is in equating fan’s interests in their clubs to a pseudo-property interest utilizing a concept he calls ‘property as belonging.’ Id. 217. In this concept, property rights exist because by definition, ‘belonging’ is a term that exists both in the context of membership in a group and ownership of a thing. i.e. ‘I belong to a fan group,’ or ‘this club belongs to us.’ Margalit builds this connection on a foundation of a legal-realism conceptualization of property, which views property as a social institution whose aim is to serve social goals. Id. 220. This type of property regime prioritizes these goals based on the social context in which they exist, resulting in a nuanced concept of legal relations. Id. 220. In other words, property rights exist because society developed them to meet goals. And, there are contextual circumstances which exist that require us to view property rights and the relationships between parties impacted by those rights circumstantially. Thus far, based on the assumptions of belonging and a social context view of property rights, one can arrive with Margit to a simplified version of his conclusion that fans belong to a club, and the club belongs to them. But why, exactly, is it necessary to assign actual property rights to fans? Margit here points to the influential concepts of exit, voice, and loyalty described by Albert Hirshman. See, Albert O. Hirschman, Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States, Harvard University Press (1970). If consumers are unhappy with a grocery store, they can leave it and go to another. Typically they do not feel a strong connection and grocery stores can act as substitutes for each other. In economic terms, there is great elasticity between options. Another example would be gas stations. If a consumer typically goes to Mobil, and their local franchise has increased its prices to $0.10 over the Citgo a block away, the consumer feels no pain or frustration. She will simply go to the Citgo, guilt free. This is because, as mentioned above, there is great elasticity, and therefore, an increase in price by one competitor will typically lead to a rapid reduction in demand and increased sales to competitors. However, due to the very nature of fandom, elasticity does not exist. In Hirschman’s terminology, there is too much loyalty. Therefore, the very thing that makes fans, and being a fan, so special, dedication to their club, also reduces their ability to influence that club. Owners know that no one but the most superficial Manchester United fans would support Manchester City due to a ticket increase. A fan may go to less matches, or not buy as many shirts, but, up to a point, there will likely be someone to take their place at the ticket counter. Staying for the moment with examples of a Mancunian nature, Margalit points to the current situation at Manchester United as an example of when private ownership can, in his opinion, go bad:

‘The case of Manchester United is a good example of the weakness of informal voice. In 2005, U.S. tycoon Malcolm Glazer acquired control of over 70% of the club's shares, de-listed the club from the stock exchange and completed his takeover of the club by acquiring 98% of the shares. The British government professed its concern and urged Mr. Glazer to engage in discussions with the fans, but took no further action. Fans felt that they had been betrayed by the previous shareholders, who had allegedly seen the club merely as an investment. It was estimated that, in order to fund the purchase of the club, Glazer took large loans (a £ 265 million loan secured against the club's assets and another £ 275 million in loans), and the fans feared that they would be "expected" to pay for Glazer's borrowing. Initially, fans attempted to protect the club from Glazer by establishing "Shareholders United" -- a fan shareholders' association -- but to no avail. Later, fans expressed their resistance by calls for boycotting some of the team's games, not buying club merchandise and match-day programs, and not using catering facilities at the stadium. Some fans established a new "genuine" members-owned football club (FC United of Manchester) to play in a lower division, but most fans did not follow. The various plans of resistance were unsuccessful -- loyalty to the club and traditional habits of fandom prevailed.’ Margalit, 229.

So, according to Margalit, due to the loyalty of fans and their lack of desire to exit and substitute, voice remains as the only vehicle to ensure that ownership sees them as stakeholders in clubs. He then works through some interesting ideas on how to accomplish giving fans a voice via some of the property regimes noted earlier. They include: members’ associations, minority co-ownership via shares, and social property interest. Members’ associations are put forward as the best possible option, as they, in Margalit’s mind, best embody the notion of property-as-belonging. Here, football clubs would be transformed into ‘…associations that would function internally as a non-market enclave while operating outwardly as a market entity.’ Id. 233. This structure is a democratic solution that gives every member a vote in large decisions of the club. This gives members a participatory, though not financial interest, in clubs. Margalit notes FC Barcelona and Real Madrid CF as two clubs with this type of structure. Id. 233. It is noted, however, that there can be issues with this property rights regime. First, there is an agency problem that exists when elected Presidents make decisions that impact the whole club. This is compared to democratically elected politicians and corporations with disparate shareholders. Id. 234. A related point that is not mentioned is how Presidents become elected under this structure, often after making wild promises with a great degree of improbability of coming to fruition. In fact, in many cases promises to sign star players if elected can even be seen as tampering with other clubs. Indeed, in terms of wild promises, Margalit’s analogy to actual politicians is as apt here as it is in his agency example. Margalit also mentions exclusion as an issue in the member association structure, as some fans may be unable to become members, and are therefore excluded from being heard. Id. 234. There is also the small matter of changing a team’s entire structure from a privately held entity, but Margalit believes that options such as public funding would enable fans to fund purchases to an extent that current owners would find it attractive to sell. Id. 234. Margalit moves next to a minority co-ownership structure. Although Margalit does not feel that this would be as successful a vehicle for voice as the above noted structure, he concedes that it would be more feasible given the current environment. Indeed, many clubs, both private and public, already claim some degree of fan ownership, so this structure is tried and tested. However, since actual ownership stakes are typically minority in nature, the actual impact that ownership may have for fans is muted at best, and insignificant at worst. Id. 234. The fact that outstanding share ownership by fans exists may also lead to an increased possibility of hostile takeovers, as a potential bidder may price shares so high that even the most die-hard owner would be hard pressed to hold out. Id. 235. Finally, a social property interest option is explored. This option is discussed in light of the pitfalls of actual minority ownership and in the likely case that transformation into member associations in unfeasible. This structure would see a division of interests between actual property owners and stakeholders where property owners would have claim to pecuniary interests in the club, and supporters would have moral or social ownership. Id. 236. Although Margalit clearly believes that a member association model is more desirable, he seems to defend the social property interest scheme more vigorously, possibly identifying that it is more feasible. However, he continues to concede that there are certain issues that would arise with this structure. First, he notes that the community of fans would need to be identified and clearly delineated, no small task in a world where large clubs unabashedly court fans thousands of miles and continents away from their home pitch. Id. 237. Secondly, he considers the best forum for expressing the collective voice of fandom, whether it be directly in the form of club meetings, or representatively in the form of a seat at the ownership table. Id. Finally, Margalit grapples with the idea of when the voice of the supporters would be mandatory, and comes to a conclusion that it is in those matters which impact the club and community so greatly that not doing so would be a high risk to said fans. Id. Therefore, things like manager appointments, and merchandising decisions should be handled by economic owners, while matters with the potential to endanger interests of core fans, such as stadium renovations, team color or symbol changes, establishment or closure of youth academies, or ownership changes would be impacted by the fans of the club. Id. 238. The end result of this type of structure, according to Margalit, would be that, ‘…the financial owner would still have an incentive to invest in the club, as this division still assures him fair potential to reap the economic benefits. At the same time, it would ensure that only the "right kind of investors" find football clubs to be an attractive economic activity -- namely, community-minded owners.’ Id. 238. Margalit concludes with the thought, ‘Current ownership structures of football clubs allow owners to engage in practices which may endanger the interests of the club as a whole, and, as a consequence, the well being and the continuance of the community of fans. If we view the fans as a constitutive component of the club, and recognize the merits of fandom as a community, not to mention cherish the world of football at large, it is necessary to take measures to ensure the best interests of both clubs and fans. As argued in this Article, the way to achieve this purpose is by means of the formalization of fans' voice in the running of the club, through a property entitlement.’ Id. 239. Special thanks to Alissa Fideli for her assistance on this post. Please visit soon for Part 2, my analysis of Margalit's conclusions.

Excerpt from 'Comparative Economic Analysis of Law Development In Civil Law Systems,' Part 2

This posting is Part 2 in a 4 part series on Law Development in Civil Law Societies. Look out for Parts 3 and 4 the next two weeks. The Civil Law in a Contemporary Context Though there are striking differences in the historical development of civil and common law, contemporary differences between major legal systems are just as dramatic. Some of the more impactful features of contemporary civil law from a comparative sense are the reliance upon statutory codes, the influence of commentators, and the weakness of the judiciary. These are three of the main areas where development of law varies most widely from common law. Although the earliest foundations of civil law reach back over 1,000 years to the codified rules of Rome, contemporary codes themselves are not so different in structure and are no less impactful on the societies they regulate. Under civil law, codes are the law. Codes are intended to serve as the overriding law, superseding those which came before. Judges exist in this system merely to apply the law as it is written, not to make decisions on remedies, or fill in gaps in legislations. Though codes are utilized in common law systems, the contrast is significant. Common law codes incorporate and even supplement themselves with existing ideas and systems. For example, the Uniform Commercial Code (UCC) of the United States is not meant to be complete, and judges are not compelled to find a basis for deciding a given case within the code. Even the official comments offered by the framers of the UCC state that common law may supplement parts of the UCC if judges determine that it is appropriate. See, U.C.C. § 1-103b. Though civil law statutes are written by legislators, the actual development of, and debate over, the laws themselves takes place far from the where voting occurs. This is because in the civil law system, the main driver of legal change is the scholar. It has already been noted that the work of scholars provided some of the material for the early Roman codes. This influence continues to this day, and scholarly opinions are cited frequently. Though this is true to an extent in common law jurisdictions as well as the use of model codes written by academics have become widely adopted, the scholar in civil law jurisdictions plays an even more central role. Interestingly, though the role of scholars is acknowledged, some jurisdictions have attempted to curtail the power of scholars. This is due mainly to the civil law notion that the law is in statutes, and therefore outside opinions should not be necessary. For example, though Justinian codified the ideas of some commentators, he also did so at the expense of the ideas of many others, whose works he banned in some cases. This occurs today as well. For example, in Italy, the citation of books and articles in judicial opinions is forbidden. Merryman, supra at 59. However, even in places such as Italy where referencing scholars is forbidden, scholars still impact decisions and lawmaking, with judges often referring to vague notions of ‘the law’ when they want to cite the body of scholarly work. Merryman, supra at 59. Scholars play a role not only in development of the law, but also in shaping the civil law system itself. German legal science, for example, is a way of looking at statutes, regulations and rules that allows for a more holistic approach to the law. The goal is to find the inherent principles and relationships behind aspects of the law within the statutes, similar to how a physical scientist would look at chemistry, or biology. It is a way to describe the whole methodology and structure of the civil law system. Merryman, supra at 61. This leads to an entirely different approach than that utilized by the common law. While in the civil law, facts are subordinate to high level and sometimes abstract ideas, the opposite is true under common law. However, legal science has made its enduring mark on common law, which has borrowed from legal science in its civil and penal codes and also in the teaching style of American law schools. Scholars play a role in the common law as well. Judges will sometimes cite them in opinions, and they often have input into model codes, especially in the United States. However, it is the judges themselves in the common law who make a comparable impact on shaping law. Under common law, judges are the central figure. Judges are often picked from the ranks of lawyers, and are held in high esteem by peers. Although similar to the civil law scholar in many respects, one obvious difference comes immediately to mind; common law judges serve these functions from the bench in real-time. There are among others three systematic differences between common law and civil law that result from the role of judges in the common law system; stare decisis, judicial review, and judicial discretion. Stare decisis is the common law doctrine that judicial decisions resulting from a specific set of facts should be applied to other cases with similar facts. There are many nuances based upon the relative authority of courts and differences between jurisdictions, but the main point is that courts are bound by the decisions of higher courts. This can take different forms. For example, in the United States, the Supreme Court is the highest court in the land, and all other courts are subordinate to it. Meanwhile, in England, the House of Lords serves this purpose for the time being. This is scheduled to change October of 2009, however, as the country moves to a supreme court system. The doctrine of stare decisis has wide ranging implications, not least among them the fact that once a decision is made by the supreme body, all other courts must follow that line of reasoning. Both critics and proponents of common law systems cite this fact. Detractors say that this leads to uncertainty, as the high court can change its mind, or overturn decisions that have already occurred. However, it also has the effect of creating certainty, as all courts must follow the precedent of established high court decisions. The House of Lords has shown that it is very weary of overturning existing opinion. See, Jones v. Secretary of State [1972] AC 944 (holding that the law as it stood, though flawed, would stand in an English civil case). See also, Knuller v. DPP [1973] AC 435 (holding that the House would not overturn itself in an English criminal case despite seeing justification to do so). Meanwhile, the Supreme Court of the US does overturn itself perhaps more frequently, but typically only in situations where great social injustice would occur, or in the interests of civil rights. See, Lawrence v. Texas, 539 U.S. 558 (2003) (overturning Bowers v. Hardwick, 478 U.S. 186 (1986) which declared that sexual privacy was not a constitutionally protected right); Brown v. Board of Education, 347 U.S.483 (1954) (overturning racially-based segregation of Plessy v. Ferguson, 163 U.S. 537 (1896)). Judicial review is the concept that courts have the ability to declare a law as invalid if it is unconstitutional. This means, essentially, that the court has the ability to invalidate statues passed by the legislature, and thus, that it retains a tremendous amount of power. This concept is widespread, and is written into a number of constitutions. In some places, the power has had to be taken by the courts, as in the United States. See, Marbury v. Madison, 5 U.S. 137 (1803). Thirdly, common law judges have the ability to use discretion in their decision making. Two historical facts lead to this development. First, in jurisdictions where common law developed, judges were expected to use discretion to fill in the gaps between statutes. Additionally, the historic merger of courts of equity and law has lead to an increased ability of common law judges to utilize remedies from both traditions. Combined, these three factors mean that a common law judge has flexibility and authority to serve as a complement to, and check on, the legislature rather than a tool of lawmakers. In this, they serve a notably different function from their civil law counterparts. In stark contrast, under the civil law judges act as civil servants whose job is to apply the law, whose hierarchy as discussed is constitution, legislation, regulation and custom. Merryman, supra at 25. This may be a simplification, as some power exists, especially in jurisdictions with constitutions, to overturn laws. Merryman, supra at 38. However, it is not incorrect to say that, where common law judges have flexibility and discretion to shape law, civil law judges most certainly do not. And, in theory if not always practive, judicial decisions are non-binding. There is an area where the civil law court system has adopted parts of the common law approach, and that is in the area of judicial review. However, there are some major differences, and some background is necessary. When civil law was developing under the Romans and subsequently, the codes were intended to serve as the only necessary framework of law. This served some practical purposes as legislators attempted to be inclusive. However it could verge on the ludicrous with some codes, such as that of the Prussians under Frederick, stretched to over 17,000 articles. Merryman, supra at 39. However, even in the most elaborate codes, holes were predictably discovered by judges along the way. These came in the form of unclear provisions, questions of law that arose with no statutory answer, and statutes whose meaning changed while its terms remained constant. Merryman, supra at 43. Different jurisdictions handled these questions in different ways. For example, the Italian Civil Code of 1942 explicitly stated that no meaning could be attributed to statutes other than that intended by the legislature. However, the next clause stated that, if provisions were still unclear, that consideration may be given to similar or analogous provisions. Merryman, supra at 44. Aside from this slight leeway granted the judiciary by the legislature, other methods were developed to assist an already overburdened legislature in clarifying its laws. For example, in France, the legislature created an extension of itself in the Courts of Cassation. It is important to note that this was not a judicial body per se, but it did have the ability to quash incorrect interpretations of law. Merryman, supra at 40. The Germans took the idea of Cassation one step further, and gave its court of review the power to actually revise incorrect decisions. Merryman, supra at 41. These early developments correlate well to the idea of judicial review in common law jurisdictions, and have naturally lead to a greater acceptance of the interpretive role of ordinary judges. This is particularly true in Latin America, where the trend is toward judicial review of the constitutionality of legislation. In its current form in Europe, constitutional review has a slightly different shape than its common law counterpart. This is partly because the traditional mistrust of the “aristocratic judiciary” has lead civil law nations to put their own spin on the idea. For example, it has been noted that the Court of Cassation in France is actually an organ of the legislative branch. In another example, the Federal Constitutional Court in Germany is a “specialized tribunal empowered to decide only constitutional questions and a limited set of public law controversies. Donald P. Kommers, The Constitutional Jurisprudence of the Federal Republic of Germany 3 (Duke University Press, 2nd ed., 1997). Interestingly, the German Constitutional Court serves another function that many common law supreme courts cannot; provide advisory opinions. Kommers, supra at 13. Therefore, though the United States Supreme Court may have more power to change laws, when asked by the legislature the German Court has more ability to shape how laws may be written. Constitutional review has made some of its strongest footholds in the courts of the former Soviet bloc. All of these former satellites have adopted constitutional courts despite not having them historically. Hermann Schwartz, The New Courts: An Overview, in European Legal Cultures 445, 449 (Volkmar Gessner, Armin Hoeland & Csaba Varga eds., Dartmouth Publishing Co.1996). According to Schwartz, these courts have more prestige and power than their ordinary court counterparts. They are also created by their respective constitutions, putting them above change by simple legislation. Most interestingly, some may even initiate constitutionality questions sua sponte. This is seen, among other places, in Hungary, Russia, and the Czech Republic. Id. However, the fact remains that even in jurisdictions with constitutional courts, there is no binding effect in their decisions. For example, the Austrians have gone so far as to ban precedent as a source of authority. Helen Silving, Stare Decisis in the Civil and in the Common Law, in European Legal Cultures, supra at 141, 143. However, Silving also notes that, whatever their ultimate jurisprudential authority, consistent decisions on the highest courts are in practice treated as undeniable sources of law in all civil law countries.” Silving, supra at 142. Even if the high courts are followed more closely in practice than in theory, authority is still more diffuse due to the fact that not all judges on high courts sit on them at all times. For example, France and Italy each have two courts for issues of ultimate appeal, while Germany has 5 and a two senate system. Kommers, supra at 18. Finally, because the idea of the writ of certiorari, or supreme court acceptance or denial of cases, is against the concept of judicial roles in civil law, courts may be called upon to hear thousands of cases, leading to time pressure and constraints. Mauro Cappaletti, The Doctrine of Stare Decisis and the Civil Law: A Fundamental Difference-or No Difference at All, in European Legal Cultures, supra at 146, 147. Summarizing Development of Law in Civil Law Systems The civil law was developed out of a desire to codify laws from different sources in ancient times. This was supplemented by existing laws and the ideas of commentators, often scholars. This has been structurally impacted by the idea of natural law during revolutionary times resulting in a system where judges may only interpret laws as developed by legislatures. Numerous methods were developed for filling in the inevitable gaps. This structure has evolved in modern times to often include overriding constitutions, and often the ability of varied bodies to determine whether new legislation fits within that framework. Even the decisions of these bodies, however, are not technically binding. This contrasts with common law systems, where legislatures write statutes, in code form or otherwise, that act as a framework for judges. These judges have the ability to interpret the laws themselves, determine whether they are legal in constitutional systems, and supplement statutes with case law in determining what the proper result is.

Should Standards Developers be allowed to Copyright Their Work?

Although upon reflection it may appear obvious, most Americans do not spend their days considering how it is possible that their CDs work just as well in their home’s BOSE sound system as they do in their Sony car player, or how different company’s light bulbs fit into all of their lamps, or why different trains can all ride on the same rails. However, these seemingly simple everyday functions would be frustratingly complicated if every manufacturer did everything their own way. These commonplace activities are all possible because at one point, someone developed a laser, thread diameter, and track width that made interchangeability and wide-spread use possible. In short, these items were standardized. The list of things that fall into this category of standardized items or processes is almost infinite, but critical to the manufacturers that each standard impacts. Standards are beneficial to groups beside manufacturers as well. Although those who utilize the processes and methods of manufacturing goods are impacted, standards are also important to local and federal governments, trade groups and consumers among others. Many standards are directly adopted by governments for their codes. Trade and industry groups lean on standards to ensure that competition can thrive domestically and globally in their sectors. And every American has benefitted from building, fire safety, and automotive safety standards developed by the industries in question. Who develops these standards? Is it the government? Is it individuals? Corporations? The answer is, in fact, all of the above. However, many of the innovations occurring in standards today come directly from those who are impacted most greatly; members of the industries who utilize them. And, the members of industry who create these standards are typically corporate members of standardization bodies. A debate has been borne from this particular set of circumstances regarding whether or not these standards should be copyrightable, and therefore afforded monopoly protection. In other words, should the firms and standards bodies who develop standards be able to copyright said standards and sell them to other members in the industry, or should they be available in the public domain? In a similar vein, should standards that are adopted as part of local safety or public building codes lose their protections as they have become part of the public domain? There are economic incentives in both situations. If standards are afforded copyright protection, standards developers are given greater incentives to create them. Profits from sharing of standards could arguably be used to update standards and develop new ones. This could benefit everyone. However, there are cases where innovation is greater when standards are shared by all, such as with internet code. The lack of clear economic answers in this situation makes for difficult analysis. The Supreme Court has not made finding answers any easier, having never addressed the copyright privileges of standards developers. However, the majority of case law points to the wariness of judges to afford protections to standards. [i] Standards organizations clearly have an interest in changing court’s minds. [ii] However, for now, it does seem that when push comes to shove, firms will have to continue to innovate standards without the clear knowledge that they will be able to profit off of them. [i] See, http://people.ischool.berkeley.edu/~pam/papers/BC%20questioning%20standards.pdf for an excellent discussion of the case history surrounding protections for standards and compelling arguments about why they should not be allowed. [ii] See, http://publicaa.ansi.org/sites/apdl/Documents/ANSI%20Position%20on%20Protection%20of%20Copyright%20for%20Standards%20Referenced%20into%20Public%20Law/Veeck_v_Souther_Code_Congress_intl_inc-Amicus_Curiae.pdf for an amicus brief which clearly states the arguments in favor of copyright protections for standards.

Taking a look at ISO 26000

The International Organization for Standardization (ISO) recently released a Draft International Standard providing guidance on social responsibility under the name ISO 26000. ISO is a network of the national standards institutes of 162 countries, one member per country, with a Central Secretariat in Geneva, Switzerland. ISO is a non-governmental organization that forms a bridge between the public and private sectors. On the one hand, many of its member institutes are part of the governmental structure of their countries, or are mandated by their government. On the other hand, other members have their roots uniquely in the private sector, having been set up by national partnerships of industry associations.[i] ISO 26000 is a voluntary measure that organizations have until February 14, 2010 to vote upon that attempts to formalize social responsibility standards across governments, organizations, and corporations globally. Although it is not a treaty per se, and affirmative voting is not in that way binding, governments may choose to adopt the document, or certain of its provisions into law. This is a common practice when ISO releases standards because they are typically developed by stakeholders, and therefore have broad support when they are released. ISO 26000 also borrows from some other well known and existing documents, particularly those of the UN, and therefore takes advantage of some long standing and broadly accepted practices. Following are ISO’s words on the scope and breadth of this initiative: ‘Organizations around the world, and their stakeholders, are becoming increasingly aware of the need for and benefits of socially responsible behaviour. The aim of social responsibility is to contribute to sustainable development. An organization's performance in relation to the society in which it operates and to its impact on the environment has become a critical part of measuring its overall performance and its ability to continue operating effectively. This is, in part, a reflection of the growing recognition of the need for ensuring healthy ecosystems, social equity and good organizational governance. In the long run, all organizations’ activities depend on the health of the world’s ecosystems. Organizations are subject to greater scrutiny by their various stakeholders, including customers or consumers, workers and their trade unions, members, the community, non-governmental organizations, students, financiers, donors, investors, companies and others. The perception and reality of an organization’s social responsibility performance can influence, among other things: competitive advantage; its reputation; its ability to attract and retain workers or members, customers, clients or users; the maintenance of employees' morale, commitment and productivity; the view of investors, donors, sponsors and the financial community; and its relationship with companies, governments, the media, suppliers, peers, customers and the community in which it operates. This International Standard provides guidance on the underlying principles of social responsibility, the core subjects and issues pertaining to social responsibility and on ways to integrate socially responsible behaviour into existing organizational strategies, systems, practices and processes. This International Standard emphasizes the importance of results and improvements in social responsibility performance. This International Standard is intended to be useful to all types of organizations in the private, public and non-profit sectors, whether large or small, and whether operating in developed or developing countries. While not all parts of this International Standard will be of equal use to all types of organizations, all core subjects are relevant to every organization. It is an individual organization's responsibility to identify what is relevant and significant for the organization to address, through its own considerations and through dialogue with stakeholders.’ [ii] This ambitious undertaking focuses on principles of social responsibility, including accountability, transparency, ethical behavior, respect for stakeholder interests, respect for the rule of law, respect for international norms of behavior and respect for human rights. Core areas of social responsibility addressed by ISO include; organizational governance, human rights, labor practices, the environment, fair operating practices, consumer issues, and community involvement and development. Although ISO 26000 is not a law, and is merely a set of standards, there are certainly economic implications to companies in deciding whether to adopt it. It is true that some standards create costs to companies in the form of compliance and oversight. This is particularly true of firms who manufacture overseas, outsource or otherwise have broad global operations. However there are benefits to adopting a standardized regime of principles. Aside from good will generated by being an ethical corporate neighbor, standards may force firms to work more efficiently as alternatives for environmentally unfriendly processes and products are utilized. Also, many companies either have, or are developing, similar standards. By adopting a uniform set of standards recognized by other firms, governments, consumers, and watchdog NGO’s alike, they can actually avoid the costs of developing, promoting, maintaining and enforcing their own standards in the future. Very little of the language of ISO 26000 should be controversial to large international corporations. True, there are provisions dealing with the environment, and clauses promoting the collective bargaining rights of employees may meet some resistance. However, the neutral nature of much of the draft, its adoption of already existing global standards, and the conciliatory tone of many of the key clauses should make it palatable for most major corporations. [i] http://www.iso.org/iso/about.htm [ii] http://isotc.iso.org/livelink/livelink/fetch/2000/2122/830949/3934883/3935837/ISO_DIS_26000_Guidance_on_Social_Responsibility.pdf?nodeid=8385026&vernum=0

Thoughts on Mr. DeCourcy's Post

It would be interesting to update this research post bail-out. With the Obama administration's professed desire to incorporate green tech into Detroit's short and long term plans, as well as a forum to do so with high percentage share ownership, these ideas are rapidly becoming reality. Should the government be subsidizing the development of this technology? Well, the answer to that question depends quite a bit on political ideology. Some would argue that bailing companies out who failed to catch the wave of green technology demand in the first place is an example of throwing good money after bad. However, at this point, since the American taxpayer now owns a big piece of Detroit, I think a more pragmatic view is that Big American Auto should be doing everything it can to develop and incorporate these technologies, if not for environmental purposes, then certainly to increase sales. However, one thing sticks out to me from Pat's piece...the number 90, as in 90% of our rare earth metals, which green tech depends on, come from China (I have seen estimates of as much as 95% subsequent to some Chinese purchases of Canadian mine assets). If this is the case, then it is just one more example of an area where souring Sino-American relations in the future could be disastrous for our economy. Is that so different from depending on potentially unfriendly oil producing countries as we do currently? Maybe not. But, if you consider China's growth rate, and the fact that it could potentially have enough spare capacity to soak up the supply of rare earth metals in the future, it does paint a slightly different picture than the current oil scene. All in all, and based on the current situation as it stands, I believe that it is in Detroit's benefit to innovate towards some of these green solutions themselves while taking, as Pat suggested, advantage of trade opportunities with countries such as Japan. However, the caveat that this is no panacea to future energy issues should be part of the public debate and not simply ignored as electric technology is embraced.

Reviewing “U.S. Auto Makers Target Battery Gap With Japan” By Contributor Patrick DeCourcy

I am very happy to announce the first in what I hope will be many guest contributions to BlawgConomics. In this post, my good friend Pat Decourcy reviews John Murphy's 2008 Wall Street Journal Article on the hot topic of electric cars. ('U.S. Auto Makers Target Battery Gap With Japan,' John Murphy, The Wall Street Journal, Monday, B1, B7, September 15, 2008) This ties in nicely with the recent conversation on Smart Grid technology, which many hope will incorporate electric cars as part of the global energy solution. I am working on posting the figures, and will update the post when they are available.

In ‘U.S. Auto Makers Target Battery Gap With Japan,’ John Murphy explored the idea that scarcity of advanced automotive batteries impacts the absolute advantage which Japan has in manufacturing this resource. The United States-based auto manufacturers are troubled by this because they have seen an increase in demand for these batteries in their hybrid-electric cars due to the increasing cost of gasoline, and are concerned about having to import most of their advanced battery supply. This increase in gasoline price has also caused a strategic disadvantage for U.S auto manufacturers because their investments have focuses on gas-guzzling trucks and SUVs, while the Japanese have made investments in energy efficient technologies (such as hybrid cars and batteries) and the infrastructure to mass produce them (Figure 1). Many Japanese battery manufacturers are fueled with capital and investments from Japanese automotive manufacturers and the U.S. automotive firms worry that if there is a shortage in supply in batteries, Japanese auto manufacturers will get prioritized treatment for their battery orders. The U.S. auto manufacturer’s solution to this problem is an influx of government loans to develop technologies which can help shift the production possibilities frontier towards a lower overall cost to produce batteries and reduce the need for imports (Figure 2).

Even if the US auto manufacturers get the government loan, it will require many years of research and development to allow for the high-yield production of batteries. Although over the long run this investment in technology is a good idea, this will do very little to help the US auto manufacturers in the short run. The article didn’t explore how the US and Japan could maybe set up a system to trade goods to mutually benefit each other. Assuming that the US auto manufacturers simply pay for their imported batteries, if there were some good or product they could produce for a lower opportunity cost than Japanese companies, than a trade system could be set up to mutually benefit both countries (Note: My production possibilities frontier analysis probably would not be 100% realistic in this case because it shows that the US is the low cost producer of hybrid cars and that is probably not true given their lack of investments in this area). An ideal good to trade would be something the American automotive industry could produce more efficiently than the Japanese automotive industry. As long as there were no trade controls (free trade), this could benefit both sides considerably.

Another way to analyze this situation is through the use of supply and demand. There are a few different factors to consider here: 1) Due to the lack of domestic battery production and supply, the USA has to import batteries to support its own hybrid-electric manufacturing operations and overcome its domestic shortage (Figure 3) Normally, imports are viewed as unfair to producers, but since the USA has so few producers of batteries and such a great demand from consumers for hybrid cars, there is no need for trade controls in this case. 2) Gasoline and hybrid- electric automobiles can be considered substitutes, in the sense that an increase in the price of gasoline raises demand for hybrid electric cars (Figure 4). The article makes mention of this fact. 3) Batteries and hybrid-electric cars are complements and a battery is a key input in the manufacture of hybrid cars. If the price of a battery could be reduced through investments in technology and an increase in domestic supply, auto manufacturers feel the demand for their hybrid cars would be increased (Figure 5). The article does not mention this, but I feel that this is the real reason for US automotive CEOs attempt to get the government loans for battery production. The CEOs are trying to market it as a national security enhancement, but I think they are being somewhat disingenuous in that attempt. What they are looking for is corporate welfare – essentially a low rate taxpayer funded loan to develop technologies which can eventually help their ailing balance sheets and lead to future profitability. My question would be whether or not the automotive industry should be rewarded with this loan, given that they read the market incorrectly and didn’t hedge their bets with investments in hybrid technologies.

The author made a very good point relating the current importing of almost all our oil supply to the importing of advanced batteries. A supply and demand analysis similar to figure 3 could be drawn for oil and why we need to import oil. Despite this, the USA is sitting on oil reserves in Alaska, the Outer Continental Shelf, the Atlantic Ocean, parts of the Arctic Ocean and parts of the Rocky Mountains. The reason why exploration hasn’t taken place is because environmentalist lobby groups have had success in shaping policy with congressional lawmakers. Environmental theory has outweighed demand for increased domestic energy production and lowering the USA’s reliance on foreign oil imports. This same situation could very easily occur with advanced batteries and the author mentioned this briefly at the end of the article. Hybrid car batteries and engines need rare earth metals to function. See generally, Rare Earth Elements—Critical Resources for High Technology.” USGS Fact Sheet 087-02. 2002. http://pubs.usgs.gov/fs/2002/fs087-02/fs087-02.pdf. Rare earth metals are naturally formed over many years and have to be mined in processes which most wouldn’t consider environmentally sound. The USA has a comparative disadvantage in the mining of rare earth metals with China. Almost 90% of the USA’s rare earth metals in the year 1999-2000 were imported from China and the disparity has grown as time has gone on. See, Will, George. “Fuzzy Climate Math.” Washington Post 12 April 2007: A27 Whether or not America has facilities to manufacture advanced batteries may only be part of the solution – reducing the monopolistic influence of China in controlling key inputs to hybrid cars and increasing our domestic supply of rare earth metals (whether by mining or advanced chemical synthesis) is just as critical for becoming energy independent and less reliant on energy imports.

Follow up on Smart Grid Analysis

I want to take a few minutes to address one of several excellent questions posed in response to the Smart Grid posting: How much does the nation need to even the peak demand curve? If we ever get to evening the demand curve, we can run our nukes without having to call up the expensive, price setting natural gas burners. But is this effective? Let me start with the subsidiary issue, that of nuclear power plants. The speakers seemed to believe (in agreement with most reasonable analysis I have seen) that more nuclear is not in our future. A cost benefit analysis of this issue could make an appearance on this page in the future, but for now, additional capacity from nuclear is just not a feasible, so let's take it off the table. Now to the evening of the demand curve....It seems to me to be an elasticity of demand situation with current high inelasticity that could be dramtically impacted by a better developed and advertised variable pricing scheme. What I mean is this; there is no change in energy consumption by individual consumers, or industry, during peak usage hours because it does not impact them if they do not conserve. Therefore, there is no elasticity in regards to time of day....However, if there were a clearly articulated and understood variable pricing scheme where sticks existed against usage during peak times (higher prices) and/or carrots were used to stimulate the same effect, demand would even out through the day. What would this look like? Well, people could set their air conditioning units to run during the day to cool temperatures down, with an automatic shut down from 5 to 7 p.m. Businesses could run meal breaks or shifts changes around peak times. Technologies could be updated to reduce overall usage, such as flourescent bulbs. With the technology being discussed, individuals who are producing energy could even sell windmill or solar panel energy back into the grid at variable prices, incentivizing this type of scheme even further. How is this all facilitated? Well, the smart meters, which are scheduled for a dramatic rollout in the next 5-7 years, will allow details analysis both by energy providers and users, so that each can determine what types of behaviors do or should occur during what times of day. For example, if you know your dishwasher uses more power than your vacuum cleaner, you may change when you clean your plates or your floors. I believe that this would dramatically alter the demand curve for energy, with hourly usage evening out. This was actually discussed by one of the execs at the presentation, who stated that test homes reduced consumption in the neighborhood of 30% during peak hours when better informed and when variable rates were used. Incidentally, this would allow for better management of when to turn on certain types of power plants, hopefully reducing the need to turn on nat gas plants. This would also go some way toward better management of excess energy production, and may make prices cheaper overall if consumers no longer face the all-day premium that utilities now charge to compensate for peak usage.

Presenting Economic Analysis to Judges

I recently came across this helpful piece from the Organisation for Economic Co-operation and Development http://www.ftc.gov/bc/international/docs/uswp3econ.pdf

Summary and some thoughts regarding the SmartGrid Conference at the Brookings Institution

Summary The Brookings Institution hosted an event titled ‘Beyond the Smart Grid: Challenges in the Electricity Markets’ on September 11, 2009 with approximately 100 individuals in attendance. A smart grid, otherwise known as a smart electric grid, smart power grid, or intelligent grid among other names, is a method of electric energy delivery that relies upon digital technology to reduce costs, increase reliability, and foster security as well as reduce the economic impact of wasteful energy delivery and storage. Though there are many technological aspects to a smart grid at every stage of transmission, it essentially utilizes smart meters at the end user’s location to determine, via digital feedback, peak usage hours, lapses in service and security breaches in real time. It would also potentially allow consumers to monitor their own use analyze what hardware, such as appliances, or which activities are most costly to them. Some of this technology is in place and being utilized today. Other potential benefits of a smart grid system could be interoperability with electric vehicles, which would serve as alternative storage facilities for electricity, a more integrated local grid, or mesh, system which would provide greater support in the case of shortages or failures, and integration between regional grids to take advantage of cost imbalances between different areas of the nation. This is particularly true in the U.S., which was the focus of the event. However, smart grids are being explored in many nations, and are in use to an extent in a few already. The Event Following is a summary of the event as well as some of the main talking points during each session. The event was kicked off by the keynote speaker and recent Obama appointee Jon Wellinghoff, who is serving as the Chairman of the U.S. Federal Energy Regulatory Commission (FERC). Chairman Wellinghoff is an energy law specialist with over 30 years experience in the field working in private practice. The Chairman was followed by two panels of specialists, with the first focusing on smart grid transmission issues, and the latter geared toward distribution issues. On the first panel were moderator Charles Ebinger, Director of the Brookings Institution, Bill Gaines, CEO of Tacoma Power, Charles Gray, Executive Director of the National Association of Regulatory Utility Commissioners, Peter Huber, Fellow of the Manhattan Institute, and Larry Mansueti, Director with the U.S. Department of Energy. The second panel was moderated by Lynne Kiesling, Senior Economics Lecturer at Northwestern University, and included Cheryl Hinds, Director with Baltimore Gas and Electric, Richard Morgan, Commissioner with the District of Columbia Public Utilities Commission, Jeffrey Ross, EVP of GridPoint, and Lisa V. Wood, Executive Director with The Edison Foundation. Chairman Wellinghoff started the event with a discussion of transmission, basically the status of the current electric grid. He believes that the system is overly fragmented, that much of the system, including newer parts, does not have a high enough voltage capacity and that the antiquated system of local management, which made sense 100 years ago, needs to be overhauled. Therefore, the first step in creating an integrated, modern system with the capability to evolve in the future is through infrastructure improvements. He identified three areas that remained in focus throughout the remainder of the event where improvements can be made; planning, siting, and cost allocation. The Chairman focused on planning first, suggesting that regulators need to look at long term forecasts to determine how to meet future energy loads reliably. He identified the disparity in our nation’s three area grid system, which is defined as West, East, and Texas, suggesting that it was inefficient to have such a fragmented system. He also noted that the main innovations in power generation are occurring in ‘the flyover states,’ while most of the demand exists on the coasts, and suggested that more efficient delivery systems will be necessary. Discussion became more political as Chairman Wellinghoff shifted to siting. As previously noted, much of the new infrastructure improvements occurring in the states are completed on direction of local authorities, typically at the state level. However, with a more universal approach necessary for completion of a smart grid ready network, he suggested that a federal approach may be required. It is notable that this is already the approach taken in the natural gas market, with federal direction of pipelines taken for granted. However, the historically fragmented electricity market has always been controlled at the local level, and many believe that local authorities will relinquish this power with reservation. Interestingly, the Chairman believes that, despite a lack of explicit statutory authority, the Department of Energy and FERC may already have the power to direct future infrastructure improvements. This is in part due to recent legislation that contains loose terms allowing FERC control over hydro facilities and in areas of congestion. There may also be support in several Supreme Court cases, both in holdings and dicta. Despite this apparent position of power, there would still be potential pushback from local pols if too much authority were asserted. Therefore, the conclusion was that further legislation from Congress may be necessary in the future. The final focus area of the Chairman was cost allocation. Essentially, the question is at the point where infrastructure is planned, who will be responsible for paying for it; the nation from tax revenue or the end users, states in this case. This is possibly the most politically charged question of all, and no conclusion was reached on this point. However, it was noted that legislation might be required in this area as well. The first panel essentially picked up where the keynote address ended. The participants agreed that siting, cost allocation, and planning were all critical areas for dialogue. Following are some of the highlights of the discussion. There was lively debate over whether the costs of infrastructure development should be socialized or the burden should be borne by end users. Some of the main points were that it is very difficult to determine how much each pass-through state benefits or loses as a result of grid siting in their states, and it is perhaps even harder to measure exactly how much electricity flows to end users from a grid with multiple electricity sources. The conclusion was that a socialized burden would be the only way to handle construction. However the political difficulties in this were held out as a reason why this may not be possible. There was also discussion about how goals for improvements could best be met, with the panel seeming to agree that it would be better for the government to clearly state its end goals, (such as carbon reduction) and allow market players to innovate around such goals. The alternative, which seems to be in vogue currently, is the government mandating exactly which technology is to be used, a seemingly less efficient way of handling these changes. An additional area of agreement was on the benefits of localized planning, while adopting the Chairman’s ideas that the federal government should, and would, step in when local authorities were not able to come to satisfactory results. After this, the panel discussed the ways in which the push for green technology is impacting siting. The group seemed to agree that there was a dramatic impact, particularly in the west. It was noted that nuclear is not a viable option currently, and that coal has been disincentivized. Therefore, heavy usage areas, such as Southern California, are increasingly looking toward renewable sources, and how to get the cheap, clean energy from wind farms in the Mid-West to the West coast most efficiently. The panel concluded with thoughts that echoed those of Chairman Wellinghoff; namely that further legislation would probably be necessary to skirt the difficult political issues inherent whenever states feel federal authorities are usurping a long-held power. The second panel shifted the focus of the discussion to distribution issues. Where the first part of the event focused on infrastructure and some of the problems faced in developing it, the second panel focused on the consumer and some of the ways that consumer behavior could impact the future of smart grid technology. In general terms, the group shared many conclusions on big picture ideas. The biggest of these was the impact that variable pricing schemes could have on consumers who were aware of them and understood how they worked. Essentially, if consumers face higher prices during peak usage periods when the system is strained, they will conserve more energy. This can be accomplished both via credits for reduction and penalties for overuse. In actual test groups, there was a nearly 30% reduction of peak usage when educated consumers were involved in variable pricing schemes. Here, some of the technological aspects and future capabilities of a smart grid came to the forefront. These consumers, in some cases, had the ability to monitor specific usage by certain appliances and fixtures, and could react accordingly. In a smart grid world, this information could be relayed to transfer stations and electricity managers as well to determine the most efficient way to satisfy the needs of consumers on a real time basis. There is, additionally, already technology available which allows consumers to make determinations based on the information they receive to impact their behavior to an even greater extent. For example, if they know that running their air conditioners from 5 to 7 in the evening is more expensive, they may shut it down for an hour, either manually, or on a timer in their central system. Here, the conversation also drifted into potentialities whereby electric cars could serve as storage units for excess capacity, and even the possibility that those with extra energy in electric cars, or those who produce energy via solar panels, could sell back into the grid, a truly market-based approach to energy consumption. Conclusion All in all, the technology already available, along with some changes to both the infrastructure and legislative regimes, would allow the U.S. to move forward dramatically toward a more modern electronic transmission system. This system would provide more efficiency, more security, and would move the nation to more green-friendly sources such as wind and solar due to the system’s ability to transfer this capacity to end users. The potential for a more market-based approach to energy consumption would hopefully prove to be yet another step toward energy independence. However, political considerations, costs, and proper planning are all huge factors, and perhaps hurdles in the way of reaching this possibly utopian end result. In the meantime, the Obama administration’s commitment to moving toward the potentially unviable perfect world should at least result in some improvements to an infrastructure and legislative regime which are not currently conducive to meeting the needs of the 21st century and beyond.

First post...Excerpt from Comparative Analysis of Law Development in Civil Law Systems (1 of 4)

Shortly after I began the research for this paper, I was sitting in the National Botanical Garden in Washington, DC. There is a small courtyard in the complex dedicated to plants of the United States, with a small rock garden and pool in the middle. Next to the pool sat a solitary male duck, keeping watch over the single egg a few feet away on the other side of the pool. A family walked by the bench I was sitting on, and a young child asked his mother why the duck was standing up and not swimming. The mother’s answer was simple, but provided an interesting starting point for discussing the main difference in judicial roles in common law and civil law jurisdictions. She merely stated, “he decided not to.” It may be overly simplistic to divide civil law and common law jurisdictions into two neat pots. After all, France, Brazil, Egypt, China, Turkey, and Louisiana in the United States are at least primarily civil law jurisdictions, while countries as diverse as India, Australia, Guyana, Canada, England and the United States are all considered common law jurisdictions. However, at their root, common law jurisdictions can be said to be those where the statutes and regulations of the jurisdiction are supplemented by judicial decisions to form the complete body of law. These decisions are sometimes binding based on a hierarchy of courts, and even when not are often referenced and thoughtfully considered by other judges. Meanwhile, a defining characteristic of the civil law is that the statutes stand alone as the law, and that judges exist only as civil servants whose function is to apply the law as it is written in their jurisdiction’s code. Therefore, argue proponents of the civil law, their system is more consistent, fairer, and more just. Others argue that some of these views are somewhat romanticized and simplified. However, such simplification assists in comparative analysis because if judges in civil law countries exist simply to apply law, and not to make it, then one needs to look no further than the statutes of a jurisdiction to determine what the remedy will be in any given case. Furthermore, the analysis of the efficiency of law development in civil law jurisdictions can be summarized as an analysis of the efficiency of the remedies in civil law statutes. This paper is first a summary of the methodological development of law in civil law jurisdictions. Comparisons will also be made to the main alternative, development of law in common law jurisdiction. Additionally, practical implications of how law is developed in civil law jurisdictions are discussed, with the main emphasis resting upon whether opportunities for more “efficient” resolution of disputes could occur if civil law functioned differently. To determine whether this is the case, the remedies available to both civil and common law judges in contract breach cases will be analyzed using the tools of law and economics. One preliminary comment is that this paper in no way attempts to make value judgments on the merits of different legal systems or critique the results each may come to. It is merely an attempt to describe the development of civil law, and analyze the resulting implications utilizing the framework of law and economics. This is, in and of itself somewhat difficult because law and economics was developed in the United States, a common law jurisdiction. It has different societal norms than civil law jurisdictions, and indeed other common law jurisdictions. Therefore, certain promises could be valued differently in various jurisdictions, ideas of fairness can vary significantly, and societal views of different outcomes in court cases can be wildly divergent. As a result, some inevitable discussion of moral questions occurs throughout. The Historical Development of the Civil Law System Common law, the younger of the two main legal systems, was developed by the English around the time of the Norman Conquest in 1066. It is a tradition built around the interpretation of statutes written by legislators by judges. How laws are interpreted depends on the very particular circumstances of the case and may be impacted by considerations such as fairness. This system was then exported to England’s colonies, explaining its prominence in jurisdictions such as Canada, Australia, the United States, and certain parts of Asia and the Caribbean. John Henry Merryman & Rogelio Perez-Perdomo, The Civil Law Tradition, An Introduction to the Legal Systems of Europe and Latin America 1-3 (Stanford University Press, 3rd ed. 2007). The common law is a system where statutes, judicial decisions, and customs are all given weight. Because of this, critics of the common law and proponents of the civil law often claim that there is uncertainty to common law, and that the system itself is less elegant than the civil law with its statutory certainty. Merryman, supra at 3. However, it also lends itself to more creative, and, in some cases more efficient, results. By comparison, the roots of the civil law reach much deeper, with the seeds of its development planted in 450 B.C. It was around this time that the Twelve Tablets were published in Rome. Since then, the system has gained widespread acceptance throughout Continental Europe, parts of Asia, Africa, North America, and particularly in Latin America. Merryman, supra at 1-3. The Roman emperor Justinian was the first great codifier of laws. It was Justinian who assimilated and validated the ideas of many previous thinkers, scholars and commentators in the Corpus Juris Civilis. Combined with the existing jus commune, or customary and judge-made law, in Western Europe at the time, this eventually formed the basis for what is known contemporarily as civil law. Merryman, supra at 7, 10. On this foundation was built a system that absorbed aspects of canonical law, or the law of the Roman Catholic Church, and combined it with other customs as well as merchant law. This ancient law had developed, particularly around the Mediterranean, by merchants to self-police commercial transactions. Merryman, supra at 13. These sources; the codes of Rome, the canonical law and the merchant law, combined to form the basis of what is described as private law, or the laws governing interactions between individuals, in the civil law today. The combination of canonical law with merchant law and customary law was further influenced during revolutionary times in Europe with ideas borrowed from the natural law tradition, and underwent further codification. For example, two major codes, the Code Napoleon of 1804, and the German Civil Code of 1894 developed in this way. Merryman, supra at 32. However, it is notable that codification was not always meant to serve the same ends. For example, in France, it presented an opportunity to develop a whole new system, while in Germany, it was simply a formalization of existing laws, and was not revolutionary in nature. Nonetheless, contemporary codes throughout the civil law system were given much of their structural framework during the 18th and 19th centuries as the concept of natural law stoked revolutionary fires in Western Europe, particularly France. Natural Law, described by commentators such as Aquinas, Grotius, Pufendorf, Hobbes and Locke as the concept that man has unalienable rights bestowed upon him by God, was liberally cited by revolutionaries developing the European legal codes. The inconsistency of this notion with aristocratic and feudal societies is obvious. The implications for the judiciary were less obvious to a contemporary reader, but the impact was as great. During the time, judges were aristocrats in their own right, and there was widespread dissatisfaction over how decisions were made, how judgeships could be passed on like an inheritance, and the lack of ability to question unfavorable or even unfair opinions. The idea of man having inherent rights was inconsistent with aristocratic judges as it was with aristocratic rulers, and therefore the framers of European legal systems favored a strong separation of powers with a weak judiciary. See generally, A.P. d’Entreves, Natural Law, An Introduction to Legal Philosophy (Hutchinson & Co. Ltd. 1970). This is still apparent in the civil law of today, with the emphasis of judges as civil servants with limited ability to impact a trial through decision-making. A more recent change to the traditional structure of civil law systems has been the addition of an overriding constitutional umbrella, which is discussed below. In summary, the roots of civil law were developed out of a desire to codify laws from different sources in ancient times. This basic desire was made possible by combining existing laws and traditions with the ideas of commentators and scholars. This has been structurally impacted by ideas borrowed from natural law during revolutionary times, resulting in a system where judges may only interpret laws as developed by legislatures. Every jurisdiction that is considered to be a civil law country is different; however a common link between them is that they have codes, and that those codes serve as the law which judges apply to cases that come before them. Parts 2-4 will appear weekly