Indiana Law Review


Urban Development and Human Development

Paul H. Brietzke*

Along with economically disadvantaged rural areas, the ghettos or

slums of our cities form an entrenched Third World of the United

States.' Levels of ghetto unemployment and underemployment, substan-

dard and nonexistent housing, malnutrition, health care, and education

approximate those found in many Third World countries, where drug
addiction and crime rates are usually less severe. Ghetto government

often feels like a Third World authoritarianism: the police and other

officials can act in random and bizarre ways because they are not

accountable to their charges, and residents have little reason to vote for

a candidate who is handpicked in what is usually a one party rule locally.
Ghetto residents can thus reasonably expect a "subsistence urbanization"^

that is akin to the means that Third World peasants use to win the

bare necessities of a life that is nasty, brutish, and short.

* Professor, Valparaiso University School of Law.

1. Michael Harrington argues that our affluent nation at "the same time . . .

contains an underdeveloped nation," where the "mechanism of the misery" is similar to

those in African and Asian countries. Public housing projects are often "income ghettos"

and the "modern poor farms where social disintegration is institutionalized." Michael

Harrington, The Other America: Poverty in the United States 138 (Penguin Books

1968) (1963). Heibroner and Singer add that:

Visitors to America from underdeveloped lands marvel at first at the cars and

TV antennas in the slums and cannot believe that slumdwellers are not rich.
Soon, however, they learn that the feeling of poverty is not determined by what

a family possesses so much as by what other families possess.

. . . Poverty is a social condition, not just an economic fact.

Robert L. Heilbroner & Aaron Singer, The Economic Transformation of America
233, 236 (1977).

2. Gerald Breese, Urbanization in Newly Developing Countries 5 (1966).
See Harrington, supra note 1, at 10, 24 (describing "the economic underworld of American

life," where to be poor is to be "an internal alien"); Lawrence E. Harrison, Under-
development Is A State of Mind: The Latin American Case 30 (1985) (the kisses and
blows given capriciously to children form the model for the individual's relation to the

state); David Harvey, Soclal Justice and the City 79 (1973) (the "slum is the catch-
all for the losers, and in the competitive struggle for the cities' goods the slum areas are

also the losers in terms of schools, jobs," and services); Peter H. Rossi, Down and
Out in America: The Origins of Homelessness 8 (1989) (homelessness is the aggravated
state of a more prevalent but less visible extreme poverty, where the hold on the basic

amenities taken for granted by most Americans is precarious); Charles Sackrey, The
Political Economy of Urban Poverty 45 (1973) (The subjugation and segregation of
dual markets creates "an urban peasantry destined to live off welfare payments and white

paternalism.").



742 INDIANA LAW REVIEW [Vol. 25:741

In the United States and in most other places, the causes of such

a Hobbesian life are social rather than natural, no matter how many
economists swear that poverty and powerlessness merely indicate a lack

of success, or even of effort, in "free" or "natural" markets. The
central problem is, rather, the slumdwellers' lack of access to lucrative

markets due to the existence of socially created barriers to entry into

these markets. The United States has thus been left with greater ghetto
underdevelopment than is found in the other advanced capitaHst nations.^

Like that observed in the Third World, this developmental "dualism"

locks America's poor into low (and sometimes no or illicit) wages and

productivity. Here and elsewhere, the poor are unable to postpone their

consumption and save capital and thus, they are usually left with property

rights only in their own, often unskilled, labor-power. Although they

have few if any "competitive advantages"* to bring to bear in their few

exchanges, the poor are seen by mainstream economists as participants

in "informal" markets.

Like many Third World urbanites, American slumdwellers are in
but not of the city; theirs is a segregated and thus a smaller universe

of contact and experience. Any economic growth that occurs cannot
lead to development, so long as the kinds of institutions conducive to

growth remain underdeveloped. The "trickle down" solutions offered
by the federal government are closely paralleled by the policies that a

Reaganite World Bank and International Monetary Fund impose on some
Third World governments. Even if America's local government officials

are sympathetic to the poor's plight, they must deal with a growing.

Third World-style dependence. Local resources must be allocated in

socially and politically suboptimal ways to attract badly needed corporate

resources from outside of the community. Local resources that might

otherwise be directed toward solving the problems of the poor are thus

dissipated through increasingly fierce competition for the highly mobile

capital of the global economy.^ The United Nations' Conference on

3. Harvey, supra note 2; Heilbroner & Singer, supra note 1, at 239. See infra
notes 62-84 and accompanying text.

4. See Michael E. Porter, The Competitive Advantage of Nations 10 (1990)
(a firm's competitive advantage either lowers costs or promotes differentiated products

that command premium prices).
5. See Severyn T. Bruyn, A Future for the American Economy: The Social

Market 343, 346, 360-61 (1991) ("Global capital disenfranchises local communities because
powerful corporations buy and sell local property, both land and firms, in competition

for the greatest return on invested capital." The U.S. is thus "becoming a colony of

foreign investors."); Porter, supra note 4, at 15-16 (developing nations are frequently

trapped because they have no strategy for moving beyond their fleeting competitive

advantages); Pierre Clavel & Nsmcy Kleniewski, Space for Progressive Local Policy:



1992] HUMAN DEVELOPMENT 743

Human Settlements concludes that the unacceptable circumstances of
urban life largely result from an inequitable economic growth, which is

incapable of satisfying basic needs* and which cannot be repaired through

the piecemeal approach of market economies.^

Robin Malloy's excellent book, Planning for Serfdom,^ points out

another similarity between American and Third World cities: "devel-

opment" policies that amount to planning for a serfdom, at least for

the poor and powerless. Like the pyramid-building pharaohs of ancient

Egypt, urban politicians and planners appear to suffer from an Edifice

Complex. They seem unable to distinguish the essential from the merely

desirable — a distinction which is seldom drawn in marketplace trans-
actions or analyses. Succumbing to developers' blandishments and facing

an inevitable and growing gap between municipal resources and the

demands placed on them, the temptation is to ignore unmet needs and

to spend scarce resources on prestigious buildings. The gleaming surfaces
of these buildings impress the outside world, reflect attention away from
ghetto scenes, and enhance the "lifestyle" of the upper middle class

through a gentrification that attracts this group's political support. This

Edifice Complex is most likely to be indulged when the poor have no
effective means to express complaints and when mutual suspicion already
exists between the poor and the city leaders.^ Former Indianapolis Mayor
Hudnut may thus not be so very different from a Kwame Nkrumah or
Bung Sukarno, or so a Hoosierdome filled with Baltimore Colts might
suggest. '°

Examples from the United States and the United Kingdom, in Beyond the City Limits:
Urban Policy and Economic Restructuring in Comparative Perspective 199, 228
(John R. Logan & Todd Swanstrom eds., 1990) [hereinafter Beyond the City Limits];
James Coleman, The Resurrection of Political Economy, in The Political Economy of
Development 30, 33 (Norman T. Uphoff & Warren F. Ilchman eds., 1972); Rita J.
Bamberger & David W. Parham, Leveraging Amenity Infrastructure: Indianapolis 's Ec-
onomic Development Strategy, 43 Urb. Land, Nov. 1984, at 12. See also infra notes 26-

27 and text accompanying.

6. United Nations Conference on Human Settlements, Declaration of Principles,
in Third World Urbanization 342, 342-43 (Janet Abu-Lughod & Richard Hay, Jr. eds.,
1977) [hereinafter Declaration of Principles].

1. Id.

8. Robin P. Malloy, Planning for Serfdom: Legal Economic Discourse and
Downtown Development (1991) [hereiafter Malloy, Serfdom]. Malloy's title suggests
his fondness for the ideas expressed in Friedrich A. Hayek, Road to Serfdom (1944),
which treats many similar themes in similar ways.

9. Breese, supra note 2, at 96-97. See Malloy, Serfdom, supra note 8, at 10

(discussing how the "visible monuments of political power" come together with an "invisible
restructuring of cultural values and norms," in an Indianapolis which is no longer "India-

no-place"). In America's heralded "urban renaissance," the visibility of a project is almost

synonymous with its viability. Id. at 9.

10. See Malloy, Serfdom, supra note 8, at 110. Indianapolis subsidized the Colts



744 INDIANA LAW REVIEW [Vol. 25:741

Perhaps without reahzing it, Malloy is also speaking about some
formerly progressive Third World countries when he concludes that:

American society has become so driven by a myopic quest for
the visible results of its materialistic designs that it fails to see

how the end product . . . may promote an ideological framework
that . . . [undercuts] the values and norms of natural and in-

alienable rights, human dignity, and the individual autonomy
once held dearly."

Like Malloy, the United Nations' Conference pleads for "the human
scale" among all of the skyscrapers, for political participation, and for
other needs of disadvantaged groups.'^ These factors are seldom con-

sidered in marketplace transactions or analyses. The development of
things rather than of people frequently turns the poor and powerless

into its victims, if for no other reason than that the eviction of the

for the political (presumably as opposed to the economic) purpose of providing a basis

for local identification, for supporting the "home team's political agenda" by stimulating
an almost collegiate pride in municipal athletics. Id. The subsidies that prompted the

Colts' exit from Baltimore (where a different and perhaps more interesting urban devel-

opment policy is being implemented) came in large part from nonprofit (foundation)

sources. Subsidies include revenue guarantees, a low-interest loan, and public aid for a

training camp. See Bamberger & Parham, supra note 5, at 15. Having built the Hoosierdome
(a name that offends some Hoosiers from my end of the state) at vast public expense,
the city presumably believed that it had to do something with it. Unless my economic
analyses are disqualified by virtue of my being a Bears fan — a vice that calls economic
(or any other) rationality into question — the City was trying to take advantage of the
monopoly or economic rents that stem from the fact that the number of NFL franchises
is tightly limited. It is difficult to imagine the Colts earning money for any other reason

or to calculate the net outcome from city leaders and team owners trying to exploit each

other. Yet, it seems plausible that, like those in many Third World countries, the Indi-
anapolis poor are left with less bread and mediocre circuses. See Harvey, supra note 2,

at 115; W. Arthur Lewis, On Assessing a Development Plan, in Leading Issues in
Economic Development 716, 721 (Gerald M. Meier ed. 2d ed. 1970) ("In every country

. . . politicians believe that the greatness of their country is demonstrated by one or

another kind of large useless expenditure"; for example, by doing on a "lavish . . . scale

what could be done much more cheaply."). See also Joseph T. Hallinan, Blacks Sharing

Little of Midtown Development Wealth, Indianapolis Star, May 29, 1988, at Al (a
redevelopment agreement promised blacks a significant role in revitalization, but blacks

have not participated to a great extent). To be fair, we should note Indianapolis's media-
praised "can-do spirit." Malloy, Serfdom, supra note 8, at 10. Also, as in Houston,

the Indianapolis city limits encompass areas that are in the suburbs of other cities. Id.

11. Malloy, Serfdom, supra note 8, at 140. Humanistic Third World values would

presumably be more social democratic and less classically liberal democratic, than Malloy's

enumerated values, however. See infra notes 160-65 and accompanying text.

12. Declaration of Principles, supra note 6, at 344. See Malloy, Serfdom, supra

note 8, at 4 (urban life and development are more than the efficient accumulation of

capital goods).



1992] HUMAN DEVELOPMENT 745

poor to make room for one edifice after another eventually leaves them
with nowhere to go.

I. Ghettos and Economists

We would presumably learn much from Third World efforts to force
a peoples' right to development onto an agenda set by the governments

and corporations that are otherwise indifferent toward or hostile to this

concern. Exposure to the Third World realities of our often invisible

slums might shake American complacency and strengthen our resolve to

try more creative solutions.'^ The search for solutions is an important

task because, as Malloy notes, "it is the urban environment with its

dense population, its diversified and specialized enterprises, its ability

to generate excess capital, and its influence on surrounding regions that

first reveals the emergence, stagnation, or death of a great society.""*

As "monuments to the possibilities of civilized cooperation,"'^ many of
our cities are now falling behind those in other advanced capitalist
countries in terms of the value (the real income, the accessibility and

the proximity) they offer to all but their most affluent residents. American

cities remain the locus of power, but their ability to offer economic

opportunities to unskilled rural migrants, to promote social change, and

to offer the means of adjustment and social integration, seems truncated.

Cities offer slumdwellers "high rents, high density, low amenities" in-

stead.'^

A. Recent Changes

Many mainstream economists, especially those active in the law and
economics enterprise, are stumbling blocks to, rather than facilitators

13. See Harrington, supra note 1, at 11-12; Ronald I. Meltzer, International

Human Rights and Development, in Human Rights and Development in Africa 208,
214 (Claude E. Welch & Ronald I. Meltzer eds., 1984); Paul H. Brietzke, Consorting
with the Chameleon, or Realizing the Right to Development, 15 Cal. W. Int'l L.J. 560
(1985); Hector G. Espiell, The Right of De^'elopment as a Human Right, 16 Tex. Int'l
L.J. 189, 189-91 (1981).

14. Malloy, Serfdom, supra note 8, at 2. See Breese, supra note 2, at 143 ("There

is no worse combination than urbanization without development, because to the lack of

urban facilities is added the want of employment opportunities.").

15. Mark C. Berger & Glenn C. Blomquist, Income, Opportunities, and the Quality
of Life of Urban Residents, in Urban Change and Poverty 67, 67-68 (Michael G.H.
McGreary & Laurence E. Lynn, Jr., eds., 1988) ("synergistic interactions" in cities are
largely responsible for our standard of living).

16. HEaBRONER & Singer, supra note 1, at 154. See Breese, supra note 2, at 40-
41; Harrington, supra note 1, at 138; Harvey, supra note 2, at 68-70; John Walton,

The International Economy and Peripheral Urbanization, in Urban Policy under Cap-
italism 119, 120, 122-23 (Norman I. Fainstein & Susan S. Fainstein eds., 1982).



746 INDIANA LAW REVIEW [Vol. 25:741

of, creative new solutions to urban problems. Robin Malloy adroitly
details some of the reasons for their failings, but urban problems have
admittedly been complicated by recent and rapid economic and political

changes. Historically, cities offered the "economies of agglomeration,"'^

achieved by the location of large factories near one another, and a

union-sponsored prosperity for middle and lower-middle income groups.

Yet, we are said to now be living in "postindustrial" cities, where a
"restructuring" has been prompted by changes in transport, commu-
nications, and computer technologies. Fordist production, the extreme

division of labor on assembly lines which requires fixed accumulations

of resources,'* is giving way to the more profitable flexibility of mul-
tilocational corporations and economic activities. The result is a decon-

centration and reorganization of capital, labor, and government and a

rapid growth in the service sector of the economy and in suburbs as
productivity (as well as residential) centers.'^

These economic changes are global in effect; stateless money circles
the globe in seconds, through stateless banks that seem immune to
regulation. To date, these changes have served further to marginalize
the Third World and the inner cities of the United States, although a
few escapees like Singapore and Hong Kong play roles analogous to
some of our suburbs and Sun Belt cities. A Third World and inner-
city marginalization have also resulted from an international explosion

in the service economy. Some of the causes of this explosion are an
increased consumer affluence and sophistication, an increased demand
for leisure that can be satisfied by having others perform personal service

tasks, growth in the youthful and elderly segments of the population

that demand more services, the privatization of many formerly public
services, and technological changes that reduce the costs of delivering

17. William A. Fischel, The Economics of Zoning Laws: A Property Rights
Approach to American Land Use Controls 252-54 (1985).

18. John R. Logan & Todd Swanstrom, Urban Restructuring: A Critical View, in
Beyond the City Limits, supra note 5, at 1, 11.

19. See Bruyn, supra note 5, at 343; Fischel, supra note 17, at 252-54; Logan

& Swanstrom, supra note 18, at 3, 4; Harvey Molotch, Urban Deals in Comparative
Perspective, in Beyond the City Limits, supra note 5, at 175, 179 [hereinafter Molotch,
Urban Deals]; Kenneth J. Neubeck & Richard E. Ratcliff, Urban Democracy and the
Power of Corporate Capital: Struggles Over Downtown Growth and Neighborhood Stag-
nation in Hartford, Connecticut, in Business Elites and Urban Development 299, 302
(Scott Cummings ed., 1988); Edmond Preteceille, Political Paradoxes of Urban Restruc-
turing: Globalization of the Economy and Localization of Politics?, in Beyond the City
Limits, supra note 5, at 27, 51; Paul Kantor, The Dependent City: The Changing Political

Economy of Urban Economic Development in the United States, 22 Urb. Aff. Q. 493,
506-07 (1987). See also Berger & Blomquist, supra note 15, at 72 (a significant correlation
exists between a city's unemployment rate and its share of Fordist manufacturing em-

ployment).



1992] HUMAN DEVELOPMENT 747

services.^" Mainstream economists have difficulty analyzing this shift to

services because they are reluctant to abandon Adam Smith's assumption
that wealth is created out of material resources. The "new" services (as
opposed to slinging burgers at McDonald's, the low-wage kind of service

occupation that slumdwellers are lucky to command) create wealth by
applying information, knowledge, human resources, and culture to the
transformation of social life. Only those cities with superb universities

and a highly-educated labor force will serve as command and control
centers for the diffuse service empires that are emerging.^'

Sparked by the deterioration in Fordist production processes, the

decentralization of economic activities into the suburbs results in redis-

tribution of skills, wealth, and governmental revenues away from the

cities. Many suburbs have serious entry-level job shortages. There is a
long-term mismatch between these jobs and the would-be employees

living in the inner city, due to residential and job segregation, the paucity

of suburban job information, and the deterioration in public transport.

Decentralization also has political consequences and none is more re-

vealing than the recent use of "public entrepreneurship" to describe

qualities that were formerly called political (or policy) leadership or, less

flatteringly, machine politics. This change in nomenclature marks a

resurgence in the influence that a 1920s-style business managerialism

exerts on politics: the most pressing urban need is usually considered

to be the establishment of a good "business climate" through the

nominally supply-side policies that operate on the demand side by ap-
pealing to corporations in their capacity as consumers of public resources.

Instead of winning re-election merely by licensing elaborate planning and

redistribution schemes, municipal politicians feel an increased dependence;

their bargaining and logrolling opportunities have been eroded by recent

economic changes and changes in federal policies. ^^

20. Interestingly, America leads Japan and Germany in the export of many services,
although these countries have large domestic service sectors. Americans' distinct advantage

of a fluency in English is one explanation.

21. Bruyn, supra note 5, at 332-34. Economists have difficulty measuring the price

component of services, partly because many services are intricately linked to industrial
production. Id. at 324. The service economy is a process based on mutual engagement,

and social value is inherent in the activity itself. Id. See Porter, supra note 4, at 240-

45; Committee on National Urban Policy, National Resource Council, Committee Report,

in Urban Change and Poverty, supra note 15, at 1, 5; Logan & Swanstrom, supra
note 18, at 4, 7.

22. Harvey, supra note 2, at 61, 86; Kantor, supra note 19, at 512; John D.

Kasarda, Jobs, Migration, and Emerging Urban Mismatches, in Urban Change and
Poverty, supra note 15, at 148, 193; Logan & Swanstrom, supra note 18, at 11; Molotch,
Urban Deals, supra note 19, at 179. See Malloy, Serfdom, supra note 8, at 85 (politicians

speak of public entrepreneurship rather than urban socialism or a state capitalism to



748 INDIANA LAW REVIEW [Vol. 25:741

Urban politicians try to adjust to an era of "bidding down, bailing
out, and building on the basics"^^ by striking a politically viable balance

between the ideal of local popular control and the reality of pleasing

economic elites. These elites, many of whom are nonresidents, evaluate
politicians on the basis of marketplace criteria that are not relevant to

the poor, who lack the price of admission to most markets. Robin
Malloy describes the way this balance is struck in Indianapolis as follows:
"The thought of government power and tax dollars being used to acquire
a football team, a Saks Fifth Avenue department store, and luxury
waterfront apartments seems to be contrary to the down home and
traditional values of Indiana folklore."^'* This also seems contrary to

the (traditional, at least) public purpose doctrine in constitutional law.

Examples from other cities are given by Malloy and others, and these

show a rather consistent pattern that is also seen in the Third World:

the creation of independent development authorities to respond to capital

markets and to circumvent a political accountability, the channelling of

public involvement into such "nondevelopmental" concerns as job cre-

ation and housing rehabilitation, and the co-opting or isolating of people

who oppose the implementation of the Edifice Complex."

forestall an examination of underlying premises that are inconsistent with individualism,

capitalism, and other values we hold dear); Scott Cummings, Private Enterprise and Public

Policy: Business Hegemony in the Metropolis, in Business Elites and Urban Development,
supra note 19, at 3 (government is perceived to be too large, expensive, and intrusive;

therefore, private entrepreneurship becomes an urban planning device through the pri-

vatization of services and revenue sources); John J. Kirlin & Dale R. Marshall, Urban
Governance: The New Politics of Entrepreneurship, in Urban Change and Poverty,
supra note 15, at 348, 364 (recording "a shift from a tax-supported, grants-lubricated

policy system toward a . . . system based on charges and fees").

23. Clavel & Kleniewski, supra note 5, at 200 (widely accepted "typology" of
responses to recent economic changes: inter alia, local elites bail out of manufacturing

and use "development" policies and financial institutions to shift capital into office

construction and inner city gentrification). Explanations of urban restructuring are diverse,

from passive adjustments to global processes to "willful action by local operators of

growth machines," with a midpoint of everyone making the best of a bad bargain. Saskia

Sassen, Beyond the City Limits: A Commentary, in Beyond the City Limits, supra note
5, at 237, 250.

24. Malloy, Serfdom, supra note 8, at 110-11. Compare id. at 10-11 (Indianapolis

is engaged in "invisible restructuring of cultural values and norms," building on a

"simplistic and egotistical conception of community" that is anchored in a "zero-sum

game vision of the world.") with Bamberger & Parham, supra note 5, at 12, 16, 18
(charting developmental winners and losers is an interesting exercise, and Indianapolis

pioneered a "new civics," in which "community involvement is as much a matter of
enlightened self-interest as ... of obligation," while using "leverage capital" from a local

foundation to develop "a unique niche in a specialized economy — sports").
25. Kantor, supra note 19, at 512-13. But see Harvey Molotch, Strategies and

Constraints of Growth Elites, in Business Elites and Urban Development, supra note



1992] HUMAN DEVELOPMENT 749

Top city politicians are sometimes venal, but they are seldom stupid
or malign. Spurred on by cutbacks in federal funding, politicians spend

their time courting providers of capital, rather than pursuing other urban

agendas. 2^ The "[ijrrational and unrestrained competition" that ensued

"has led some municipal jurisdictions to compromise seriously their

revenue base with lucrative tax abatement incentives or to make rash
commitments to finance infrastructure improvements or initiate land use

changes through high-risk public indebtedness or fiscally questionable

bonding programs. "^^ Like Third World countries, our cities are played

off against each other by business people. Politicians are thus tempted

into neomercantilist policies of dubious legality. As in the mercantilism

of old, these policies represent a public-private "partnership" that is

largely a private determination of the levels and types of public goods

and services. These determinations ignore the needs of the poor and

19, at 25, 35 [hereinafter Molotch, Strategies] (Political entrepreneurs can mobilize both

elites and public opinion through "grace and cunning, energy and wit, information and

training."). The constitutionality or legality of many of the tactics used is dubious, perhaps
because the tactics are so new that definitive court tests are still forthcoming. See Fischel,

supra note 17, at 41 (Supreme Court will rarely interfere with local government decisions

on zoning or land use); Malloy, Serfdom, supra note 8, at 13-14 (Tactics similar to

those used in Indianapolis are used in Boston, St. Louis, Pittsburgh, and Louisville. In

Louisville, the Louisville Riverfront Project was given a 30 acre site, $13.5 million in

financing, and $11.5 million in federal funding, thereby creating a long-term business

relationship); Cummings, supra note 22, at 16 (Houston displays a "developmental chaos,"

as a "free market disaster area" incapable of financing social services.); Daniel Mandefker,

Public Entrepreneurship: A Legal Primer, 15 Real Est. L.J. 3 (1986) (discussing state
laws that determine the legal acceptability of public entrepreneurial powers). But see M.
Bruce Johnson, Introduction, in Resolving the Housing Crisis: Government Policy,
Decontrol and the Public Interest 1, 14 (M. Bruce Johnson ed., 1982) [hereinafter
Resolving the Housing Crisis] ("Houston's lack of land use controls is actually a more

efficient system in protecting neighborhoods than the scandal-ridden, bribery-prone zoning

boards found elsewhere. The market really is capable ... if given the chance."). Not-

withstanding Hartford's transformation into a corporate city at the forefront of high-tech

services, it is the fourth poorest city in the nation, plagued by severe fiscal problems and

an acute class polarization. Cummings, supra note 22, at 18. See Neubeck & Ratcliffe,
supra note 19, at 299. See also Thomas J. Keil, Disinvestment and Decline in Northeastern
Pennsylvania: The Failure of Local Business Elite's Growth Agenda, in Business Elites

AND Urban Development, supra note 19, at 269 (discussion of Wilkes-Barre, Pennsylvania).
26. Molotch, Urban Deals, supra note 19, at 176. See Preteceille, supra note 19,

at 51-52 (given the need to compete for capital and the structure of local tax systems,

the ability to redistribute resources to the poor is limited); Sassen, supra note 23, at 250

(City leaders have been "routed by financial capital, conservative states, and privatization

ideologies.").

27. Cummings, supra note 22, at 11. See Bruyn, supra note 5, at 360-61; Logan

& Swanstrom, supra note 18, at 19-20; Kantor, supra note 19, at 510-11; Mandelker,
supra note 25, at 3; Lowdon Wingo & Jennifer R. Wolch, Urban Land Policy Under
the New Conservatism, 5 Urb. L. & Pol'y 315, 326 (1982).



750 INDIANA LAW REVIEW [Vol. 25:741

may prove to be impoverishing for the nonpoor as well. They also miss
the significance of recent economic changes, by emphasizing the least

mobile resource which is thus the one least attractive to investors im-

plementing a flexible global strategy: urban land and the uses to which

it is put.

Although the magnitude of recent economic changes strongly suggests

the need for federal solutions that will enable cities to adjust to the

"externalities" of these changes and to reduce wasteful competitions for

capital, such solutions are unlikely so long as the federal government

is widely perceived as too large, expensive, and intrusive. State govern-

ments are unlikely to help much either, because their responsibilities are
swollen by a "new federalism" and their revenues are reduced under
the local equivalents of Gramm-Rudman. The "old slums" had mean-
ingful votes and could make their political influence felt, especially during
the New Deal and its aftermath. At that time, perceptions of misery
and the need for governmental solutions were more widespread, and
governmental policies were made more openly. ^^ Since then, "[t]he mo-
bilization of interest groups, their representation . . . their incorporation

into and effects on urban political processes," and even the groups'

"theory base"^' have all changed radically.

What effects have recent economic and political changes had in the
ghettos? Rapid increases in catastrophic joblessness and homelessness,

teen pregnancies, female-headed families, welfare dependence, serious

crime, and the outmigration of middle and working class families that

further concentrates poverty may have been some of the outcomes.
Although many points of contact are likely to exist between these miseries
and other recent economic and political changes, the chains of causation

are long and not yet fully explored, least of all by mainstream economists.

28. See Harrington, supra note 1, at 15; Kirlin & Marshall, supra note 22, at
352-53; Lewis, supra note 10, at 721; Robert H. Freilich, et. al.. The New Federalism
— American Urban Policy in the 1980s: Trends and Directions in Urban, State and Local
Government Law, 15 Urb. L. 159, 161 (1983). See also Cummings, supra note 22, at 9

(arguing that large Reagan-era budget deficits hurt both capitalists and the underclass,

and that these deficits limit the ability of cities to manage and divert capital accumulation

crises or to help local industries deal with similar crises); Kirlin & Marshall, supra note
22, at 349 (arguing that recent federal government expenditure policies are much less

location-specific, involving the procurement of defense hardware, for example, rather than

sewer grants); Kantor, supra note 19, at 495, 511 (arguing that the federal system of

government creates special obstacles that exacerbate local-level tensions between political

and marketplace accountabilities and that federal programs accommodate rather than limit

economic warfare among cities). But see Committee on National Urban Policy, supra note

21, at 8-9 (stating that although local taxes have increased and city services and employees

have declined, cities are generally healthier fiscally than they were early in the 1980s).

29. Kirlin & Marshall, supra note 22, at 357.



1992] HUMAN DEVELOPMENT 751

One can confidently conclude, however, that these economic and political
changes overshadowed new ghetto miseries, making the amelioration of
misery more difficult and less rewarding politically. Equity, represen-

tation, and the other social welfare issues concerning access to public

goods and services are given lowly positions on the poHcy agenda of

entrepreneurial politics. In any event, a San Diego or a downtown district
will have more entrepreneurial opportunities than a Des Moines or a

ghetto. African-Americans bore the brunt of deindustrialization (the

deterioration in Fordist production processes) in the auto, rubber, steel,

and other industries hurt most by the erosion of America's competitive

position in manufacturing. These unemployed people lack the mobility

to claim suburban jobs, and they lack the skills and education to enter

the burgeoning new service occupations. Their schools and housing are
deteriorating, and the slums may thus be expanding geographically. ^°

Scott Cummings concludes that "[u]nrestrained free enterprise is repro-
ducing the same patterns of urban blight that ravaged American cities

during the 1960s,"'' while Moore and Squires believe that a "new social
contract is emerging, one which calls for additional financial rewards

for the wealthy but punitive sanctions for the poor."'^

B. The Ideology of Analysis

My necessarily brief description of recent economic and political
changes is no doubt imperfect because little is reliably known about
these changes. Mainstream economists seem to lack the information, the

theoretical framework, and the incentives to acquire the facts and theories

for analyzing these changes effectively and devising legal and political

arrangements for ameliorating the attendant miseries of the poor and

30. William J. Wilson, The Truly Disadvantaged: The Inner City, the Un-
derclass, AND Public Policy 135 (1987); Logan & Swanstrom, supra note 18, at 12.
See Committee on National Urban Policy, supra note 21, at 11-12 (the most troublesome

trend is the growing concentration of central city poverty, as the effects of deindustrialization

are felt and as persons with marketable skills move away); Susan S. Fainstein, Economics,
Politics, and Development Policy: The Convergence of New York and London, in Beyond
THE City Limits, supra note 5, at 119, 140 ("Using the tools of development corporations,

tax subsidies, advertising and public relations, and financial packaging, officials [in London
and New York] have stressed the economic development function of government to the
detriment of social welfare and planning."); Neubeck & Ratcliff, supra note 19, at 301-
02 (where deindustrialization has destroyed a union-led prosperity, the effects of trickle-

down policies are at best uncertain and uneven).
31. Cummings, supra note 22, at 12.

32. Thomas S. Moore & Gregory D. Squires, Public Policy and Private Benefit:
The Case of Industrial Revenue Bonds, in Business Elites & Urban Development, supra
note 19, at 97, 108.



752 INDIANA LAW REVIEW [Vol. 25:741

powerless. In Planning for Serfdom and in Law and Economics,^^ Robin
Malloy artfully describes how ideology will rush in to fill these vacuums
of fact, theory, and empathy for the poor.^" What Malloy calls legal
economic "discourse"" among conservative (mainstream, Chicago School)
economists is somewhat varied and sometimes passionate, but can be

summarized briefly:

If we assume that everyone is economically rational and that
their interactions are typified by exchanges in markets assumed

to be nearly perfect, then these interactions will be efficient and

serve to maximize society's wealth. It follows that statutory and

regulatory interventions in these interactions can only be inef-

ficient and serve to reduce society's wealth. The best law is thus

the non-interventionist common law, which is seen to mimic
efficient-by-definition market processes.^*

Although this theory may be contradicted by the recent economic and
political changes I sketched, the analysis (from the "then" clause on-

wards) remains elegant, original, powerful, and internally consistent.

Ideology is smuggled into the assumptions (the "If" clause) that must

be made if the analysis is to operate properly."

33. Robin P. Malloy, Law and Economics: A Comparative Approach to Theory
AND Practice (1990) [hereinafter Malloy, Law and Economics].

34. See id. at 5, 10, 51, 52, 55, 64, 66, 156. See also Paul H. Brietzke, Review:

A Law and Economics Praxis, 25 Val. U. L. Rev. 51 (1990) (reviewing Malloy's book).
35. Malloy, Serfdom, supra note 8, at 82. This discourse is "a battle of often

unspoken and implicitly assumed first principles of faith." Id. at 84.

36. Paul H. Brietzke, The Law and Economics of the Constitution (forth-
coming). This is a Kantian theory of knowledge, or Kelsen's Grundnorm, that distinguishes

legal truth from falsity. Id. See Frank I. Michelman, Microeconomic Appraisal of Con-

stitutional Law in Essays on the Law and Economics of Local Government Law 137,
139 (Daniel Rubinfield ed., 1979) ("[Vjalue is perceived as strictly individual, private, and

subjective, and law as strictly a device for removing or minimizing obstacles and elemental,

frustrations."). The common law is "the organic carrier of popular morality," while
"enacted law is taken to reflect specific dictates of sophisticated policy or particularistic

formations of power." Id. at 140. See also id. at 158-59; infra note 145 and accompanying

text.

37. See Malloy, Serfdom, supra note 8, at ix. Malloy's book is both a study of

ideology in law and economics and a theory defending liberty, dignity, and freedom.

Freedom is also an ideology, but one that we presumably accept. By way of contrast,

the less influential "[cjommunitarian (altruistic) and state-centered views of law and

economics generally lead to conceptual frameworks of liberty that focus on the importance

of groups, experts, and planners at the expense of the individual decision makers in the

marketplace." Id. at 62. Economics theories differ in their ideological assumptions about

the roles of the individual, the community, the state, and economic and political power.

These roles form the basis for rival law and economic notions of property, contract, free

choice, and justice. Id. at 62, 83. This ideological rivalry is fueled by the fact that



1992] HUMAN DEVELOPMENT 753

By no stretch of the imagination do the assumptions of mainstream

law and economics offer relevant descriptions of hfe in the ghetto or

in the corridors of power, in Indianapolis or elsewhere. Yet, these

assumptions are widely admired and adopted. As I have written elsewhere:

"It is not that Americans are stupid or unideological; it is that they

have a high tolerance for dissimulation in pursuit of what they want"^*

and have the wealth and power to grab. Mainstream law and economics

thus "works" for "us," even if we know that the economic rationality
assumption cannot hold. It cannot hold because it ignores a host of

factors that make us human, including altruism, habit, bigotry, panic,
genius, luck or its absence, and factors such as peer pressures, institutions,

and cultures that turn us into social animals. A dehumanized, deso-
cialized, and often sexist "economic man" supposedly goes through life
as if it were one long series of analogies to isolated transactions on the

New York Stock Exchange.
Markets are the original sources of an economic and political plu-

ralism, a diversification of risks and opportunities that could be made
to create more viable niches for the poor and powerless. Paul Peterson's

City Limits^^ builds this history into a conservative's brief for markets

as dictators of urban policy and as legitimators of the economic growth

demanded by elites.'^ In Peterson's extensively criticized view,'*' imple-

menting "welfare" concerns leads only to stagnation and decline.''^ Yet,

the markets he praises are not all there is to law or life, especially

Keynesianism (and its tendency to favor the poor and powerless) is no longer dominant,

but there is no consensus on a replacement for the theory. Kirlin & Marshall, supra note
22, at 352. Severyn Bruyn rejects this notion of rivalry in favor of "a new synthesis . . .
evolving in the private sector of the postindustrial economy .... [It] is becoming socialized

through its own internal dynamic, with different norms and values [that are] . . . not yet
fully visible." Bruyn, supra note 5, at 331. Bruyn's many excellent analyses are undercut
by the 1920s-style trade associational ideology he discerns in recent events. Such an ideology

has historically demonstrable leanings toward cartels and even fascism.

38. Brietzke, supra note 34, at 57.

39. Paul E. Peterson, City Limits (1981).
40. Logan & Swanstrom, supra note 18, at 4 (citing Paul E. Peterson, City

Limits (1981)).

41. See id. passim.

42. Id. at 4-5. A neoclassical micro model "assumes a two-commodity world,
without history or politics, and occupied by two sexless people, without race or philosophy,

one the owner of a business, the other a consumer." Sackrey, supra note 2, at 81.

According to this view, the city "has no legitimate existence prior to or superior to the

claims of the market." Moore & Squires, supra note 32, at 110. This view also ignores
the political and cultural forces that shape markets. But see Malloy, Serfdom, supra

note 8, at 3 (stating that market theory sets ideological and classically liberal boundaries

to legal economic discourse through an emphasis on individual empowerment and coun-

terbalancing power sources).



754 INDIANA LAW REVIEW [Vol. 25:741

because the main marketplace criterion for policy evaluations, the will-

ingness to pay, excludes persons whose evaluations may differ precisely
because they are too poor to pay. The poor may have stronger objections
to some of the ways in which market-generated "surpluses" are spent:

conspicuous consumption by Yuppies, the Edifice Complex (a quasi-

public conspicuous consumption), military hardware, and other con-

spicuous public consumptions. Elites may use their wealth and power
to alter market conditions in their favor, to the point where Adam
Smith's "invisible hand" becomes a thumb on the scales of production

and distribution. The market metaphor cannot explain the indeterminacy

that sometimes results from bargaining between social groups or com-

munities with very different "utility functions" (wants and needs). Other

bargains are all-too-determinate: the rich rarely surrender even marginal

advantages at a price the poor can afford, while the poor frequently

surrender important interests for a pittance."^

Political "markets" may thus differ from economic markets simply
because they are political, a possibility that a conservative law and

economics largely ignores. Stimuli and responses may differ subtly or
significantly, and the poor may find an effective representation on the
basis of, for example, nonmarket judgments that past distributions of

wealth and power were unfair. "" Yet, a Third World style of political

underdevelopment remains evident in many cities, as an inability to cope
with a bewildering variety of demands old and new without lurching

towards an authoritarianism. The Chicago School's model of law and

economics ignores these problems and possibilities, in pursuit of what

Bruce Ackerman calls "an ideological smokescreen for a reactionary

assault on the American activist state"''^ and presumably, on activist

43. Harvey, supra note 2, at 80-81. See also Fischel, supra note 17, at 95 ("The

problem created by nonrival, nonexclusive goods is that there is no voluntary, market

mechanism by which preferences can be reliably revealed."); Harvey, supra note 2, at

114 ("To postulate scarcity as an absolute condition from which all economic institutions

derive is ... to employ an abstraction which serves only to obscure the question of how

economic activity is organized."); Heilbroner & Singer, supra note 1, at 238. Markets
arise to cope with scarcity, but scarcity is also socially organized to permit markets to

function: "We say that jobs are scarce when there is plenty of work to do, that space
is restricted when land lies empty, that food is scarce when farmers are being paid not

to produce." Harvey, supra note 2, at 114.

44. See Malloy, Serfdom, supra note 8, at 3. But see id. at 36 ("We no longer
seem able to accept the natural dynamic of winning and losing in a competitive mar-

ketplace."). Presumably, "natural" is not used here as it is in "natural science" or "the

natural order of things" because markets are created by society and are subject to the

exertion of wealth and power, fragmentations, and other failures that may lead us to
reject marketplace outcomes and to attempt to cure the failures.

45. Bruce A. Ackerman, Reconstructing American Law 7 (1983). See infra
notes 91-111 and accompanying text.



1992] HUMAN DEVELOPMENT 755

cities as well. Ackerman may exaggerate a bit, and he is a bit out of
date: Chicagoans seem amazingly tolerant of a "public entrepreneurship"

that creates a good "business climate," even though redistributions

favoring the rich are fully as interventionist as redistributions that favor

the poor.

The Chicago School provides a strange picture of two socially created

giants: almost flawless markets, giving individuals exactly and only what

they are willing to pay for, and almost wholly pernicious governments,

providing what no one is willing to pay for. Although Chicagoans almost

always view government as the problem, government is almost always

the solution for contemporary liberals like Ackerman.•** Yet, we may
have seen enough to know that governmental interventions will be prob-
lems and solutions in roughly equal measure, sometimes simultaneously.

C. Markets and the Poor

How do mainstream economists analyze the plight of the poor and
powerless? The brief answer is: Seldom, and not very well. The desire

to preserve their theory intact, in the face of seemingly inconsistent

ghetto facts, usually wins out over the desire to help people. Cento

Veljanovski accuses the Chicago School of having a necessarily "pro-

rich, anti-poor bias."*^ There must be losers as well as winners in the

zero-sum game of neoclassical microeconomics that Chicagoans play.
Their analyses retain a tinge of the Social Darwinism that grew up with

their beloved neoclassicism late in the nineteenth century, and their

46. Ross Cranston, Creeping Economism: Some Thoughts on Law and Economics,
4 Brit. J.L. & Soc. 103 (1977). For a description of the debate as one of compliant
(conservative) versus progressive (contemporary liberal) responses by local government, see

Sassen, supra note 23, at 250-51. Needless to say, a liberal or radical law and economics

is no less ideological than that of the Chicago School, but the Left focuses on "unemployed

blue-collar workers left behind by capital flight, the 'missing middle' in the wage structure,

displacement caused by gentrification, and the fiscal crises of local governments." Logan

& Swanstrom, supra note 18, at 9-10. See also Malloy, Law and Economics, supra note
33, at 81 ("Rules are the opiate of the masses" through which mainstream economists

legitimate hierarchy and inequality in America.); Fainstein, supra note 30, at 140-41 (The

failure of the Left to organize a coherent and compelling political program is a major

reason for the success of the conservative's "resurgent market ideology."). Ideology cannot

be expelled from law and economics analyses; its role should thus be made more explicit,
as Malloy tries to do.

47. Cento Veuanovski, The New Law-and-Economics: A Research Review 7
(1982) (published by the Centre for Socio-Legal Studies at Oxford, this mildly-critical

book is a helpful commentary). See Malloy, Law and Economics, supra note 33, at 64
(conservative law and economics advances the de facto morality of "protecting the market

model"); Drew R. McCoy, The Elusive Republic: Political Economy in Jeffersonlan
America 134 (1980).



756 INDIANA LAW REVIEW [Vol. 25:741

market metaphors require that the poor be deemed responsible for their

failure to compete. Under their School's more charitable interpretations,
the poor are assumed to be facing different but unspecified constraints

on their competitiveness. These constraints usually get lost in the ana-

lytical shuffle because the analyst does not understand them, and mac-

roeconomic solutions (fiscal policies, programmatic interventions) are

cheerfully dispensed with because everything can be accounted for at

the micro level of individual behavior. Peter Steinberger generaHzes the

policy recommendations that result: "when a problem becomes really a
problem, then something will be done about it, if at all possible; though

of course, some problems are utterly intractable and must simply be
endured.""* The specific policy recommendations echo those regularly

offered to the Third World: "[b]y reducing taxes and government re-

gulations, cutting social spending to reduce the federal deficit, and

creating a good 'business climate' (i.e., one conducive to private capital

accumulation), entrepreneurs will flourish again and more wealth will

be generated, with enough trickling down to benefit all income groups.""'
It is difficult for an analyst to make sense of poverty, chiefly that

of minorities, when she is neither poor nor a minority, but I will try
to sift through a mass of misinformation and polemics. The Kerner

Commission tried to do this in 1968 and saw a nation rapidly moving

48. Peter J. Steinberger, Ideology and the Urban Crisis 130 (1985). See
Heilbroner & Singer, supra note 1, at 200, 219 (As in all ideologies, the old — Social
Darwinism and the myth of rugged individualism — coexists with the new. This is a
departure from the New Deal liberalism that retains some influence today and that refused
to blame the victims of an admittedly more widespread economic disaster.); Sackrey,

supra note 2, at 59, 65; Coleman, supra note 5, at 33 (the poor become part of the

ceteris paribus assumptions of a Chicago School theory enamored with the logical structure

that economics gives to legal analysis); Rubinfield, Introduction, in Essays on the Law
AND Economics of Local Governments, supra note 36, at 1, 6. A conservative law and
economics seems to harken back to the ideas of Alexander Hamilton, who "simply accepted
social inequality, propertyless dependence, and virtually unbridled avarice as the necessary

and inevitable concomitants of a powerful and prosperous modern society." McCoy, supra
note 47, at 134. This approach would make some of the critics of mainstream law and

economics into modern-day Jeffersonians. See Paul H. Brietzke, The Constitutionalization

of Antitrust: Jefferson, Madison, Hamilton, and Thomas C. Arthur, 22 Val. U. L. Rev.

275 (1988) [hereinafter Brietzke, Constitutionalization].

49. Moore & Squires, supra note 32, at 98 (describing the "prevailing [American]
perspective on economic development" that is arguably based largely on Chicago School

theories). See Harvey, supra note 2, at 114; Sackrey, supra note 2, at 94 ("The

conservative's program to combat urban poverty is ordinarily a simple indifference, but-

tressed by occasional suggestions . . . about how best to maintain law, order, and civility
in poor neighborhoods."). Similar to their advice for the Third World, conservative (and

Leftist) prescriptions for the poor and powerless are frequently arrogant, neocolonial, and

motivated by a desire to maintain a theoretical purity. See Harrison, supra note 2, at

18-21 (discussing the ideas of Gunnar Myrdal).



1992] HUMAN DEVELOPMENT 757

toward two separate Americas.^° The consequences of this separate de-

velopment are now fully-formed; ghettos are a persistent sectoral problem
that acts as a drag on, and a reproach to, the rest of the economy.

No amount of the "free market dynamism" prescribed by conservative
law and economics has effected a cure to date. Ghettos and their residents

have been the consistent losers in recent economic and political changes.

"Free market adjustments" have involved abandoning additional urban

areas, areas with crumbling infrastructures and few apparent uses, to

the unemployables who cannot join the exodus.^' There remains "no
market pull for . . . low-cost housing, better police protection, cleaner

streets" in the inner city." Just as the poor are in but not of the city,

so are they in but not of the markets. They are caught in a grand,

Chicagoite non sequitun markets promote economic growth, but it simply

does not follow that the life-chances of the poor are naturally as great

as they can be."

Consider a Chicago "market" that exists in the shadows of the

Chicago School itself: new car buyers who live in the black Englewood
ghetto are "free to choose" (as Chicagoan Milton Friedman puts it)

between two finance companies, each charging fifty-two percent interest

per year. These creditors may be earning "economic rents, "^'* illegally
fixing prices through a "conscious parallelism,"" or charging interest

that is indeed cost-justified by the magnitude of the risks they run. This

transaction was formerly called a "juice" loan and (prior to deregulation)

50. Kerner Commission, Report of the National Advisory Commission on Crvn.

Disorders 401 (1968). See Harrington, supra note 1, passim.

51. Wingo & Wolch, supra note 27, at 329.
52. Heilbroner & Singer, supra note 1, at 238-39 (slums have proliferated because

economic growth is market-directed); Sackrey, supra note 2, at 38-39; Steinberger, supra

note 48, at 130; Sassen, supra note 23, at 239 (Studies show that "the natural tendencies

of . . . economic forces, if left alone, override local concerns and undermine the socio-

economic conditions of significant sectors of the population." This statement may be true,
but the author relies on the same naturalistic fallacy used by the Chicago School.). Rather

than opt for New Deal orientations, Robin Malloy prefers the view expressed in Adam
Smith's Theory of Moral Sentiments: true happiness is attained through a voluntary and

almost altruistic compassion and understanding, rather than through wealth. Malloy,

Serfdom, supra note 8, at 22-23. This worthy view can all too easily be trivialized as a

"thousand points of light" in today's more cynical political era.

53. See Harvey, supra note 2, at 114-15.

54. See infra note 58.

55. See Interstate Circuit, Inc. v. United States, 306 U.S. 208, 227 (1939) ("Ac-

ceptance by competitors, without previous agreement, of an invitation to participate in a

plan, the necessary consequence of which, if carried out, is restraint of interstate commerce,

is sufficient to establish an unlawful conspiracy under the Sherman Act."). This doctrine

has been considerably weakened by the Chicago School of antitrust in recent years.



758 INDIANA LAW REVIEW [Vol. 25:741

usury or redlining, and it certainly possesses few of the virtues that the

Chicago School claims for markets. We could stretch our imaginations
and describe such arrangements as occurring in informal or marginal

markets, but the reality is that they occur in market surrogates designed

for survival rather than for the Chicago School's wealth maximization.'*

These surrogates spring up because the formal structure of the ghetto

economy has collapsed, yet ghetto residents remain segregated from
conditions in the "real" markets, such as "below-market" interest rates

designed to sell overpriced cars and car lease terms that confer tax

breaks as "business" expenses. The surrogates erect barriers to entering

the real markets and perpetuate the separate (under)development of

poverty. With interest payments loaded forward, try paying off one of

these loans, even in Chicago School theory, if you don't have so much
money that you don't need the loan in the first place because you don't
live in an Englewood.

Unable to afford a car and living without reasonable access to public

transport, residents of an Englewood lack the mobility to obtain a job

in the suburbs. They rationally see little reason to move from one
segregated community to another, where conditions will be much the
same, and they lack the educational background to enable their retraining

for a skilled occupation. They are thus immobile, in contrast to the

Chicago School assumption of (near-)perfect mobility of "factors of

production" (a dehumanizing characterization) that is epitomized by a

multinational capital. In markets, information exposes new threats and

opportunities, and it thus overcomes inertia by providing incentives for

action. This information does not reach the ghetto because informational

"networking" through friends, schools, and other community organi-

zations is segregated and thus restricted. The Chicago School assumption

56. See Bruyn, supra note 5, at 27 (discussing the theories of Karl Polany: the

Chicago School economic man assumptions apply in the "formal economy," while the
"elemental facts of survival" apply to the "substantive economy"). A "market" pre-
supposes site, available goods, a supply and a demand, and the equivalencies necessary

for exchange. Id. at 28. These conditions are not always present together in slums, where

Karl Polanyi's "primitive" (Third World subsistence, in my usage) reciprocal and redis-
tributive systems frequently dominate instead. Id. Kasarda argues that "the vast under-

ground economy . . . enables many of those displaced from the mainstream economy to
survive." Kasarda, supra note 22, at 189. Conservative economists can and do make

markets of everything, including marriage. The substantive, underground economy violates

so many Chicago School assumptions, however, that it is less confusing to adopt the
notion of market surrogates. For examples of ghetto violations of Chicago School as-

sumptions, see infra notes 57-60 and accompanying text. These market surrogates are in,

but not of, the markets themselves. For example, public welfare assistance serves as a

partial surrogate for jobs lost or never found in the first place. See Kasarda, supra, note

22, at 190.



1992] HUMAN DEVELOPMENT 759

of perfect (or at least very good) marketplace information is thus in-

applicable to the slums."

In sum, city markets are much more fragmented, uncompetitive,
and full of barriers to entry than the Chicago School assumes, especially

because the wealthy and powerful seek to keep certain city markets

"closed" so as to earn economic rents^* and to keep the markets from

curing themselves. These conditions foster the nonmarket allocations of

resources that can be commanded only through a political entrepre-
neurship or influence over an entrepreneur — capacities in short supply
in the ghetto. There is no Mount LaureP'^ or any other "open city"
for the poor and powerless, whose economic isolation better explains

the loose attachment some of them feel to the "system" than do

sociologists' problematic explanations of "alienation" or "anomie." For

example, it is difficult to measure the costs of being cut off from physical

and social activities by the fear of crime, a fear that is more rational

in the slums than it is in other parts of the city. Cut off from the

"real" markets in many ways, ghetto residents are "steered" by market
surrogates into certain, uncompetitive neighborhoods, schools, jobs, and

sources of credit. A Chicago School analysis could show this steering
to be efficient, as a method of subjugation that serves as a barrier to

entering the more lucrative markets.^

57. See Malloy, Serfdom, supra note 8, at 67; Porter, supra note 4, at 639;

Wilson, supra note 30, at 40, 134. See also Breese, supra note 2, at 98-99 (describing

an immobility of many Third World city dwellers that is similar to that of American
slumdwellers); Malloy, Serfdom, supra note 8, at 67 (The Chicago School's assumption

of "the ability to move freely implies a value judgment against the hardship claims of
those who fail to uproot their families and relocate."); Kasarda, supra note 22, at 190
(discussing the slumdwellers' "low perceived marginal utility of migration relative to the

opportunity costs of giving up their in-place assistance").

58. Economic rents are the difference between the rate of return in a market where

the supply is temporarily or permanently fixed and the rate of return in a competitive

market. Talented baseball players earn economic rents because the supply of their skills

is narrowly limited. The holder of an exclusive catering franchise at a city airport also

earns economic rents because the city has artificially restricted the supply of food and

drink. Logan argues that in "place of union jobs at moderate hourly wages, cities now
offer a more polarized job market: increasing opportunities in highly rewarded professional

and technical occupations . . . and even greater expansion in low-wage clerical, sales,

services, and non-union mjmufacturing." John R. Logan, Fiscal and Developmental Crises

in Black Suburbs, in Business Elites and Urban Development, supra note 19, at 333,
334. Even if they are lucky, slumdwellers tend to obtain the low-wage jobs, Hke selling

newspapers and serving "casual" food. See Rossi, supra note 2, at 135; Sackrey, supra

note 2, at 45.

59. Southern Burlington County NAACP v. Township of Mount Laurel, 336 A.2d
713 (N.J.), cert, denied, AlTi U.S. 808 (1975) (striking down suburban land-use controls
as economically exclusionary and developing attendant doctrines and remedies). See Fischel,

supra note 17, at 261-62 (discussing the Mount Laurel "open cities" model and comparing
it with the "closed cities" model found almost everywhere else).

60. See Harvey, supra note 2, at 79; Sackrey, supra note 2, at 45 (In a "dual"



760 INDIANA LAW REVIEW [Vol. 25:741

Several explanations for this separate development have been ad-

vanced. The most popular explanation, at least among conservatives, is
that slumdwellers Hve in the "culture of poverty."^' This explanation

has also been widely used to explain discrimination and dependence in

the Third World. It is certainly true that America's poor are "degraded

and frustrated at every turn"*^ and "that responsiveness to the market

economy cannot be taken for granted because it reflects values and ideas
even more than material conditions."" Yet, unlike other cultures, the
"culture" of poverty is not self-perpetuating once it is absorbed during

childhood. In fact, it usually disappears rather quickly when the poverty

is removed. Moreover, the culture of poverty explanation stigmatizes the

poor by suggesting that the poor are essentially different from the middle

and upper class, and it creates the comforting illusion that we can cure
poverty by making "them" think more like "us," that is, in more
market-hke ways.^

The most plausible explanation of poverty and its concentration in

minority communities is the discrimination that leads to segregation.

That this explanation is not altogether obvious is suggested by William

Fischel's excellent book." On the one hand, Fischel notes "that it is
more difficult to enforce antidiscrimination laws in owner-occupied hous-

ing. A consequence, perhaps unforeseen, of the acceptance of the primacy
of the single-family housing district is the perpetuation of racial seg-

regation in areas hostile to minorities."** Suburban zoning laws are thus

market, "public and private employment agencies, unions, and employers have quite simply

reserved certain jobs for black people." These practices are as efficient a means of

subjugation as is segregation in housing and education.) and at 96 (discussing an argument,

from a structuralist economics, that full employment could return and some people would

still be unable to compete); Wilson, supra note 30, at 60-61, 133.

61. The culture of poverty assumes that people are conditioned to think of "them-

selves as unworthy or unable to compete in labor markets, and that ultimately there is

established a vicious circle of behavior . . . inconsistent with competition." Sackrey,

supra note 2, at 54. Demeaning jobs become further evidence of unworthiness. Id. at 53.

This thesis was originally developed by an anthropologist, Oscar Lewis, to explain conditions

in Puerto Rico and elsewhere in Latin America.

62. Harrington, supra note I, at 73.

63. Joyce Appleby, Capitalism and a New Socl\l Order: The Republican Vision
OF THE 1790s 47 (1984). If this is indeed the case, the process cannot be as "natural"

as a conservative law and economics assumes.

64. See Sackrey, supra note 2, at 55; Wilson, supra note 30, at 6, 8, 13, 60-

61. The notion that the poor are different from us "enables Americans to evade hard

questions about changes in the distribution of resources and the structure of society."

Sackrey, supra note 2, at 55 (quoting Charles Valentine, The Culture of Poverty: Its

Scientific Significance and Its Implication for Action, in The Culture of Poverty 216
(Eleanor B. Leacock ed., 1971)).

65. Fischel, supra note 17.

66. Id. at 62 (citation omitted).



1992] HUMAN DEVELOPMENT 761

a "surrogate" for "racism." Denied access to suburban houses and

jobs, the poor bear higher central-city taxes for poorer services and

higher housing costs that result from being forced or steered into fewer

communities. The poor also lose access to the better "public" schools,

those that are open at little or no cost to local residents rather than to

the general public.*^ Armed with such insights, Fischel nevertheless con-
cludes: "The puzzle about the desire of suburbs to exclude the poor is

that it does not exist as much in other societies, and it does not seem
to have occurred very much in earlier days in the United States. "^^ This
puzzle solves itself when we remember that "earlier days" were those
of a de jure segregation. Times have changed, and the bigotry of

discrimination*' (which is much less prevalent in most Western European
communities) must now assume subtler forms, such as marketplace trans-
actions or zoning and other laws with ostensibly nondiscriminatory pur-

poses that today's judges are reluctant to probe too deeply.

If the main or only criterion for marketplace evaluations is the

willingness to pay, this willingness can be based on bigotry with a virtual

impunity. Indeed, the Chicago School commands that it be so: the
preferences on which this willingness is based are assumed to be subjective

and nobody's business but that of the parties to the transaction. Gov-

ernment should not second-guess their willingness or unwillingness by

probing its bigoted basis because this would violate efficient private

property rights and make the transaction less wealth-maximizing for
society. (This is a circular argument. Property rights and social wealth

maximization are also defined on the basis of a willingness to pay, and

those who are too poor to pay are thus excluded from the Chicagoans'

67. Id. at 317.

68. Id. at 333. Fischel adds that there is little opposition to low-income housing

for the elderly in the suburbs, so that the fear is not of poverty itself. Id. at 333-34.

See also Wilson, supra note 30, at 30, 32. But see Malloy, Serfdom, supra note 8, at

51 (institutional frameworks of the past provide no guidance because they were biased

against women and minorities).
69. "There has never been a disability in American society to equal racial prejudice.

It is the most effective single instrument for keeping people down that has ever been
found." Harrington, supra note 1, at 144. Part of this bigotry is the perception that

many minority people choose poverty through a fear of work. Id. at 21. After decreasing
somewhat, racial antagonisms have increased recently because many "whites" have also
been hurt by recent economic and political changes, and the whites will seek to protect

their "turf." Cummings, supra note 22, at 353. See also Wilson, supra note 30, at 136.

But see Perry Shapiro & Judith Roberts, Information and Residential Segregation, in
Resolving the Housing Crisis, supra note 25, at 337, 338 (concluding that "patterns of

racial residential segregation do not approximate a minimum-contact pattern" and that

"white flight" is a suspect theory). The reader is free to draw his or her own conclusions
concerning, inter alia, where Shapiro and Roberts's Ivory Tower might be located because

they offer no justifications for their conclusions.



762 INDIANA LAW REVIEW [Vol. 25:741

calculations at the property, market, and social levels.) Chicago Schoolers

like Gary Becker "generally are suspicious of results that depend on

prejudiced behavior. "We know that the competitive market exacts a
large penalty on agents whose economic actions are governed by irrational

prejudice."^" This argument is true, by definition, //there are no barriers

to entering the market (no segregation for example), // the market is

indeed competitive, and // economic actions consistently win out over

irrational prejudice.

Even though the Chicago School does not offer plausible descriptions

of life in the ghetto, we cannot assume that poverty flows solely from
people having been imported as slaves from Africa centuries ago or that

it results exclusively from a contemporary bigotry or from other recent

economic and political changes. Robin Malloy offers a sensibly moderate

view: "we cannot find guidance on such issues as minority or women's
rights by . . . accepting the institutional frameworks of the past, since

such frameworks are from the start biased against women and minor-
ities."^' Indeed, he continues, the analysis of these issues "facilitates

the political deconstruction of traditional [Chicago School] neoclassical

economics because it challenges the very assumption that law should

validate market choices. "^^ Moreover, "[t]he discourse of conservative

law and economics is a discourse of exclusion."'^ Kain and Thurow
show how the obnoxious economic features of bigotry would remain,
even if all minority incomes rose above some minimum level.''' Although

70. Shapiro & Roberts, supra note 69, at 338 (citing Gary S. Becker, The
Economics of Discrimination (1957)). If reality matched this description, the slums would

still be performing their former role as a "melting pot, a way station, a goad to talent."

Harrington, supra note 1, at 139. For a critique of Becker's position, see Bruyn, supra

note 5, at 36 (habits, informal networics, and associations affect market behavior, as do

social norms concerning property, custom, and the organizational rules that dictate goals

other than profit or efficiency); Malloy, Serfdom, supra note 8, at 51; Sackrey, supra

note 2, at 81. For an example of the confusion generated when Becker's and Coase's

Chicago perspective is applied to the real world, see Robert C. Ellickson, The Irony of

"Inclusionary" Zoning, in Resolving the Housing Crisis, supra note 25, at 135, 161,

162 ("The fact that market forces tend to produce economically stratified neighborhoods

creates a prima facie case that this stratification is efficient — that is, if residency rights
were fully transferable, richer residents would generally be willing to pay enough to

persuade poorer residents to move to other neighborhoods.").
71. Malloy, Serfdom, supra note 8, at 51. See Sackrey, supra note 2, at 62-63;

Wilson, supra note 30, at 10-11, 30-32.

72. Malloy, Serfdom, supra note 8, at 63.

73. Id. at 69-70 ("wealth maximization discourse can ignore the issue of whether

African Americans or Hispanics, for instance, have anything to exchange in the market-

place" and whether they "have been systematically deprived of an opportunity to acquire

the wealth [and dignity] necessary to bargain voluntarily").

74. Sackrey, supra note 2, at 56-57, 85 (discussing studies by John Kain and

Lester Thurow and ascribing this effect to an "institutionalized racism").



1992] HUMAN DEVELOPMENT 763

the creation of minority-controlled neighborhoods, businesses, and labor

markets would undoubtedly improve the economic position of minorities,

it would also further entrench the dualism of a separate development

that has already been exacerbated by recent economic and political

changes.

D. Poverty as a Market Failure

If slums nurture poverty and if markets nurture slums, then Gary

Becker is wrong—unregulated markets do not discipline bigots ade-
quately—and we have a "market failure" on our hands, an "externality"
of an otherwise often-marvelous system of social organization. The

Chicago School of law and economics recognizes market failures, in-

cluding externalities and problems with providing public goods," as the

only justification for governmental intervention, but Chicagoans then

proceed to define these failures so narrowly as to justify only a "night-

watchman" form of government. Any wider governmental intervention
becomes an externality-by-definition to an efficient-by-definition mar-

ketplace transaction. Any regulation or redistribution is criticized because
it interferes with the broadly defined property rights that form the basis

for a wealth-generating creativity.^* Under the Chicago School's beloved

75. FiscHEL, supra note 17, at 95. Unfortunately, the theory of market failure is

not as well developed as one might like; it consists of little more than a series of policy

recommendations. Public goods are those things that belong to everyone and for which

no one thus wishes to pay. The per capita benefits from a park or a road may exceed
its per capita costs, yet the economically rational consumer will try to reap the benefits

without bearing the costs (will try to be a "free rider"). This justifies government's

construction of the park or road (under powers of eminent domain). Beneficiaries pay

for the park through their taxes (thus eliminating "free riders" and "holdouts"). Exter-

nalities are costs (and benefits) to society that are not taken into account by private

parties in their transactions. For example, the producer and the consumer of an automobile

do not take into account the social costs of the auto's contribution to air pollution. The

consumer may want clean air, yet rationally conclude that his auto makes too small a
contribution to overall air pollution to justify the extra cost of buying a pollution-abating

auto. Knowing of this consumer attitude, the producer views the manufacture of a more

expensive, pollution-abating auto as a recipe for bankruptcy. The only way to reduce

pollution may be for the government to order manufacturers to abate pollution or to
impose a "tax" on pollution.

76. For the "new" conservatism, government is the ultimate externality. Wingo &
Wolch, supra note 27, at 317-18. This cannot be taken too literally because a market

system requires state intervention in the form of infrastructure and public services. Through

coercion, propaganda, and social service expenditures, social control is maintained. Norman
I. Fainstein & Susan S. Fainstein, Restoration and Struggle: Urban Policy and Social
Forces, in Urban Policy Under Capitalism, supra note 16, at 9, 11. Malloy argues that
Houston, the fourth largest, and the last major city without a comprehensive zoning and

planning code, evidences both an efficient control of land use without governmental



764 INDIANA LAW REVIEW [Vol. 25:741

Coase Theorem," a Utopian construct that is frequently appUed without

appropriate modifications to the real world, government merely defines

property rights initially and then enforces any bargains that subsequently

go awry. The Coase Theorem seems to be all but irrelevant to ghettos.
Black people, for example, may be unwilling, and they certainly are
unable, to exit from a group defined by the color of their skin. They
will thus often be unable to contract out of disadvantages that have

become attached to their group through a history of past Coasian
"bargains" with majority groups.

Other, less conservative economists—such as Pigouvians and other
welfare economists, who are common in Europe but an endangered
species here,'* and the growing number of domestic practitioners of a
"progressive" law and economics'^—assume that markets fail regularly.

regulation and qualities of "congestion, incompatible land use, and urban sprawl." Malloy,

Serfdom, supra note 8, at 90. But see Cummings, supra note 22, at 16; Johnson, supra

note 25. One example of a conclusion drawn from Chicago School analyses is the following:
people correctly adjust their activities to account for the health risks of smog; the reduction

of smog is therefore an unanticipated pecuniary benefit. Carl J. Dahlman, An Economic
Analysis of Zoning Laws, in Resolving the Housing Crisis, supra note 25, at 217, 230.

This may be true for some people, but the poor are often unable to move away from
the smog or partially to filter it out with home or auto air conditioners.

77. Ronald H. Coase, The Problem of Social Cost, 3 J.L. & Econ. 1 (1960). See
James M. Buchanan, The Coase Theorem and the Theory of the State, 13 Nat. Resources

J. 579 (1973); Warren J. Samuels, The Coase Theorem and the Theory of Law and
Economics, 14 Nat. Resources J. 1 (1974). A brief formulation of the Coase Theorem
is as follows: If transaction costs (costs of information, negotiation, monitoring, enforce-

ment, and legal errors) are zero, then (1) the parties will contract about all of the costs

and benefits of the transaction (they will "internalize the externalities") and (2) the identical

(and most wealth-maximizing) allocation of resources will come about through negotiation,

regardless of which party is legally liable or has the relevant property right. Transaction

costs are obviously not zero in the real world, but the precise significance of this fact is

frequently ignored when the analytical frame shifts from theory to practice. See also

Rubinfield, supra note 48, at 2 (discussing White and Whitman's analysis of a "classic"

nuisance law externality problem and the conventional solutions based on private damages

suits or a tax on the externality). For a (loosely) Coasian analysis, see Robert C. EUickson,

Public Property Rights: Vicarious Intergovernmental Rights and Liabilities as a Technique

for Correcting Intergovernmental Spillovers, in Essays on the Law and Economics of
Local Governments, supra note 36, at 51, 71 ("What is customary in a particular time

and place cannot be a nuisance. Customary behavior tends to be cost-justified behavior

(especially when transaction costs are low) because bargaining tends to eliminate inefficient

practices."). Note the bias in favor of the status quo and the assumption that bargaining

will be feasible (the sufferer will have something with which to bargain) and moral.

78. See Arthur C. Pigou, The Economics of Welfare (1920); Charles K. Rowley
& Alan T. Peacock, Welfare Economics: A Liberal Restatement (1975).

79. See Susan Rose-Ackerman, Progressive Law and Economics — and the New
Administrative Law, 98 Yale L.J. 341 (1988). Malloy is moderately critical of this and

related approaches: "Communitarian (altruistic) and state-centered views of law and ec-



1992] HUMAN DEVELOPMENT 765

or at least often enough to license an economically activist government.

According to this view, governmental regulation stems from the lack of

social norms and structures of accountability in the marketplace, and

private property rights must be construed more narrowly. The contingency

and complexity of the real world makes these ideologically colored

interpretations possible. Whatever one believes about the general issue

of the frequency of market failure, it follows almost by definition, from

the wealth and power allocating functions of markets, that markets must

regularly fail the poor and powerless.**^ Indeed, this is the main reason

why there are poor and powerless people in a country that accords so
much power to markets, unless one adopts one or more of the con-
servatives' ideological explanations: the poor are stupid, lazy or unlucky,

or everything is government's fault.

Few economists realize or admit that market failures (such as frag-
mentation, barriers to entry and other means of segregation, and a lack

of competition) are literally matters of definition, of what we want
markets to do that they are not doing. If we want them to ameliorate

poverty, the failure to do so becomes a market failure, and by analogy,

the failure of a public entrepreneurship to alleviate poverty becomes a

political market failure. If, on the other hand, we want to preserve the

Chicago School theory of the paucity of market failures, we will tend

to ignore issues related to poverty.

Needless to say, governments create or exacerbate as well as ame-

liorate market failures. Analysts attempting an ideological neutrality will

thus do a careful cost-benefit analysis of governmental behavior in what

onomics generally lead to conceptual frameworks of liberty that focus on the importance

of groups, experts, and planners at the expense of the individual decision makers in the

marketplace." Malloy, Serfdom, supra note 8, at 62. Malloy adds that Bruce Ackerman

"delivers us into the Keynesian world of market failures, insurmountable transaction costs

and externalities, and the need for liberal intervention and management of social institutions

for the common good." Id. at 73. For Malloy, this is presumably a deliverance gone
astray.

80. See Fischel, supra note 17, at 121 ("Proponents of the property rights approach

tend to be politically conservative or libertarian, while proponents of the externality [the

"pervasive market failure"] approach tend to be modern liberals or socialists."); id. at

122 ("If the externalities approach can be criticized for being perfectionist or Utopian,

the property rights approach can come dangerously close to a Panglossian outlook.");
Harvey, supra note 2, at 88 ("There are . . . good theoretical reasons for expecting that

the market mechanism will be no more efficient in guiding the location of privately supplied
impure public goods to Pareto equilibrium than it is in the housing market."); Malloy,

Serfdom, supra note 8, at 71 (Liberals and left communitarians reject natural rights and

place great emphasis on the state.); Rossi, supra note 2, at 203 (Clearly, the housing

"market has failed to meet the special needs of unattached poor persons."); Wilson,

supra note 30, at 42 ("Heavily concentrated in central cities, blacks have experienced a

deterioration of their economic position on nearly all the major labor market indicators.").



766 INDIANA LAW REVIEW [Vol. 25:741

amounts to a market for urban externalities: amenities and "disamen-

ities." Externalities encompass benefits as well as costs, and neighbors

will try to use governments and markets to capture and retain the benefits

while passing the costs on to other neighborhoods. This is one market

in which the poor are allowed to "participate," so that many of the
costs of urban life — crime, pollution, congestion, noise, aesthetic blight
— come to rest in the ghettos because the poor can shift these costs
no further. In Indianapolis, the "amenity infrastructure" — convention,
sports, museum, and performing and visual arts facilities — benefits
relatively few but is paid for by all in the form of governmental subsidies

that could be used for other purposes.*' Zoning laws further this game
of recouping benefits and passing on costs because, contrary to popular

belief, these laws serve to emit, rather than to internalize or otherwise

control, externalities. These laws are designed to recoup benefits by

keeping what are seen as undesirable people and things out,^^ and their

(virtual) absence from ghetto areas serves as a magnet for disamenities.

Poverty may be an externality of unregulated market processes,
depending on the economic theory that is adopted. The theory adopted
in turn depends on ideological preferences, although the Chicago School

account of poverty and its amelioration is particularly implausible and

will be repugnant to some.*^ Like the rhetorical justifications for nuclear

weapons, the discourse of a conservative law and economics has perhaps

fallen on hard times, but it similarly remains a powerful legitimation

device. Its "science," mathematics, and technical rationality evoke as-

sociations of objectivity and inevitability.*'* More importantly for our

8L See Malloy, Serfdom, supra note 8, at 108; Bamberger & Parham, supra
note 5, at 12-13. For another, very different externality that flows from this process, see

supra text accompanying note 11.

82. Dahlman, supra note 76, at 218. See Fischel, supra note 17, at 252-54, 269-

70; Harvey, supra note 2, at 66, 72 (The spatial organization of the city is designed to

"protect external benefits and eliminate extreme costs." Externalities are thus distributed

through location, and "in general the rich and privileged obtain more benefits and incur

lower costs than do the poor and politically weak.").

83. Consider the applicability of G.K. Chesterton's words:

[T]here is that stink of stale and sham science which is one of the curses of

our times. The stupidest or the wickedest action is supposed to become reasonable

or respectable, not by having found a reason in scientific fact, but merely by

having found any sort of excuse in scientific language.

G.K. Chesterton, Music with Meals, in Pleasures of Music 161, 162 (Jacques Barzun

ed., 1951). See Malloy, Serfdom, supra note 8, at 62, 83.

84. See Carol Cohn, Emasculating America's Linguistic Deterrent, in 6(1) Per-

spectives ON Peace and War 3, 3-4 (1988-89) (published by the University of Wisconsin
Center for International Cooperation and Security Studies). See also Roger Pilon, Property

Rights and a Free Society, in Resolving the Housing Crisis, supra note 25, at 369, 375

(Although a theory of rights tied to property is objective and consistent, its justification

is weak because it relies on the argument that rights are "God-given.").



1992] HUMAN DEVELOPMENT 767

purposes, Chicagoans offer trenchant criticisms of the governments on

which the more Uberal theories pin their hopes, criticisms of poUtical

processes which are not constrained by strong rights of private property.

II. Ghettos and Governments

PoHtical elites feel insecure in all countries. They thus seek the means

to re-election, or to retaining power in other ways, by influencing the

outcomes of economic processes. Robin Malloy, who is no particular
friend of the Chicago School of law and economics, introduces a critique

of governmental practices that is echoed and developed further by the

Chicagoans: "All of the virtues and vices that make up American society
can be found in the give and take, the politics, and the economics of

real estate development. "^^ The vices quickly come to the fore in down-
town IndianapoUs and many other cities. Malloy finds that "most of
the [city's] commercial real estate activity ... is heavily subsidized,

administered by central planning boards, and owned in some significant
way by the 'state. "'*^ He prefers to call this an "urban socialism" or
a "state capitaUsm," rather than a public entrepreneurship, to highlight

the otherwise hidden restructuring of our "communal order" and erosion
of our traditional values.*' State capitalists use "political means and the

expansion of the state as a way of avoiding the effort and potential
failure of competition,"** that is, of avoiding the good as well as the

bad that economic markets bring to society. We thus witness a triumph
of the public over the private, of planning over spontaneity, and a drift

towards "serfdom where, once again, personal status rather than in-

dividual talent and human dignity become the measure of one's worth. "*^

85. Malloy, Serfdom, supra note 8, at 2. See Coleman, supra note 5, at 35

(quoting Lloyd A. Fallers, Social Stratification and Economic Processes, in Economic

Transition in Africa 126, 127, 129-30 (Melville J. Herskovits & Mitchell Harwitz eds.,
1964)).

86. Malloy, Serfdom, supra note 8, at 12.

87. Id. at 10, 12, 85. I prefer Malloy's "state capitalism" characterization because

"urban socialism" implies something not in evidence: an explicit attempt (at least) to

meet the needs of the poor and powerless. This is "a simplistic and egotistical conception

of the community," which is anchored in a "zero-sum game vision of the world." Id.
at 10-11. "Corporate syndicaHsm" is perhaps an even better term, with progress being

measured through the glorification of urban structures — an Edifice Complex tactic used
by Hitler and Mussolini.

88. Id. at 35. Economic competition protects against the tyranny of the state,

which then offers institutional protections against private coercion. Id. at 34. Yet, the

displacement of "impersonal" economic means, by the personal dynamics of special interest

groups exploiting each other, impairs officials' "impartiality" and reduces the ability of

private capital to act as a check on governmental power. Id. at 124-25.

89. Id. at 1. An outcome-specific zoning subordinates an "impersonal marketplace"
to the personal status-oriented sphere of state." Id. at 93.



768 INDIANA LAW REVIEW [Vol. 25:741

Malloy does not define who the new serfs are and will be, but we can
safely assume that the poor and powerless, who do not loom large in
his analyses, will swell their ranks.

A. Chicago (and Some Other) Critiques

Malloy provides much grist for the (perhaps dark and satanic) mills
of Chicago, mills described for us by Daniel Farber:

[S]pecial interest groups frequently obtain government help in

extracting money [''economic rent''] from the general public as
taxpayers or consumers. . . . These special interest groups [of

property developers, for example] are relatively easy to organize

because they are small and their members have much to gain.
For corresponding reasons the public finds it difficult to protect

itself: members of the public have small, individual stakes in
any piece of legislation [or land use project], and the large

number of people affected makes organization difficult [especially

among the poorly organized, and perhaps unorganizable,
poor]. . . . Most legislation [and projects], then, will really in-

volve some rip-off of the pubHc, even if it purports to serve

the public interest.^

Except for the last normative sentence, this seems a fairly accurate

description of what goes on in IndianapoHs and elsewhere if "govern-

ment" is understood to encompass the mayor, the mayor's planners and

other handlers, and a majority of the city council. The Chicagoans'

argument is that these worthies cannot be differentiated on the basis of

90. Daniel A. Farber, Legal Pragmatism and the Constitution, 72 Minn. L. Rev.

1331, 1359 (1988) (citations omitted). Farber's main footnote to this statement is worth

quoting in its entirety:

See G. Stigler, The Citizen and the State: Essays on Regulation (1975);
Landes & Posner, The Independent Judiciary in an Interest-Group Perspective,
18 J.L. & Econ. 875, 877-78 (1975). The fountainhead of this theory is M.
Olson, The Logic of Collective Action: Public Goods and the Theory of
Groups (1965). More recently, Olson has argued that prolonged rent-seeking

ultimately saps stable societies of their economic vitality. See M. Olson, The

Rise and Decline of Nations 41-47 (1982).
Id. at 1359 n.l47. Stigler, Landes, and Posner are gurus of the Chicago School of law

and economics, and Mancur Olson is a fellow-traveller. See Fischel, supra note 17, at

107; Sackrey, supra note 2, at 87-89 (the Chicago model is related to those of a pluralism

in political science, and in a heterogenous society, those with problems will organize and

enter poUtics); Kantor, supra note 19, at 496 (local popular control is separate from, but

not independent of, the market). But see Fischel, supra note 17, at 71 (doubting that

government can auction off all regulatory advantages because this would turn it into a

"protection racket").



1992] HUMAN DEVELOPMENT 769

their dips into the "porkbarrel," regardless of such municipal separation

of powers as the law provides.

To elaborate, ordinances and municipal projects are (like congres-
sional statutes or components in the latest Rivers and Harbors bill)^'

auctioned off to the highest bidder, the person or special interest group

paying the biggest "bribe." The bribe may take the legally sanitized
form of a political action committee's contribution to a campaign fund

or it may be a credible promise (or threat) to deliver a certain number
of votes on election day. In any event, this process is politically wealth-

maximizing in terms of lining the official's pocket or, in what often

amounts to the same thing, mitigating his or her political opposition.

Entrepreneurship, organizing the "logrolling" of voting and other support

for each other's pet, bribed-for projects, ensures that the bribes will

keep flowing, especially to the best entrepreneurs who thus acquire
seniority and high office because their political opposition has been more

fully mitigated. The "honest" councillor or bureaucrat who pursues a
purer ideological vision of the public interest and refuses to play the

more tawdry games will be dismissed, defeated, co-opted, or if she is

committed, talented, and lucky, she will attain a leadership position in

a more-or-less permanent political opposition.'^

91. H.R. 404, 102nd Cong., 1st Sess. (1991).

92. See Fischel, supra note 17, at 36-37 (zoning as a game in which property

rights are expanded "at the expense of the politically effete members of the community");

id. at 262 ("closed" cities offer opportunities for economic rents); id. at 318 (low-income

housing projects are an inefficient way to redistribute income, but they become politically

attractive transfers within a geographically based political system); id. (the politicians'

need to seek re-election doomed the "open-suburbs movement" that presumably entailed
few bribes); Harvey, supra note 2, at 73-75 (local government develops and exploits

resources, including allocations of governmental funds, in an extraordinarily complex, n-

person, non-zero sum game, in which side payments are allowed and are, indeed, essential

to the formation of coalitions); Malloy, Serfdom, supra note 8, at 114 (federal and state

government assistance is a cross-subsidy to special interests who can employ political means,
at the expense of other cities and projects, to avoid paying many of the costs); McCoy,
supra note 47, at 43 (quoting George WHATXiiY, Principles of Trade 337 (London 2d
ed., 1774)) (most European statutes are "either political Blunders, or Jobbs obtained by

artful Men, for private Advantage, under Pretence of public Good.") and at 47 (merchants

and manufacturers dupe government and the public into believing that "'the private interest

of a part, and of a subordinate part of the society' was identical to 'the general interest

of the whole.'"); Johnson, supra note 25, at 8-9 ("in an era when the political system

has everyone's property rights 'up for grabs', the owner-occupied single-family dwelling

is the safest private property around, given that two-thirds of Americans own their own
homes" and they would presumably vote out of office people who decrease their house
values too much — especially in the suburbs); Michelman, supra note 36; Molotch,
Strategies, supra note 25, at 42 ("Within the growth machine perspective, the paramount

underlying force operating within the city is the drive for rents and profits that come
from place-specific development.").



770 INDIANA LAW REVIEW [Vol. 25:741

Why do courts go along with this apparent (if Chicago School
descriptions are accurate) travesty of democracy? Two Chicagoans, Landes
and Posner,'*^ argue that judges ratify porkbarrel outcomes to keep

politicians from truncating their jurisdictions or lowering their salaries.^"

Where judges are elected, they can dip into the porkbarrel themselves,
in more limited ways of course. A judicial acquiescence in porkbarrel
outcomes, plus the time-consuming procedural due process requirements

courts have imposed on legislation over time, serve to increase the

permanence of legislation.'' This in turn increases the value of the bribes

that successful bidders are willing to pay for more permanent legislation.

This is an ingenious analysis. A more plausible one is that courts
are caught in a conceptual trap of their own making. Having repudiated
their "substantive due process" doctrines after the 1937 "switch in time,"

courts now believe they have little choice but to defer to legislative
judgments about the public interest. In our balkanized federal system

that offers so many opportunities to extract economic rents, judges need
not pay the same degree of deference to judgments by local governments,

yet the cases display a similar reluctance to intervene.'^ It makes little

sense for courts bravely to declare "one person, one vote" and to then

permit economic rent-seeking behavior to dilute and corrupt that vote,

perhaps to the point where few will vote because organizing for purposes

of making bribes is the way results are achieved.'^

93. William M. Landes & Richard A. Posner, The Independent Judiciary in an
Interest-Group Perspective, 18 J.L. & Econ. 875 (1985).

94. Id. at 885.

95. Id.

96. After West Coast Hotel Co. v. Parrish, 300 U.S. 379 (1937), the Court

abandoned substantive due process in favor of a "police power model." Except where

fundamental rights or suspect classifications are involved, "the Court defers to and adopts

as conclusive the legislative decision as to what constitutes the public interest or the general

welfare." Norman Karlin, Zoning and Other Land Use Controls, in Resolving the Housing
Crisis, supra note 25, at 35, 42. But see infra notes 137-39 and accompanying text. Fischel

argues that economists neglect the limitations imposed by this police powers model when

they argue that ''any regulation could be passed and the exceptions sold to the highest

bidder. A government that did that would appear more like a protection racket, and not
one that operated for the benefit of its citizens." Fischel, supra note 17, at 71. If the

police powers model indeed offers few meaningful constraints, this "protection racket"

becomes possible and, the Chicago School argues, likely. The police powers model certainly

seems to impose few constraints on the "development" activities of local government.

See id. at 41; Malloy, Serfdom, supra note 8, at 96 (in state eminent domain proceedings,

courts use the "flimsy" test of requiring a governmental statement that the project will

ultimately benefit the pubUc).

97. Compare Baker v. Carr, 369 U.S. 186 (1962) ("one man, one vote," as it
then was) with Buckley v. Valeo, 424 U.S. 1 (1976) (invalidating expenditure Hmits in

the Campaign Finance Act, and thus facilitating the "bribes" of special interest groups



1992] HUMAN DEVELOPMENT 771

Like the Chicago School, Robin Malloy sees an overexpioitation of

the pubhc good of state power.'* He continues in a much less cynical
vein, however: "Local politicians should engage in a convincing dialogue

in order to get sufficient local support for their proposed projects,"

and "the local residents should be willing to pay the full cost of the

benefits they hope to enjoy."'' Alas, it is not yet so, for reasons that

the Chicago School may exaggerate, but not by very much. The result
from this overexpioitation of state power is a panoply of government

subsidies that rarely create or improve competitive advantages for a

community. Rather, these subsidies stifle creativity and market incentives,

delay adjustments, and create a dependence.

For Thomas Hazlett, grabbing for the "quick fix" turns us into
"regulatory junkies. "'°" His druggie metaphor may prove too much, at
least about the rent control laws he finds to have subverted the "dem-

ocratic processes ... in that no intelligible dialogue is possible.""" If

a housing market failure has occurred, perhaps because "democratic

processes" had landlords and developers dipping from the porkbarrel

too often, then a balance-of-power use of the porkbarrel on behalf of

tenants may be necessary to reestablish the "dialogue." (This is an
illustration of the economic "theory of the second-best" that the Chicago

School disdains, a theory which proves useful when the "best," eUm-
ination of the porkbarrel altogether, is unattainable. )'°^

Rent control ordinances may indeed curb the earning of economic
rents for the benefit of middle and lower-middle income tenants. Yet,

the poor and powerless are the biggest and most consistent losers when
nominally democratic processes are played as economic rent-seeking games

by the special interests. (Jefferson would be appalled.) A porkbarrel
politics operates further to truncate the choices of people who already
have too few choices. The poor and powerless balance the costs and

benefits of political performances and find these performances seriously

that devalue the votes of those unwilling or unable to bribe). But see also Malloy,

Serfdom, supra note 8, at 30-31 (voting offers direct accountability and immediate feedback

only at very localized levels, such as the New England town meeting).
98. Malloy, Serfdom, supra note 8, at 44, 46. A major reason for overexpioitation

of state power ("overgrazing" of the "commons") is that we allow the state to define
the concept of limited government. Id. at 44. Real estate development is a good example

of overgrazing. Id. at 46. For a discussion of overgrazing as a cause of "simmering

discontent" in Indianapolis, especially among blacks, see Bamberger & Parham, supra
note 5, at 18; Hallinan, supra note 10.

99. Malloy, Serfdom, supra note 8, at 136-37.

100. Thomas Hazlett, Rent Controls and the Housing Crisis, in Resolving the
Housing Crisis, supra note 25, at 227, 296-97. See Porter, supra note 4, at 640, 682.

101. Hazlett, supra note 100, at 297. See Freilich, supra note 28, at 178, 198.

102. See infra note 103.



772 INDIANA LAW REVIEW [Vol. 25:741

wanting. Their reactions range along a continuum of bemused apathy,

anger, and open rebelHon, and their only hope is that a few political

elites will espouse their causes honestly and effectively. This hope is

frequently betrayed; as in the Third World, many opposition elites are
co-opted by being given access to the porkbarrel.'"^ Urban governments
are thus "soft states,""^ a concept Gunnar Myrdal devised to explain
events in underdeveloped Asian states: they are soft on organized special

interests, but far from soft on the unorganized poor and powerless.'"^

This is but one facet of a growing political underdevelopment in urban

America. Local elites are increasingly incapable of managing by and for

themselves because they face a growing dependence on the "foreign"

capital and entrepreneurship that seeks to co-opt them and wring them

dry.

Is all of this gloom and doom what the New Deal model of political
leadership and administrative expertise ultimately brought us? Did the

War on Poverty and Community Action Programs so threaten local
elites with rival centers of power that they fought their way back into
the present system, after the public's memory of the mediocre perform-
ance of markets and businesspeople during the Depression had faded? '°^

103. An example that probably cuts both ways occurred during the 1991 budget
battles in the Indiana legislature. Rep. Brown (D-Gary) proposed a $450,000 "sprinkle"

for a National Civil Rights Hall of Fame and Museum, to be located in Gary. Nancy

J. Winkley, Gary 'Hall' Debate, Gary Post-Trib., May 28, 1991, at Al. Believing that
this was "the best way to use his clout," he extolled the employment, tourism, and

national recognition that the project (the brainchild of former Mayor Hatcher) would

bring. Id. This caused Senator Rogers (D-Gary) to observe:

I understand what (House) Democrats are doing, and I understand it's our time

to be the recipients of projects in our communities. . . . The Republican Party

has done that for years.

But I do think there ought to be a method of distribution that is broader

than an individual legislator's wishes.

Id. at A6. Senator Rogers believes that a local marina and the Gary Regional Airport

have greater revitalization potential than the Museum, /c?. Prior to the recent shift in

legislative power in Indiana, Republicans indeed siphoned off state funds for years to

gratify the Edifice Complex in Republican strongholds, most notably in "downtown"

Indianapolis and not in Democratic Gary. The residents of Gary lack the resources to

create a local porkbarrel with much "fat" in it, and they might be as proud of making

the State porkbarrel work for them as they would be of the Museum. Power follows

capital, Malloy, Serfdom, supra note 8, at 20, and there is little of either in Gary. Does

it follow that the state porkbarrel should be perpetuated, in a game that the poor and

powerless consistently lose in the long run? Democrats could use their power to change

the system itself, // they are not already wedded to it.

104. See Gunnar Myrdal, Asian Drama: An Inquiry Into the Poverty of
Nations 182 (Seth S. King ed., 1977).

105. See id. passim.

106. See Malloy, Serfdom, supra note 8, at 116 (the New Deal carries "all the



1992] HUMAN DEVELOPMENT 773

As you might imagine, the Chicago School has a very different expla-

nation, one that denies expertise to planners and other bureaucrats and

that turns them into key players of special interest politics.'"' Their

existence, to say nothing of their salaries and opportunities for "bribes,"

depends on the inefficient, porkbarrel interventions by governments that

license bureaucrats to exercise discretion. Co-opted by the special interest

groups active within their sphere of influence, bureaucrats also become

a special interest in their own right; their incessant lobbying for greater
departmental budgets and discretion thus proceeds apace, to increase

governmental power further. Lacking the information and skills to reg-

ulate sensibly and to beat marketplace results, bureaucrats nevertheless

make much policy to cure or to defend past policy mistakes. Edifice
Complex projects have come to be emphasized over those promoting
social welfare because elites who pay the planning piper get to call the
tune.'°»

Chicago Schoolers probably prove too much. We all know selfless
bureaucrats who serve a genuine public interest (call them public servants),
and there are more than a few politicians (Harold Washington, for

example) who give the lie to Chicagoans' pronouncements, at least for
a time. Chicago School theories are behind the times"^ and excessively

emphasize the local model: the atypical machine politics of Daley the

Elder and a Chicago City Council notoriously above average in its

venality. The recent economic and political changes I described are not

baggage of the welfare state," most notably that federal solutions are needed for state

and local problems).

107. See William A. Niskanen, Bureaucrats and Politicians, 18 J.L. & Econ. 617
(1975); Sam Peltzman, Toward a More General Theory of Regulation, 19 J.L. & Econ.
211 (1976); George J. Stigler, The Theory of Economic Regulation, 2 Bell J. Econ. &
Mgmt. Sci. 3 (1971).

108. See Fischel, supra note 17, at 32 (planning literature stresses technocratic

responses to market failures, but much actual planning reflects planners' self-interest rather
than community preferences); Harvey, supra note 2, at 78 (urban planning comes to

resemble solitaire because of an imbalance in intergroup bargaining in, for example, the

suburban "exploitation" of the central city) and at 90-91 (the lack of information necessary

to regulate, and a succumbing to voting pressures, lead to inequity because the poor are

unable to leave); Malloy, Serfdom, supra note 8, at 43, 92, 113; Ellickson, supra note

77, at 169-70 (trained in law or urban planning, "professional housers" benefit from an

inclusionary zoning, which requires the use of their bureaucratic skills in getting a project

approved and funded — in ways that frequently bypass local legislatures); Preteceille,
supra note 19, at 48, 51 (decentralization has made local governments more interventionist,
while the "crisis of Fordist accumulation" challenges the old planning and welfare norms).

109. See Kantor, supra note 19, at 509-10 (race and class now divide our cities
more than anything else, especially because minorities and prosperous whites have increased
both in numbers and in their political activisim). Kantor's statement is no more ideologically-
charged than statements made by Chicagoans, for whom race and class play little or no
analytical role.



774 INDIANA LAW REVIEW [Vol. 25:741

adequately accounted for by the Chicago theory, most notably the

resurgence of a 1920s-style business managerialism in government and

the related poHtical need to attend to marketplace evaluations. These

changes are in no small measure a result of the Chicago School political

influences for which its own theory does not account. The logic of their
theory is that Chicagoans are themselves a special interest group, vying

with many others, but consistently against the poor.
The Chicago School is so widely praised and excoriated precisely

because it is widely perceived to serve a (neo-)conservative political

agenda."" Regardless of whether this is the Chicagoans' purpose, it is

certainly the effect of their attempt to transform America's myth of a
rugged individualism into an ideology of the possessive individualism'"

that government is seen to dull and repress. Chicagoans are right: special

interest groups and their bribes certainly do matter, but empirical studies

by political scientists and economists show that legislators' ideological

visions of the public interest ultimately matter as much or more. Economic
growth is not the province of the private sector alone, and redistributions

are not attributable to governments exclusively, regardless of the dogmas

of neoclassical economics."^ Efficiency is important, and there is too

little of it in government, but there are other goals such as environ-

mentalism, ameliorating poverty and racism, and making the rubble

bounce several times in the unlikely event of a nuclear war, that are

legitimated in a democracy by the public support they periodically re-

ceive."^ In other words, governments are much more than the alternative
suppHers of goods and services to households that the Chicago School

believes them to be.

B. The Unrealized Potential

Samuel Beer has long made an argument similar to one heard in

the Third World: an American nation-building, "within a liberal dem-

110. See AcKERMAN, supra note 45; Veuanovski, supra note 47, at 7; Moore &
Squires, supra note 32, at 98; Michael W. McConnell, The Counter-Revolution in Legal
Thought, 41 Pol'y. Rev. 18 (1987); Wingo & Wolch, supra note 27, at 317-29.

111. See Crawford B. Macpherson, The Theory of Possessive Individualism
(1962). See also Heilbroner & Singer, supra note 1, at 199 ("The workable basis for
rugged individualism had gone with the industrialization and urbanization of the country.").

112. See Clavel & Kleniewski, supra note 5, at 228.
113. Farber, supra note 90, at 1361. See Bruyn, supra note 5, at 331-33 (community

development corporations, ideally "social democratic corporations acting on behalf of the

whole community," and the Albany Symphony Orchestra are syntheses of the private and

public sectors which are essentially new organizational forms); Malloy, Serfdom, supra

note 8, at 11 ("Structural changes in legal economic discourse reveal inconsistencies between

surviving forms of free market rhetoric and dramatic ideological shifts in foundational

social norms.").



1992] HUMAN DEVELOPMENT 775

ocratic framework ... in which vast numbers of both black and white

people live in free and equal intercourse," is now no less important
and challenging than was the Founders' initial formation of our nation-

state.'"* The United Nations' Conference on Human Settlements defines
the relevant issue: "Basic human dignity, is the right of people, indi-
vidually and collectively, to participate directly in shaping the politics

and programs affecting their lives.""' These are brave words and a tall

order, in light of the Chicago School's political cynicism that often

seems so well taken. A beginning can be made, nonetheless, along the
lines suggested by Robin Malloy: the "continuous tension between the

benefits and costs of government activities requires a concern for

process.""*

A necessary, but not a sufficient, step is clearing the policymaking
streams that have arguably become clogged and polluted since the New
Deal. We could eliminate much of the conceptual underbrush that has
grown up, in law and in economics, by applying a Baker v. Carr^" writ

large among the branches and levels of government. Accordingly, we
could ascertain more precisely the limits on effective government posed

by constitutions and by an institutional incompetence, foster a more

efficient pursuit of public policy by revising the division of labor among
the branches and levels of government, provide the means for creating

more manageable and consistent legal standards, strike a better procedural

balance between the desires to avoid inflexibility and delay and the needs

for considering all relevant factors and for an adequate representation

of the underrepresented, preserve judicial power to question political

decisions when there is an "unusual need" to do so, and open up public

and private channels of communication."*

Justice Brennan sees the First Amendment as playing a "structural
role," in this process, one of promoting an informed and robust debate

114. Freilich, supra note 28, at 175 (quoting Samuel H. Beer, The Idea of the

Nation, The New Republic, July 19 & 26, 1982, at 23)). See Harrington, supra note
1, at 155-56 (a "mobilization of the spirit" would arguably be required, something that

"the wall of affluence," and socialism for the rich and free enterprise of the poor do

not seem to permit at present).

115. Declaration of Principles, supra note 6, at 348.

116. Malloy, Serfdom, supra note 8, at 26. Falsely, "[w]e believe that the right

people in the right positions with the right resources can solve all of our difficulties."

Id. at 36. "We no longer seem able to accept the natural dynamic of winning and losing
in a competitive marketplace." Id. Yet, it is not necessarily "natural" that the poor are

consistent losers or that markets are competitive.

117. 369 U.S. 186 (1962).

118. See id. at 217; Garry Wills, Explaining America: The Federalist 175 (1981);
Ellickson, supra note 77, at 72-73 (the central problems are how to draw boundaries, and
upon which level of government rights should be conferred). But see John H. Ely,

Democracy and Distrust: A Theory of Judicial Review (1980).



776 INDIANA LAW REVIEW [Vol. 25:741

on public issues."' Those steps that bring about effective governmental
action are also those that broaden and inform the debates through which

a consensus is discovered. A badly informed public (a market failure,
as even the Chicago School might admit) sends inconsistent messages

to politicians and enables the special interests to dominate by manipulating

information and influence. Our consensus-forming institutions have de-
teriorated in recent decades, '^° a political market failure that the Chicago

School might not admit. Coalitions are fleeting, attention spans are

short, and both are directed at choices between polarized, simplistic

solutions.'^' These institutions should be rebuilt structurally, so that,

subject to constitutional constraints, we may safely implement whatever
poHcy package the majority wants, even if the Chicago School does not

like the package. '^^

This poHcy package could be implemented only by rather activist

governments, and the latest surveys show that Americans are losing their

fear of such governments.'" The New Deal or Great Society may have
diagnosed the wrong market failures or sought to curb them by the

wrong means. This does not mean that governments are forever barred
from diagnosis, prescription, and otherwise exerting political leadership,

if for no other reason than politicians want to remain in office and

must therefore try to fix things the public perceives to be broken. The

Chicago School is blind to this matter and fails to recognize that America

is, has been, and will be a mixed economy.'^" A politician's failure to

119. Richmond Newspapers, Inc. v. Virginia, 448 U.S. 555, 587-88 (1980) (Brennan,

J., concurring).

120. Ira C. Magaziner & Robert B. Reich, Minding America's Business: The
Decline and Rise of the American Economy 377-78 (1982).

121. Id. at 378.

122. Malloy, Serfdom, supra note 8, at 24, 54. See Fischel, supra note 17, at

35 (zoning boards of appeal must serve as mediators between developers and neighbors);

Paul H. Brietzke, Public Policy: Contract, Abortion, and the CIA, 18 Val. U. L. Rev.

741, 918-22 (1984); Coleman, supra note 5, at 36 (a close statistical correlation in the

Third World exists between economic development and political competitiveness); Fainstein

& Fainstein, supra note 76, at 11-12 (the capitalist state plays important roles of mediating
between classes and among conflicting goals, and of occasionally responding to the political

power of the working class). But see Malloy, Serfdom, supra note 8, at 30 (classical

liberals like himself seek the "establishment of a process capable of stimulating and

maintaining a creative and everchanging spontaneous order," an order which requires

"multiple and competing sources of power and authority"). Perhaps I am overly influenced
by the Chicago School, but the altruism and spontaneity Malloy hopes for seem implausible.

123. Linda L.M. Bennett & Stephen E. Bennett, Living with Leviathan: Amer-
icans Coming to Terms with Big Government (1991). See Chris Raymond, Book Review,

Chron. Higher Educ, May 15, 1991, at A6.
124. See Bruyn, supra note 5, at 4-5 ("Despite the popular belief that the market's

invisible hand leads to the general good, government policies have always played a major



1992] HUMAN DEVELOPMENT 777

intervene in economic processes can often be taken as a tacit acceptance

of the status quo, because most politicians feel that they can and should

change most things they do not hke. In cities, the market for "amenities

(or lack of disamenities)" is arranged through zoning and other political

interventions "to approximate a solution to the public goods problem."'^'

Unlike the Chicago School, politicians know that a fiscal Micawberism'^*
need not prevail; the fiscal limits on governments are different from

those on individuals and, "to avoid a crisis of legitimacy [a contingency

that Chicagoans totally ignore], the state must compensate for the social

outcomes of market processes by offering income support and public

services ... to people unable to achieve a subsistence wage within the

market system."'"

Ideally, governments would be structured to maximize the contri-

butions both they and markets make to the solution of carefully defined
policy problems. Markets offer useful standards for comparison with

governmental actions in an inevitably mixed economy. Rather than push

near-perfect markets and play down fatally flawed governments, as the
Chicago School urges them to do, policymakers can easily study the

real world results that flow from often fragmented, segregated, and

otherwise uncompetitive markets. These results pose a series of questions

role in determining whether the market will function in the public interest." The question

is whether the market can regulate itself, with few oligopolies and other destructive and

exploitative side effects.); id. at 255 (When the profit sector fails in matters of equity,

the problem can be corrected through . . . nonprofit organizations such as trade associations

or government institutions, which are better prepared to achieve this value."); Lawrence
M. Friedman, A History of American Law 177-79, 440, 454, 465 (1985), cited in
Malloy, Serfdom, supra note 8, at 162 n.7 (supporting the notion that laissez faire in

America has been long on rhetoric and short on reality); James W. Hurst, Law and
Social Order in the United States (1977); Malloy, Serfdom, supra note 8, at 162
n.7 (citing John Gray, Liberalism 26-36 (1986)) (there has never been a true period of

laissez faire); Coleman, supra note 5, at 31 (whatever role laissez-faire may have played
in the past, it has "long since been transcended by varying but substantial forms of

etatisme"); Logan & Swanstrom, supra note 18, at 3; Harry N. Scheiber, The Road to
Munn: Eminent Domain and the Concept of Public Purpose in the State Courts, in Law
in American History 327 (Donald Fleming & Bernard Bailyn eds., 1971).

125. FiscHEL, supra note 17, at 72.

126. Wilkins Micawber was a character in Charles Dickens's David Copperfield who
was "noted for his alternate elevation and depression of spirit, hearty appetite, reckless

improvidence, his troubles, and for his 'waiting for something to turn up."' Webster's

New Int'l Dictionary 1551 (2d ed. 1937).
127. Fainstein, supra note 30, at 122 (citations omitted). See Kirlin & Marshall,

supra note 22, at 353-54; Richard R. Mudge & Kenneth L Rubin, Urban Infrastructure:
Problems and Solutions, in Urban Change and Poverty, supra note 15, at 308, 341-

42. But see Malloy, Serfdom, supra note 8, at 62 ("state-centered views of law and

economics generally lead to frameworks of liberty that focus on the importance of groups,

experts and planners at the expense of individual decisionmakers in the marketplace").



778 INDIANA LAW REVIEW [Vol. 25:741

or challenges. Would the outcomes from governmental interventions be
better or worse than marketplace results? Should policymakers try to

beat market results or to reform markets and then allow them to generate
the desired results? To what precise extent is private initiative disciplined
by real world markets, and when should public initiatives defer to it?
In particular, do markets provide too little or too much of a reward
to political skills and productivity?

Answers to such questions could be implemented by enacting a

neoclassical presumption into law, one that is rebuttable rather than (as

the Chicago School would wish) conclusive: leave matters to a private

initiative in markets, unless it can be demonstrated (in ways that attract

an informed consensus) that governmental interventions will reduce broadly

defined market failures on balance. Many of the props are already in
place for such a scheme; it amounts to an "economic constitution" with

the antitrust laws as its centerpiece,'^* although a great deal of fine-

tuning would be required. Briefly, general principles and a more so-
phisticated judicial review are needed, rather than the unreviewed, out-

come-specific rules that currently favor special interest groups. The logical

starting points would be those areas where economic rent-seeking behavior

is most prevalent: "tariffs, defense contracts, public works projects,

direct subsidies . . . government loans, "'^' and their equivalents at the

municipal level.

Michael Porter's highly regarded book argues that competitive ad-

vantage is achieved through a competitive adversity; rather than succumb

to "the false allure of concentration, collaboration, and protection,"

128. Appalachian Coals, Inc. v. United States, 288 U.S. 344, 359-60 (1933). See

United States v. Topco Assocs., Inc., 405 U.S. 596, 610 (1972) (antitrust law is "the

Magna Carta of free enterprise" and is as "important to the preservation of economic
freedom and our free enterprise system as the Bill of Rights is to the protection of our

fundamental personal freedoms."); Brietzke, Constitutionalization, supra note 48. See also

Malloy, Serfdom, supra note 8, at 3-4 ("we can begin to see our own system of
constitutional checks and balances as a legal construct intended to mirror the competitive

market metaphor of economics"). My view is slightly different from Malloy's. Checks
and balances, federalism, and a separation of powers are political market failures designed

into the document, to counter the economic market failures that foster the "vice of

faction" that worried Madison in Federalist No. 51, and that would now comport with
an economics theory of the second-best directed against a special-interest politics.

129. Farber, supra note 90, at 1361. See Malloy, Serfdom, supra note 8, at 92.

See also Ronald Dworkin, A Matter of Principle (1985) (discussing theoretical issues
of political philosophy and jurisprudence, including social justice and economic equality);

Malloy, Serfdom, supra note 8, at 136-37 (Under classical liberalism, general principles

are preferred to outcome-specific rules. A city's public-private partnerships should be
subject to meaningful constitutional constraints; the information required for evaluation

and accountability should be widely available, and the standards of the city's liability and

obligation should be the same as those imposed on a private developer or lender.).



1992] HUMAN DEVELOPMENT 779

government should act "as a. pusher and challenger. "^^° Stringent safety,

environmental, and energy-efficiency regulations would both improve our

standard of living and force an upgrading of American products, perhaps

to the point where they could compete successfully with those from

Germany and Japan—where producers prosper under stringent regula-
tions.'^' Needless to say, these pushes and challenges need to come from
the federal government, and they are unlikely so long as the special

interests rule in Washington. If a city were to attempt these tactics,

aggrieved producers would move away or argue that the interstate com-
merce clause stood violated.

III. Ghettos and Lawyers

The analysis so far leaves us between the proverbial rock and hard

place. This is a position lawyers regularly find themselves in, but rarely

with so little guidance. The Chicago School cleverly demonstrates why
governments have done so little to alleviate poverty, but its proposed

cure — basically, let markets and strong private property rights do it
all — seems inhumane as well as implausible. The best we can do is
to build upon an unrealized potential for selective interventions by
selectively restructured governments, a solution that will please no one,

but that will be rejected outright only by ideological true believers. If

politics is too important to be left to the politicians, so too is economics

too important to be left to the economists or perhaps worse still, solely

to law and economics experts advising politicians. '^^ Lawyers have three

roles to play in the process of urban development: as problem-solving

generalists, as players who are professionals at dealing with values, and
as planners.

First, lawyers have a useful generalist's or synthesizer's role to play,

if we can shed some of our formalism and positivism. (This is a feat
many economists are unable to manage.) Our method is one of solving
problems, and we are much less guardians of a cherished theory than
are economists and much less guardians of routine and ghetto under-
development than are politicians and bureaucrats. Our technique requires
a clear definition of the relevant issues, and we can thus ask economists,
politicians, and bureaucrats to clarify matters and to determine relevance.

130. Porter, supra note 4, at 681. See id. at 117 ("Among the strongest empirical
findings from our research is the association between vigorous domestic rivalry and the

creation and persistence of competitive advantage in an industry."); id. at 672 (innovation

requires activism by companies; government is only an indirect "facilitator, signaller, and

prodder").

131. M at 647-48.
132. Khor Kok Peng, Malaysia's Economy in Decline 154 (1987).



780 INDIANA LAW REVIEW [Vol. 25:741

This may not sound like much, but analysis and public policy frequently
drift from one unclear premise to another. Having to explain what one

is doing to a lawyer frequently clarifies one's thinking and helps to

avoid mistakes. We are trained to deal with changes occurring within
a framework of stable but imperfect institutions. Lawyers often succeed

in eliminating contradictions, in setting politically acceptable priorities

when contradictions cannot be eliminated, or in otherwise finding the
basis for a compromise settlement.

A second lawyer's role concerns our familiarity with values. We
throw "rights" and "free speech" around as if these were concrete

entities. This is unscientific (unquantifiable) behavior for the economist,

and it certainly is more than a bit sloppy. Yet, if someone does not
actively and constantly pursue these values, they will be forgotten or

drowned in a special interest politics. Chicago School economists often

deal with values by asking, for example: How much is free speech worth,
how much are you willing to pay for it? This is not a useful perspective
on distributive justice because, by definition, the poor are unable to

pay as much as it takes to protect their rights effectively.'" Devising
the means to implement a compelling theory of distributive justice'^** is,

in fact, the single most important contribution lawyers can make, both

to urban development and to ameliorating ghetto miseries.

The lawyer's first two roles come together in their third planning
role. Someone must systematically link new goals and values with in-
stitutions because "[i]deal justice enters into nonideal politics by way
of the natural duty to establish just institutions. "'^^ The conventional

planners' solution is often to cater to special interest groups or to spawn

new institutions that create confusion, but seldom work better than the
institutions they replace or circumvent. There is too little monitoring of

the interaction among policies, of the techniques that the policies call
forth, and of institutions. A better balance and more equahzing outcomes
can be created through a careful administrative law planning, with precise

definitions of bureaucrats' tasks, better means of evaluating their per-

formance,'^* and a handicapping of the institutional and other interest

133. Like Oscar Wilde's cynic, the economist ex officio is said to know the price

of everything and the value of nothing. The world the economist would create might be

a rather sad place, although wealth maximization is supposed to make everyone happy.
134. See infra text accompanying notes 148-68.

135. Gerald M. Meier, Emerging from Poverty: The Economics that Really
Matters 232 (1984). See Morton Deutsch, Distributive Justice: A Social-Psycho-
logical Perspectfve 1 (1985) ("Justice is the first virtue of social institutions, as truth

is of systems of thought.") (quoting John Rawls, A Theory of Justice 3 (1971)). For
a lawyer, this "natural duty" presumably arises under a natural law (which can but need

not fall prey to the naturalistic fallacy).

136. In the Law Reform Commission of Canada, Policy Implementation, Compliance



1992] HUMAN DEVELOPMENT 781

group horse race. Lawyers should advocate a planned redistribution of

rights and privileges (and the wealth that flows from them), within a

scheme that maximizes equality gains from a minimum loss of liberties.
Otherwise, a casual proliferation of economic rights through failed mar-

kets operates to favor elites and to further entrench ghetto miseries.

A. Some Tentative Recommendations

Lawyers should be able to devise the kinds of process-oriented

reforms outlined in the last section, to achieve a better fit between

democratic governments and the problems these governments face. If

our focus is the problems of ghettos, such a step is indeed necessary

but it is not sufficient. The rules of the political games could change

substantially, and bigotry and ghetto market failures would still be

endemic. Lawyers might thus have to do something substantive to alleviate

ghetto problems. This is a scary prospect, as the attitudes voiced at

most law faculty meetings presumably demonstrate. It raises the specter

of a substantive due process that was thought to be safely buried after

the Supreme Court's 1937 "switch in time." The only recent judicial

venture into something that can be characterized as a substantive due

process with some plausibility is Roe v. Wade^^^ and its progeny, but
abortion rights have hardly been an analytical or political success. For-

tunately, United States v. Carotene Products, Co.^^^ could be revived to

deal with the issue. Although Carolene appears to be a process-oriented

decision, it is actually substantive or outcome-oriented in nature, yet it

avoids the substantive due process pitfall. Carolene triggers a "more
exacting scrutiny" when rules or projects discriminate against "discrete

and Administrative Law 80 (1986) (Working Paper No. 51), the Commission concludes
that the "planning of policy implementation involves important choices about institutions

and instruments for influencing private [and public] behaviour. Each has its inherent

capabilities and drawbacks in any given political and socio-economic context." Within

their context, the Canadians emphasize the following variables as influencing choices of

institution and technique by public administrators: the amount and type of change in

behavior required and how quickly change should occur; whether public support or resistance
is anticipated; the adequacy of resources available for implementation and the characteristics

of the relevant administrators; the extent to which the desired behavior can be accurately

defined and quantified in law; how easy it is to collect information about compUance
and to detect violations, the relative speed, simplicity and predictability of legal mechanisms,

and their capacity to deal with initial public opposition; and the normative context within

which the law operates. The Commission calls for the use of "compliance specialists" or

"internal ombudsmen" who would coordinate activities and force the bureaucracy to
control itself. Id. passim.

137. 410 U.S. 113 (1973).

138. 304 U.S. 144 (1938).



782 INDIANA LAW REVIEW [Vol. 25:741

and insular minorities" and when political processes are unlikely to cure
this defect. '3^

A political cure is unlikely so long as the Chicago School analysis
of governmental processes remains fairly accurate, and ghetto residents

make up a plausible "discrete and insular" minority. Segregated from
broader economic and political markets and "kept in their place" by

the fears of the affluent majority, most ghetto residents are readily

identifiable by the color of their skins or by their accents. The correlation
between ghetto residence and a discreetness and insularity is not perfect,

but it is close enough. For example, "poor whites" are not much feared
by the affluent, especially if they are elderly, but most poor whites no

longer live in ghettos. It should be easy to convince interested officials

that an affirmative action on behalf of ghetto residents is permitted

under Carolene, but can today's judges also be persuaded to apply

Carolene'}

Important urban development cases tend to combine due process,

equal protection, and takings (eminent domain and just compensation)
issues together in complex and confusing ways. Faced with this melange,

most judges take refuge in the New Deal model of police powers, and
they thus defer to political judgments. Yet, a genuine human development
is a more proper "public purpose" or "public use" than is the Yup-

pification that passes for urban development under recent, looser def-

initions of the public purpose.'"**^ These definitions should be tightened

up, so that government power improves the economic environment for

everyone, especially for ghetto residents, rather than merely serving to

record the outcomes from bribes by special interest groups. Carolene

offers an appropriate means to this end. Judges are encouraged to probe

deeper, but not much deeper, into the discriminatory bases for political

139. Id. at 152-53 & n.4. See Laurence H. Tribe, American Constitutional Law
§ 16-22, at 1523 n.9 (2d ed. 1988); Bruce A. Ackerman, Beyond Carolene Products, 98

Harv. L. Rev. 713 (1985) (a member of the "progressive" school of law and economics,

urging an expansive interpretation of Carolene); Lea Brilmayer, Carolene, Conflicts, and

the Fate of the "Inside-Outsider", 134 U. Pa. L. Rev. 1291 (1986).

140. Compare supra notes 123-24 and accompanying text with Herman v. Parker,

348 U.S. 26, 32 (1954) (approving broad use of eminent domain in urban redevelopment

because "when the legislature has spoken, the public interest has been declared in terms

well-nigh conclusive") and People ex rel. City of Urbana v. Paley, 368 N.E.2d 915, 921

(111. 1977) (upholding the government's use of industrial revenue bonds for downtown

commercial development because "stimulation of commer'cial growth and removal of

economic stagnation are also objectives which enhance the public weal"). See Fischel,

supra note 17, at 32, 43; Malloy, Serfdom, supra note 8, at 14 (eminent domain powers

used in Pittsburgh to transfer substantial property from one private party to another) and

at 90-91 (discussing the broad police powers model of Village of Euclid v. Amber Realty

Co., 272 U.S. 365 (1926)); Mandelker, supra note 25, at 4-5.



1992] HUMAN DEVELOPMENT 783

action, yet all close judgment calls would be resolved by deferring to

political judgments under the police powers model. Some conservative
judges, especially those worried about being tarred with the substantive

due process brush, would welcome this means of striking down the more
blatant of special interest group bargains.'"*'

The United Nations' Conference on Human Settlements states that
a "human settlement policy must seek harmonious integration or co-
ordination of a wide variety of components, including for example,

population growth and distribution, employment, shelter, land use, in-

frastructure and services.""*^ Market processes provide many, but not

all, of the integrations needed to promote the fullest measure of "syn-

ergistic interactions" that would enhance urban standards of living in

the United States. ''*^ As Robin Malloy's book illustrates, conventional
planning processes have, at best, made marginal contributions to an
urban synergy. Law has a tremendous integrative potential, but this
potential is largely ignored if we follow the Chicago School recommen-
dation of having laws that merely mimic markets. Such a recommendation

makes little sense in the ghettos, where acute legal failure perhaps mimics

chronic market failures. The Chicago School assumes that national and

local economies are regularly brought into an equilibrium by marketplace

activities, but economies are in fact often in disequilibrium and chronically

so in ghettos."*^

14L Malloy, Serfdom, supra note 8, at 552. See Dahlman, supra note 76, at 221-

23. See also Mandelker, supra note 25, at 7-9 (discussing state court decisions that approve

exercises of eminent domain over areas that are not blighted). Pioneer Trust & Sav. Bank
V. Village of Mt. Prospect, 176 N.E.2d 799 (111. 1961) contains a cruel value bias: when

an "exaction" (such as inclusionary zoning) is imposed as a precondition to permission

to develop, this exaction must be uniquely and specifically related to the development in

question. The need for additional school and public recreational facilities was not uniquely

attributable to the particular development in Pioneer. In other words, developers are free

to keep the economic rents "earned" as a special interest group, and government cannot

siphon off part of them for the benefit of the poor generally. See supra note 49. A
Carotene Products perspective would change this kind of thinking and change case outcomes

that deny poor people the standing to challenge political arrangements affecting them

precisely because they have been denied access to a special interest politics. See, e.g.,

Warth V. Seldin, 422 U.S. 490 (1975). But see Farber, supra note 90, at 1360 ("the rent-

seeking model, if taken seriously, would require much broader judicial review than even
the Lochner Court contemplated"). I disagree with Farber and argue that a Carolene

Products approach would result in marginal changes that would benefit the poor.

142. Declaration of Principles, supra note 6, at 347.

143. Berger & Blomquist, supra note 15, at 67-68.
144. See Harvey, supra note 2, at 63 ("the inflexibility of a city's spatial form

[generates] almost permanent disequilibrium in the city's social system"); Coleman, supra

note 5, at 33 ("Economics is concerned with market phenomena in nationally-integrated
economies. Where these do not exist, its analytical techniques are non-operative."). See



784 INDIANA LAW REVIEW [Vol. 25:741

Even more centrally, the Chicago School ignores a democratic gov-
ernment's right and duty to mediate among groups in society. So far
as the ghettos are concerned, this integrative function often takes the

form of an activist enforcement of broadly defined civil rights laws,

although the Reagan-Bush Administration would not have it so. The
forms of bigotry grow ever more subtle and sophisticated as people
become more skilled at dissimulating their prejudices. Civil rights en-
forcement must therefore be tied to broader moral issues and questions

of social organization. A zealous "guarding of someone's civil rights
assuredly cannot mean leaving that person in a condition of immediate
and considerable physical risk, else the concept of 'civil rights' is stripped

of all practical meaning."''*^ Integration of a few schools, neighborhoods,

and jobs — deeply problematic steps by themselves — does much less
to integrate markets for production and distribution than is commonly
supposed. Ghetto market surrogates must also be forced back from the

periphery and into mainstream markets, through improvements in the

mobility of resources that should also enhance marketplace efficiencies

in the long run. For example, a stricter enforcement of fair housing

and fair hiring laws is a necessary, but not a sufficient, cure for market

failures when entry-level jobs are located in the suburbs while would-

be employees live in the ghettos. Access to computerized job search

facilities, van pooling, and relocation subsidies are also needed to make
this "civil right" effective.'"*^

B. Distributive Justice

Inevitably, the implementation of civil rights measures raises issues

of distributive justice. This may be why some conservatives oppose the
enforcement of civil rights. Lawyers of all political persuasions should

feel some responsibility for implementing distributive justice simply be-

also supra note 36 and accompanying text. Perhaps the most interesting kind of integration

concerns (perhaps a sociological theory of) knowledge about urban development. Some
economists know that the benefits of economic growth will "trickle down" to the poor,
while some of the poor know this to be nonsense and an unjust perspective on their
plight. How can this knowledge be shared and otherwise put to good use under law,
given that no one has a monopoly on wisdom?

145. Rossi, supra note 2, at 198. See Wilson, supra note 30, at 132-33; Fainstein

& Fainstein, supra note 76, at 11-12. Since 1980, the federal government's passivity in
civil rights enforcement and its abdication of responsibility for the poor have become part

of a program to remove government from the business of promoting social change, except

in those areas where neoconservatives take an interest, such as imposing national moral

standards over abortion. Freilich, supra note 28, at 161-63, 177-79.

146. Kasarda, supra note 22, at 193. See Harvey, supra note 2, at 63 (without

public housing constructed near suburban job opportunities, there is little hope of a

"natural equilibrium solution").



1992] HUMAN DEVELOPMENT 785

cause it is a part of justice as most legal philosophers define it. If

lawyers do not look out for endangered species of justice, who else
will? Certainly not politicians looking for bribes from special interest

groups and certainly not mainstream economists.

Most economists have little patience for something so vague and

"unscientific" as theories of distributive justice. Admittedly, these the-

ories often take the form of an imprecise formula: from each according

to his ability, to each according to his needs, his moral or social merits,

his contribution to political success, or his efforts. The economist is

also frequently caught applying a tacit formula of justice: from each

according to his ability and to each according to his "marginal pro-

ductivity" measured in terms of the wiUingness of others to pay. Thus

a rock star is manifestly more valuable to society than a teacher or a

garbage collector (a "waste transfer specialist"), because a rock star is

paid more through "competitive markets." (This is little more than a

tautology: a rock star is paid more because a rock star is paid more.)

Theodore Schultz may be right: "if we knew the economics of being
poor we would know much of the economics that really matters."'''^
Yet, poverty too seldom provides economists with much intellectual
stimulation, and economists seldom worry about the "less analytically

rigorous" distributive consequences of their efficiency prescriptions. Prac-

titioners of a conservative law and economics frequently see themselves

as guardians of a rationality that curbs lawyers' and others' soft-head-

edness in economic matters. Economists' hardheadedness frequently comes

across as a hard-heartedness towards the poor, however, and lawyers

may thus want to offer policymaking options that combine hardhead-
edness with a soft-heartedness toward the poor.'"*^

The advocacy of creative policy options is all the more urgent in

light of recent changes. "Market forces" have redistributed additional

resources away from the poor, who have been relegated to a lowly
position on the agenda of an entrepreneurial politics. They have been

treated to "so-called free enterprise solutions,"''*' solutions that are cheap

147. Gerald M. Meier, The Meaning of Economic Development, in Leading Issues
IN Economic Development, supra note 10, at 2 (quoting Theodore W. Schultz, on accepting
the Nobel Prize in Economics, 1979). See William R. Cline, Distribution and Development,

1 J. Dev. Econ. 359, 370, 374, 380 (1975).

148. See Meier, supra note 147, at 3-5; PiGOU, supra note 78, at 5 ("It is not

wonder, but rather the social enthusiasm which revolts from the sordidness of mean streets
and the joylessness of withered lives, that is the beginning of economic science."). This

has not often proved to be the case, in economics or in law, but it has provided the

poor with some useful allies.

149. Freihch, supra note 28, at 177. See Harvey, supra note 2, at 61, 79, 86;
McCoy, supra note 47, at 134; Moore & Squires, supra note 32, at 98, 108; Wingo &



786 INDIANA LAW REVIEW [Vol. 25:741

if nothing else, and recurrent fiscal crises at all levels of government

appear to constrain additional redistributions through taxation and ex-

penditure policies. Recent public opinion surveys on the subject seem

ambiguous. While people continue to complain about paying taxes and

the young report a declining sense of civic obligation, we increasingly
favor more government spending on a wider variety of social programs. '^°

Under an adroit political leadership such as Roosevelt's, ambiguities in

public opinion could be made into a consensus over a greater measure
of distributive justice. Some Democrats will combine altruism with self-
interest and follow the lead of Jesse Jackson's Rainbow Coalition, but
in their own ways and for their own programs, if they can find the
votes by organizing poor people into more effective interest groups and

by making the plight of the poor more compelling to the general public.

Homelessness is currently a "social problem" because the homeless are

visible, sleeping on grates and in airports, and their manifest inability

to attain the warmth and security most of us associate with "home"
is deeply affecting.'^' Yet, other poor people will remain invisible and

Wolch, supra note 27, at 317 (the "new conservativism" believes a bigger pie to be more
important than redistribution, in what is seen to be a zero-sum game); Hallinan, supra

note 10 (Blacks were promised much, but obtained little, from redevelopment in Indi-

anapolis).

150. Bennett & Bennett, supra note 123, at 20-50; Raymond, supra note 123, at
A6.

151. Rossi, supra note 2, at 14. See Harvey, supra note 2, at 81 ("the rich are

unlikely to give up an amenity 'at any price', whereas the poor who are least able to
sustain the loss are likely to sacrifice it for a trifling sum"); Bamberger & Parham, supra
note 5, at 18 (group protests in Indianapolis focus on "approaches ... to foster devel-

opment, the openness of the decisionmaking process, the nature of the projects being

undertaken, and the longer term impacts"); Clavel & Kleniewski, supra note 5, at 223-
24 (Chicago's populist mayor, Harold Washington, was a skilled political dramatist, but

his coalition proved fragile and he was succeeded by the developer-dominated Richie

Daley); Kirlin & Marshall, supra note 22, at 356 (conflicts over redistribution are seen
by some as a crisis in governance and by others as insufficient to force change); Walton,

supra note 16, at 131 (as in the Third World, urban protests increasingly involve the

"conditions of collective consumption — transportation, urban services, housing . . . health,
and education"). Harvey Molotch offers a plausible diagnosis:

It takes time for grievances to accumulate and find modes of effective expression.

Capital moves faster [since it is already tightly organized] than culture and more

rapidly than victims of change can organize for reform. ... In the United States,

without a strong left tradition, reform is always ad hoc and operates through

social movements rather than party. As change upsets former arrangements for

exacting social justice, there is no ongoing system to make certain that the new

economic order is socially continuous with the old.

Molotch, Urban Deals, supra note 19, at 193 (citation omitted). Kirhn & Marshall add
that a "dependence on established economic interests limits the extent to which minority

political power can be translated into redistributive policies. It also subjects minority



1992] HUMAN DEVELOPMENT 787

ignored unless politicians and lawyers somehow dramatize their plight.
Theories of a distributive justice insist that political and moral

precepts be considered along with the economic ones. For example, a

minimal physiological integrity is often deemed a moral precondition to

the bargaining over production and distribution stressed by the Chicago

School in its Coase Theorem.'" Without such integrity, bargains will

automatically favor the rich and powerful, and the autonomy assumed

by Chicagoans to be in everyone's possession will never develop for the

poor. The history of intergroup relations is ignored by the Chicago

School. Robin Malloy notes that Chicagoans' "wealth maximization

discourse can ignore the issue of whether African-Americans or Hispanics,

for instance, have anything to exchange in the marketplace," or whether

they "have been systematically deprived of an opportunity to acquire

the wealth [and dignity] necessary to bargain voluntarily."'"

Fortunately, Malloy's classical liberalism contains "the egalitarian

principle that individuals are not doormats and that there is a personal

autonomy beyond which no outsider or state should be allowed to
penetrate coercively."'*'* This principle cannot be derived from the "in-

stitutional frameworks of the past," as the common law and marketplace
orientations of the Chicago School would require, where these "frame-

works are from the start biased against women and minorities.""^ In
practical terms, Malloy's principle imposes a duty on governments to

provide food, shelter, medical care, and education for people who do
not have the purchasing power to obtain these necessities through private

markets."* This principle and duty can be squared with the neoclassical

economics of the Chicago School only if one accepts Gerald Meier's

morally defensible view that "[p]er capita real income is only a partial

index of economic welfare [or wealth maximization] because a judgment

regarding economic welfare will also involve a value judgment on the

desirability of a particular distribution of income."'" Malloy thus comes

officials to criticism from minority groups." Kirlin & Marshall, supra note 22, at 359.
Judges are seldom of any help. See, e.g., Mandelker, supra note 25, at 16 (discussing

Meierhenry v. City of Huron, 354 N.W.2d 171 (S.D. 1984), in which the court held that
the state constitution's uniformity of taxation clause applied to the property tax levy

rather than to the distribution of revenues from the property tax).

152. See Coase, supra note 77.

153. Malloy, Serfdom, supra note 8, at 70. See Wilson, supra note 30, at 10-11,

146 ("long periods of racial oppression can result in a system of inequality that may
persist for indefinite periods of time even after racial barriers are removed").

154. Malloy, Serfdom, supra note 8, at 50.

155. Id. at 51.

156. Id. at 80. See id. at 77 (discussing the libertarian philosophy of government's

legitimate role).

157. Meier, supra note 147, at 5, 8.



788 INDIANA LAW REVIEW [Vol. 25:741

close to rejecting the wealth maximization goal of neoclassical economics

and to adopting instead the goal of the developmental economists, "the

improvement in human well-being.""*
Malloy's classical liberahsm is thoughtful and humane, but we can

go beyond it if we choose to do so. The mixed economy of private
and public sectors has its counterpart in a mixed polity of liberal

democratic and social democratic tendencies. (More than a little au-

thoritarianism runs through both tendencies, especially into the ghettos.)

An evenhanded analysis of these often rival tendencies would illustrate
that "[t]he trade-off between efficiency and equity [or between liberty

and equality] need not be as severe as it currently seems to be,""^ at

least for the Chicago School. The social democratic tendency involves

a more collective pursuit of human dignity than Malloy seems comfortable
with, perhaps as an implementation of Frank Michelman's moral precept

that "civilized people should not sacrifice the well-being of identifiable

individuals for the benefit of the majority,"'^ regardless of whether

markets dictate such an outcome. A redistribution from the less basic
needs of the affluent to the more basic needs of the poor could be

accomplished through a system of "Pigouvian taxes"'*' which would

redistribute the economic rents obtained through zoning, redevelopment

projects, and the other bounties flowing from a special interest politics.

Some of the benefits from this redistribution would flow back to the
temporary losers, through a hydraulic "trickle up" from the poor that

seems more plausible than a trickle down, and the dominance of politics

by special interests would be eroded by a reluctance to pay large bribes

for privileges which would be heavily taxed.

158. Harrison, supra note 2, at 1.

159. FiscHEL, supra note 17, at 336. See Arthur M. Okun, Equality and Effi-
ciency: The Big Tradeoff (1975). But see Malloy, Serfdom, supra note 8, at 20 (if

you have it, private capital creates a power base for the individual to challenge and

constrain the state, especially from within a special interest group) and at 63 (attempts

to validate collective values dehumanize by substituting the community for a differentiation

among individuals); Kirlin & Marshall, supra note 22, at 369 (different governmental
institutions may have different roles: a service-delivering bureaucracy may easily meet
equity criteria by treating like cases alike, while a public entrepreneurship is more par-

ticularistic and perhaps more efficient, corrupt, or both).

160. FiscHEL, supra note 17, at 151. See Declaration of Principles, supra note 6,

at 348 (human dignity is a basic right to shape policies and programs affecting one's

life).

161. Under Pigouvian taxes, "activities that confer negative effects on others ought

to be taxed and activities that confer positive effects on others ought to be subsidized."

Dahlman, supra note 76, at 229. This is a better solution than a discrete, nonmarginal

market intervention like zoning, because these taxes are calculated on the margin and

thus alter incentives within the relevant markets. Id.



1992] HUMAN DEVELOPMENT 789

Once again, this scheme must be federalized to prevent the aggrieved

from opportunistically switching communities or crying foul under the

Interstate Commerce Clause. The rich would then have no constitutional
or moral right to keep all of the economic rents they obtained from

the special interest porkbarrel, but the Chicago School would give them

such a right in economics: everyone is entitled to keep whatever they

can get as a consequence of their absolutist "property" rights. A theory
of distributive justice must ultimately flow from a theory of rights,

perhaps less from Locke's or Hobbes's theory than from the second-

best theory that we must all somehow live with governments and their
institutions, at least until we can make some inevitably marginal changes.
(Revolution is decidedly not wealth-maximizing.) Suffice it to say that,

contra the Chicago School, private property rights will always be restricted

in some ways; therefore, the key constitutional question is: Which im-
pediments have been imposed and how are they enforced? Since the
New Deal, it has been broadly recognized that private property rights
are stumbling blocks to, as well as foundations for, freedom. The property

rights of a few can stand in the way of those who have none, who
have been denied reasonable opportunities for acquiring some, and who
thus have an undemocratic power exercised over them. Many wealth-
maximizing outcomes are possible, so the ones that occur will depend

in part upon which rights and processes are chosen democratically. The

conservatives' fear is that, once begun, there will be no end to redis-

tribution.'" Yet, politics and the Constitution would impose fairly definite

limits on redistribution, as they have in the past.

Urban property rights have little value apart from their proximity

to a similarly valued property. The organization of urban space by

special interest groups thus amounts to organizing an inequality through

162. Id. at 254; Harvey, supra note 2, at 115; Pilon, supra note 84, at 312-73,

377-78, 383-84; Rubinfield, supra note 48, at 7. See Harvey, supra note 2, at 89 ("local

public services bid fair to become the chief means of income redistribution") (quoting

W.R. Thompson, A Preface to Urban Economics 118 (1965)) and at 112 (capital flows
bear little relation to need, and it is impossible to cure this defect by capitalist means);

Malloy, Serfdom, supra note 8, at 71 (disagreements between liberals and conservatives

in law and economics are usually played out over private property) and at 79-80 ("The

requirements of human dignity mean that we cannot legitimize the tragedies and hardships
of individuals by cloaking them in the language of protecting private property rights or

of following the natural consequences of a market process that should be protected for

its own sake." The state must serve as an "appropriate counterbalance to private coer-
cion."). Ellickson offers some examples: taxes on new house construction are inefficient

or inequitable only "when they fall partially on consumers, or on landowners who have
not received zoning windfalls." (These tax revenues could then be used to benefit the

poor.) Ellickson, supra note 77, at 155. However, an inclusionary zoning achieves little

distributive justice because the developer will serve the wealthiest portion of the eligible

group, to the extent that the developer can control the identity of the occupants. Id. at

156.



790 INDIANA LAW REVIEW [Vol. 25:741

the vehicle of private and quasi-public property rights and to protecting

the group's "turf" thereafter. Distributive justice would involve organiz-

ing a set of spatial structures that maximize equity along with efficiency.

Once a sensible framework for bargaining between communities is thus
established, once political market failures are curbed, in other words,

the "free play of market forces" could also be distributively just.'*^

Once again, this is a Baker v. Carr and a Carotene Products writ large. '^

Inequality is a conspicuous market failure by definition, if equality

is a goal we want to pursue through markets. Even as we quarrel over
the finer points of symptoms and solutions, people are almost uniformly

scandalized by the injustice of governments that do little or nothing to

ameliorate preventable miseries. Yet, equality is a value missing from

much of the conventional economic and legal analyses and from most
attempts at urban development. Liberty, on the other hand, is conven-

tionally defined as encompassing some property rights, most notably the
extensive and near-absolute property rights found in Chicago School

definitions. The unresolved tensions between a variously defined liberty

and equality drive our "higher" or constitutional politics.'" This dilemma

of liberty versus equality can be resolved only through development, a

genuine upward movement of the whole society, with fairly rapid re-
ductions in the numbers of people in the most disadvantaged categories

(rather than a delusive "trickle down"). Some liberties can then be
created or reinforced programmatically, even as new equalizations are
attained, in a "planning for freedom" rather than for Malloy's serfdom.

163. Harvey, supra note 2, at 117. See id. at 93 ("the poor need neighborhood

government to secure the liberty to achieve prosperity") (quoting M. Kotler, Neighborhood
Government: The Local Foundations of Political Life 71 (1969)). High negotiation

costs with other communities necessitate a series of uneasy compromises, so that "we do

not lose more in 'x-efficiency' than we gain in economic efficiency." Id. Harvey's analysis

builds to a Rawlsian "sense of territorial social justice":

1

.

The distribution of income should be such that (a) the needs of the population

within each territory are met, (b) resources are so allocated to maximize

interterritorial multiplier effects, and (c) extra resources are allocated to help

overcome special difficulties stemming from the physical and social envi-

ronment.

2. The mechanisms (institutional, organizational, political and economic) should

be such that the prospects of the least advantaged territory are as great as

they possibly can be.

Id. at 116-17.

164. See supra notes 139-41 and accompanying text.

165. See Pilon, supra note 84, at 372-73 (our "antimony" between private property

rights and "people rights" is a radical departure from, rather than a refinement of,

Enlightenment theories); id. at 377 (that "the free society is not a society of equal freedom,

defined as power — is precisely the rub that gives rise to the new theory of property");
Bruce A. Ackerman, The Storrs Lectures: Discovering the Constitution, 93 Yale. L.J.

1013 (1984).



1992] HUMAN DEVELOPMENT 791

Equalization is a viable goal of development and distributive justice

because it subjects equality to the constraint of minimizing the loss of

liberties, liberties that are defined to exclude the more extreme, Chicago

School blandishments concerning property rights. A rough balance be-
tween liberty and equality can be attained through an almost dialectical

process of fitting rights together in different configurations over time,

rather than by allowing a liberty defined by the Chicago School to

prevail every time. The Achilles' Heel of the Chicago School is the lack

of justification for, or legitimation'^ of, the outcomes it prescribes,

"unless the internal logic of the market economy itself is regarded as

a form of justification."'*' This "internal logic" is powerful and per-

suasive, but does it justify the existence of the ghettos? If not, we may
want to devise more compelling justifications. Our familiarity with value
inquiries could make lawyers into effective ideologists for development
and distributive justice, a role which is perhaps necessary because many
ideologists have opposing viewpoints. At the least, we should subject
these opposing viewpoints to an analytical strict scrutiny. This would

be less a deconstruction than an opportunity for rival theories to self-

destruct, once their analytical underpinnings and overreachings are made
more apparent.

C. Enter Robin Malloy

Ronald Dworkin says something which sounds better coming from

Malloy: "If [the reader] leaves my argument early, at some crucial
abstract stage, then I have largely failed for him. If he leaves it late,

in some matter of relative detail, then I have largely succeeded. I have

failed entirely, however, if he never leaves my argument at all."'** I

166. See Bruyn, supra note 5, at 65 ("I see a trend toward a matching of opposing

traits: competition with cooperation, profit with non-profit, command with mutual gov-
ernance, maximizing with optimizing profits, self-interest with public interest, financial

standards with ethical standards"); id. at 325 (criteria of effectiveness and legitimacy will

be added to market evaluations in the future); Malloy, Serfdom, supra note 8, at 11

("Structural changes in legal economic discourse reveal inconsistencies between surviving

forms of free market rhetoric and dramatic ideological shifts in foundational social norms.")

and at 75 ("Rules ... are socially chosen criteria for legitimizing socially biased ar-

rangements."); Cummings, supra note 22, at 7 (the capitalist state fulfills two contradictory

functions, accumulation and legitimacy; the state loses legitimacy if it helps one class at

the expense of another, while the sources of its power dry up if accumulation is neglected);

Fainstein & Fainstein, supra note 76, at 11-12. For the Chicago School, equahzation is
not worth pursuing precisely because it is not a zero-sum game, yet the poor need not

lose before the affluent can win. Moreover, the means of pursuing equalization promise

independent benefits, such as improved planning, coordination, implementation, and ac-

countability.

167. Harvey, supra note 2, at 115.

168. Ronald Dworkin, Law's Empire 413 (1986).



792 INDIANA LAW REVIEW [Vol. 25:741

left Malloy later and with more regret than I leave Dworkin, despite

my greater agreement with Dworkin ideologically. Malloy's thoughtful
arguments move from the general theory of law and economics to the
specifics of downtown development, while my commentary considers
what the specifics of ghetto miseries have to say about the general theory.

I deliberately chose the limiting case of the ghetto, as one of the few

exceptions that perhaps prove the "rules" of Malloy's classical liberalism.

My analyses thus seem to exaggerate our disagreement. His framework
is more sensible and humane than any that currently plays in America,
and it deserves our enthusiasm and support.

Like Malloy, I seek the best balance attainable in the uses of private

and public wealth and power. Seeing more market failures and fewer

apt marketplace analogies than Malloy, I come out in favor of more
state power. Ideally, my governmental power would be more centralized
than Malloy's, but it would also be fairly tightly constrained by the

Constitution and the goals it pursues, such as a genuine urban devel-

opment. Although I cannot muster Malloy's enthusiasm for the ideas

of Friedrich Hayek and Milton Friedman, who seem to mix conservativism
and libertarianism with their liberalism, Malloy properly draws his central

inspiration from Adam Smith. When Smith described governments as
meddlesome culprits, it was mercantihst governments he had in mind,

rather than the social democracies and welfare states that developed

more than a century after he wrote. '^^

Like J.S. Mill, Jeremy Bentham, and the Physiocrats, Adam Smith
put more politics into his political economy'™ than Malloy seems willing

to do. Malloy tries to build a modern political economy on a foundation

of neoclassical economics,'^' an economics which seeks to expel politics.

169. Malloy, Serfdom, supra note 8, at 14, 17-19, 96; McCoy, supra note 47, at
41-42. But see Malloy, Serfdom, supra note 8, at 16-17, 49-50, 62-63 (unlike conservatives

and liberals, who quarrel over who should exercise state power and for what purposes,
classical liberals seek to limit state power).

170. James Coleman calls political economy a "non-purist" and historically validated

"ancient and honorable discipline" that has been eroded by the increased academic

specialization that reifies artificial boundaries among social scientists studying "a single

concrete whole." Coleman, supra note 5, at 30-31. He states that "economists have lost
touch with the bold generalizations of Adam Smith, Ricardo, Malthus, and Marx about
the basic growth variables. . . . Indeed, during this century economists have had sadly

little to say about the 'causes of the wealth of nations."' Id. at 34 (quoting Walter T.

Newlyn, The Present State of African Economic Studies, 64 Afr. Aff. 39 (1965)).
171. Malloy finds that:

The statist tendencies of the conservative [Chicago School] approach are furthered

by . . . reliance upon the outcomes they generate from the application of

neoclassical economic methods to pressing social problems. It is not the neo-

classical model itself, but the indeterminate and almost dogmatic manner in



1992] HUMAN DEVELOPMENT 793

philosophy, and history from a pure economic "science." This foundation

works surprisingly well for the topics Malloy analyzes, but it fails with

respect to ghettos. For this reason, I stressed analogies to the Third

World throughout my commentary, so as to pose a developmental
economics as a better response to the plight of the poor and powerless.

As lawyers, we know that a single economics theory that accounts for
all of the disparate phenomena of the real world has yet to be devised.

We can comfortably apply one type of analysis, developmental economics,
to certain problems, even though another analysis, neoclassical economics,

better addresses other problems. Rather than feel compelled to enforce

a theoretical purity, we can treat economics as a plumber treats her bag

of tools. We can also put up with the messiness of the theoretical and
policy compromises that will result.

This is not the place fully to rehearse the arguments, but most

theories of developmental economics have a built-in emphasis on a

distributive justice, especially with regard to the unmet basic needs of

the poor and powerless. These theories attempt to minimize the op-

portunities for falling to or below subsistence, chiefly by upgrading

people's productive capacities as a means of maximizing wealth. The

circumstances of a particular underdevelopment (even in the midst of

an American abundance) usually stem from outcomes created and dis-

tributed in the past, outcomes that also create the current constraints

on elites dealing with each other and with the poor and powerless. The

patterns or terms of trade formed by these interdependent outcomes and

constraints often displace markets and can be fundamentally changed

through development: a nation-building in America and, with regard to

race relations and our urban infrastructures, a national reconstruction. '^^

which Posnerian conservatives employ the model as an end in itself, which

causes problems for people concerned with individual liberty. . . . The real attack

on the neoclassical model, as used by Posner . . . centers on the question of

the values incorporated into it apart from any discussion of its realistic or

predictive qualities.

Malloy, Serfdom, supra note 8, at 66. See also Harvey, supra note 2, at 96 ("It is not

normative modelling which is at fault but the kind of norms built into such models.").

172. Development can be defined as "higher standards of living, longer lives, and

fewer health problems; education . . . that will increase their earning capacity and leave

them more in control of their lives; a measure of stability and tranquility; and the

opportunity to do things that give them pleasure and satisfaction." Harrison, supra note

2, at 1. Lynch v. Household Finance Corp., 405 U.S. 538, 552 (1972) contains the germ

(no more than that) of an idea of the development of people rather than of things: the

"dichotomy between personal liberties and property rights is a false one. Property does

not have rights. People have rights." Bruyn, supra note 5, at 65. See Declaration of
Principles, supra note 6, at 344, 347-48; Meier, supra note 147 passim; Porter, supra

note 4, at 560; Coleman, supra note 5, at 33 (mainstream economics has not promoted

development because it does not seek to create the institutions conducive to development).



794 INDIANA LAW REVIEW [Vol. 25:741

Robin Malloy's focus on urban land use, obviously worthy in and

of itself, misses the point from a developmental perspective, both for

the ghettos and for multinational investors. The poor have almost no
access to land uses capable of earning economic rents, and it is doubtful

that such an access is the most cost-effective way of reducing poverty.
Multinational investors are not primarily interested in such access because

their flexible strategies usually avoid tying up large chunks of capital

in immovable assets for long periods of time. Some of Malloy's policy
recommendations for urban development echo those of the import-

substitution strategy that was discredited in developmental economics a

decade ago.'^^ Import substitution often leads to excess capacity, because

producers in other cities lose some of their "export" markets, and to
new assembly or unpackaging operations with little local value added.
These operations seldom develop a competitive advantage because they

are almost always one or more technological generations behind the

leaders and they usually need continued subsidies ("tariffs") to compete

for local consumers. (Are the Indianapolis Colts an import-substitution

policy gone astray?)

The popular strategy of a local government bribing a producer to
locate or remain in its city amounts to subsidizing local jobs today, so

that the city can continue to subsidize them tomorrow. Most of the

producers that actively court this strategy are at the low cost end of

the relevant market, and these producers appeal to the most price sensitive

consumers. (Consider Sears's attempt to coerce Chicago over remaining

in the city and Chicago's subsequent bribe that failed.) Such producers

lag behind the quality and performance leaders who will dominate markets
in the future and who have a substantial "export" potential. A better
strategy is an urban policy which bets on productive new clusters of

mutually-supporting goods and services. Silicon Valley and the North

Carolina Research Triangle are ideas already used up, but other good

ideas remain to be implemented.'^" Governmental stimuli would largely

take the form of signalling the opportunities and investing in the ap-

propriate infrastructures, research, and education. '^^ Superb universities

173. Malloy, Serfdom, supra note 8, at 121. Malloy places central reliance on

Jane Jacobs, Cities and the Wealth of Nations: Principles of Economic Life (1984) and

Israel M. Kirzner, Discovery and the Capitalist Process (1985). A much more useful source
is arguably Michael E. Porter's book, which was presumably unavailable to Malloy while

he was preparing his manuscript. See Porter, supra note 4.

174. Porter, supra note 4, at 655-56.

175. See id. passim; Kantor, supra note 19, at 511 (we must stimulate the conversion

of municipal economies to fit their new, more specialized functions by changing patterns

of land use, housing, and employment). Porter makes much of government helping to

fill in some of the elements in the "diamond" of mutually dependent factors that are



1992] HUMAN DEVELOPMENT 795

serve as magnets for the clusters worth having, and assuring access to

universities for the poor would require the substantial upgrading of city

schools that would pay other dividends as well. An explicit, federalized
urban policy is needed, one akin to the industrial policy that most

economically successful countries use to good effect. We already have
an urban and industrial policy, in which deference is given to those who
pay the biggest bribes in a special interest politics, so there would be

little loss of liberty in making these policies more beneficial to the

country.

The federal government must assume a large role because ghetto

problems require macroeconomic solutions. ''* No amount of programs
which operate at the individual level can match the effects of tight labor

markets (a relatively full employment) in overcoming ghetto miseries.

(Even the best of job training programs will fail if there are no jobs.)

Out of self-interest, employers would be forced to abandon their racism

and the skill and educational qualifications for jobs that do not require

them to attract employees they need. With skills and some seniority,

minority workers would no longer be an easily abused "underlayer of

cheap labor," a last hired, first fired buffer for "white" workers. '^^

The price of full employment policies might be some inflation, but

probably less than imagined and hardly any if the sectoral inflation of

defense budgets and other porkbarrels can be brought under control.

Although these policies may make sense from an eclectic, problem-
oriented perspective, they are beyond the pale for neoclassical economics

and the neoconservative politics it influences.

conducive to a competitive advantage: company strategy, structure, and rivalry; factor of

production conditions; demand conditions; and related and supporting industries. Porter,

supra note 4, at 127. Higher education is a significant force for integration within the

diamond. Education equalizes opportunities, reduces labor market fragmentations and the

economic rents that the owners of scarce skills can command, improves the ability of a
"human capital" to create other resources, and otherwise helps to sustain competitive
advantages.

176. Malloy's only reference to macroeconomic concerns that I could find occurs

in the context of microeconomic discussions of rent control in New York City: "[W]e
all eventually end up paying for misguided policies, by way of inflation, unemployment,

increased taxes, or the financial consequences of a large national deficit." Malloy,

Serfdom, supra note 8, at 57.

177. Heilbroner & Singer, supra note 1, at 155; Rossi, supra note 2, at 200. See
Wilson, supra note 30, at 16 (affirmative action increases demand for what are perceived

as "quahfied" minorities but decreases demand for the less qualified, due to increased
costs and welfare programs that reduce self-reliance) and at 121 ("rational government

involvement in the economy" is needed — "wage and price stability, favorable employment
conditions, and the development and integration of manpower training programs with

educational programs.") and at 128 (despite antidiscrimination legislation and affirmative

action, things have gotten worse).



796 INDIANA LAW REVIEW [Vol. 25:741

A sensible macroeconomics will apparently not be forthcoming for
awhile, so what can cities do in the meantime? Briefly, they must seek

to change constraints (attempt development) as well as adjust to them.

Cities must curb their special interest politics that distract and dissipate

public and private resources before they can rationalize their systems of

incentives and disincentives. As much as possible should be done through
the most efficient taxes and expenditures, especially by creatively ap-

propriating some of the currently untapped "surplus" from an explosive

service economy. '^^ The most inefficient of in-kind redistributions should

be avoided, although a few strategic interventions like education and

housing integration are essential to a long-term efficiency. Credit unions

and consumers' and employees' cooperatives should be promoted as a

means of integrating ghetto economies into the mainstream. Finally, the

welfare system must be improved as the means of meeting immediate

and serious need. These programs would cost substantially less than the

savings and loan bailout, to say nothing of other welfare programs for

the relatively affluent. '^^

IV. Conclusion

Drew McCoy writes that, in the 1790s,

republican America was to be characterized by an unprecedented

degree of social equality, whereby even the poorest man would
at least be secure, economically competent, and independent.

Indeed, the United States was to be a revolutionary society

precisely because it would not have the permanent classes of

privileged rich and dependent poor that Americans associated

with the "old" societies of mercantilist Europe.'*"

178. Clavel & Kleniewski, supra note 5, at 209.
179. See Christopher Gunn & Hazel D. Gunn, Reclaiming Capital: Democratic

Initl\tives and Community Development (1991); Dahlman, supra note 76, at 229; El-
lickson, supra note 77, at 155-56, 176; Molotch, Urban Deals, supra note 19, at 180. See

also Rossi, supra note 2, at 204, 207-08 (holes in the social welfare net are typically those

that attract little sympathy from the legislature or the public, such as mental illness);

Clavel & Kleniewski, supra note 5, at 221 ("the space for local policy is greater than it
was," and "local governments have more maneuvering space than is commonly assumed").

180. McCoy, supra note 47, at 237. See id. at 185-86 (Jeffersonians said that 1800
was the substance of that which 1776 was the form, a move away from the English

"court" model. Jeffersonians nevertheless felt that it was unsafe to dismantle Hamilton's

system, and they sought to control its pernicious effects instead.). But see Appleby, supra

note 63, at 14-15 (classical republican virtue enabled "men to rise above private interests
in order to act for the good of the whole," yet by the end of the 18th century, this

virtue came to mean the exact opposite — the capacity to look out for oneself) and at
23 (Jeffersonians were influenced by Tom Paine's Common Sense, in which society, and



1992] HUMAN DEVELOPMENT 797

Our revolutionary enthusiasms have faded, and two centuries of an

American economic growth that outstripped our development, and of

bigotry and an inattention to distributive justice, have left us with more

of the permanently "dependent poor" than are found in the successors

to the "old" European societies we once scorned.

Robin Malloy illustrates how ideologically colored interpretations of
this economic history are both possible and likely. The hard fact remains,

however, that the ghettos (where the "dependent poor" are concentrated)

are a drag on, and a reproach to, the rest of the economy and the

Chicago School of law and economics. A cost-benefit analysis, using
methods that Chicagoans would approve but on a longer time horizon

than they would likely countenance, would show that this state of affairs

cannot long continue. We spend fantastic sums to police the crime and
despair of ghettos, and almost nothing to integrate markets and to

enhance productivity. If we think about it, we may indeed want to be
a "throw-away society" with regard to people as well as soft drink

containers. Science fiction writers are fond of projecting the consequences

of such behavior into the grim, Arnold Schwarzeneggerean future that

awaits us. Theirs is not the kind of evidence we would accept as probative,

but we act daily to increase the risk that these projections will be proved

correct.

All is not lost, of course. Law is more than a mouse under the
chairs of markets or under a land use porkbarrel. As lawyers, we can
refocus the perspective on complex and interrelated problems and generate

clear political choices. We should aim at a genuine institutional pluralism,
a diversification of risks and opportunities that creates more viable niches

for the poor. Institutions and processes must be reformed to make them
more conducive to development. Markets must play an important, but
not an overweening, role. Solutions must be moderate enough to com-

mand a consensus, but they will nevertheless involve tough moral choices
about distributing scarce resources.'*' WiUiam Fischel could be describing
lawyers when he wrote that "economists should be modest in the ap-
plication of their trade. Using their tools of analysis to create a deter-

ministic analysis of society seems dangerous and wrongheaded."'*^ Cities

presumably markets, are "produced by our wants and government by our wickedness;

the former promotes our happiness positively by uniting our affections, the latter negatively

by restraining our vices.") (quoting The Complete Writings of Thomas Paine 4 (Phillip
S. Fonored ed., 1945)); McCoy, supra note 47, at 134 (Hamilton accepted the inevitability
of "social inequality, propertyless dependence, and virtually unbridled avarice").

181. See Harrington, supra note 1, at 145, 170; Harvey, supra note 2, at 117-

18; Wilson, supra note 30, at 18, 30.

182. Fischel, supra note 17, at 122. This quote continues: "To tell people, for
example, that pollution [or poverty] is not a problem because private transactions might



798 INDIANA LAW REVIEW [Vol. 25:741

are said to be "monuments to the possibilities of civilized cooperation,"'"
and we can hope that cooperation will extend to the efforts of politicians

and social scientists who seek to solve city problems. Robin Malloy gives
us an excellent start on this road, but the journey is likely to be long

and circuitous.

have handled it would be the epitome of presumptuousness." Economics should (but rarely

does) provide "a basis for suggesting alternative means of accomplishing social objectives."

Id. See supra note 170.

183. Berger & Blomquist, supra note 15, at 67. See Coleman, supra note 5, at 32
(an intensive exposure to Third World realities strengthens a "macropolitical (nation-

building) and holistic perspective"). The same thing arguably occurs when people are

exposed to America's Third World — the slums.