The Disuse of Knowledge in the Administrative State

Regulation is not the right tool for intelligently dealing with complexity

Advocates for the administrative state typically promote it on the basis of its great usefulness in contemporary society. Without the expertise that administrators bring to their work, they say, we could not deal with the complexity of the world around us. Although, in the wake of the Supreme Court’s ruling in Canada (Minister of Citizenship and Immigration) v Vavilov, 2019 SCC 65, this is no longer part of the rationale for deference to administrative decision-makers in Canadian law, this view is still widely held by administrative theorists in North America. Indeed it is part of the pro-administrativist critique of Vavilov, for example in a post by Mary Liston over at Administrative Law Matters. But this view is fundamentally wrong, even backwards.

A passage from Matthew Lewans’ book Administrative Law and Judicial Deference captures this traditional view nicely. Compared to the past,

we must tackle a broader array of complex social issues―human rights, immigration, national security, climate change, economic policy, occupational health and safety, public access to health care and education, etc―about which there is deep disagreement. And we cannot hope to address these issues intelligently without harnessing the experience, expertise, and efficiency the modern administrative state provides. (187)

Other pro-administrativists, if they have not themselves written such things, would I think wholeheartedly agree with them. To the extent that I specifically criticize Professor Lewans’ argument, below, it is only in a representative capacity.

One thing to note about this passage, and its innumerable equivalents elsewhere, is that it is not supported by any detailed arguments or evidence. The hopelessness of intelligently dealing with the issues that consume contemporary politics without “harnessing the experience, expertise, and efficiency” of the bureaucracy is simply asserted by writers and taken on faith by readers. But I think we need to query these claims before accepting them, and not because I have watched too much Yes, Minister to have much faith in the experience and expertise, let alone the efficiency, of the administrative state.

More fundamentally, the state ― and especially the administrative state ― often is not merely lousy at addressing complexity intelligently, but actively opposed to doing so. The reason for this is that its laws and regulations, to say nothing of its discretionary rulings, serve to eradicate rather than harness the information needed for intelligent behaviour in a complex world. They give both the rulers who wield them and the citizens who clamour for them the illusion of purposive action and control, while actually preventing the operation of the mechanisms that serve to communicate information about the world much more effectively than laws and regulations ever can: prices and markets.

As F.A. Hayek famously pointed out in “The Use of Knowledge in Society“, there is an enormous amount of information that even the best experts armed with the boundless powers of the modern administrative state cannot acquire: information about the circumstances, needs, and desires of individuals and organizations. This information is unlike the scientific, technical knowledge that experts might be able to centralize in the hands of the bureaucracy. In particular, this local knowledge changes much too quickly to be communicated and assimilated by an authority. As Hayek explains, “the economic problem of society” ― that is, the question of how to use the resources available to us most effectively ― “is mainly one of rapid adaptation to changes in the particular circumstances of time and place”. From this,

it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them. We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all knowledge, issues its orders. 

I would add also that, even if a “central board” could acquire information as fast as individuals and businesses, it could not make new rules to reflect this information fast enough, or consistently with the requirements of the Rule of Law, which include the relative stability of the legal framework.

But how do individuals acquire knowledge which, Hayek insists, even a sophisticated bureaucracy cannot gets its hands on? The answer is, through market prices, which reflect aggregate data about the relative scarcity of goods and services available in a given time and place: “Fundamentally, in a system in which the knowledge of the relevant facts is dispersed among many people” ― which is to say, in any society in which there many people, and especially in complex modern societies to which pro-administrativsts such as Professor Lewans refer, “prices can act to coördinate the separate actions of different people in the same way as subjective values help the individual to coördinate the parts of his plan”.

Hayek gives the example of how, if something people need to produce other things other people need becomes more scarce, such as its price goes up

without an order being issued, without more than perhaps a handful of people knowing the cause, tens of thousands of people whose identity could not be ascertained by months of investigation, are made to use the material or its products more sparingly; i.e., they move in the right direction. 

The right direction, that is, from society’s perspective ― the direction of the society’s overall resources being used more effectively where they are most needed. Hayek pointedly describes the functioning of the price mechanism, its ability to economically and quickly communicate information no bureaucracy could gather “by months of investigation” as a “marvel”. He is right.

But, to repeat, the state all too often prevents this marvel from happening. The state outlaws market transactions, and so prevents the communication of information through market prices, left, right, and centre, and interferes with those transactions it doesn’t outlaw. Ronald Reagan summed up the state’s ― and the statists’ ― thinking: “If it Moves, Tax it. If it Keeps Moving, Regulate it. And if it Stops Moving, Subsidize it.” This is not all the state does, of course. The state, if it functions well, also enables markets by keeping peace, protecting property rights, and enforcing contracts. They state may supplement markets by correcting genuine market failures, though these are rather fewer and further between than statists tend to assume. But there’s no denying that much of what the state does, and especially much of what pro-administrativists ― be they on the political left (as most of them have long tended to be) or on the right (as the followers of Adrian Vermeule and other common good will-to-power conservatives, about whom co-blogger Mark Mancini has written here) consists in overriding, displacing, and even criminalizing markets, and so destroying rather than harnessing information. The state not only is stupid; it makes us less intelligent too.

The administrative state, specifically, is especially guilty of this. To quote Professor Lewans once more ― and again, in a representative capacity ―

There are good reasons why legislatures invest administrative officials with decision-making authority. While a legislative assembly might be able to forge sufficient consensus on broadly worded objectives as a platform for  future action, it might reasonably conclude that interpretive disputes regarding those objectives outstrip the capacity of the legislative process. (199)

To be clear, “interpretive disputes” here are disputes about the specification of these “broad objectives”, as well as the means through which the objectives, so defined, are expected to be achieved. What Professor Lewans is saying is that delegation of power to the administration vastly increases the state’s overall ability to regulate ― that is to say, to override, displace, and criminalize markets. Legislatures might never achieve consensus on the detail of a regulation, and so wouldn’t enact any since they need at least a bare-bones consensus to enact law. But thanks to the dark wonders of delegation, the need for consensus is dispensed with, or at least reduced, and more regulation can be enacted. And of course the administrative state is simply bigger than a legislature, so it has more person-hours to expend on producing ever more regulation. The legislative process ― at least, proper legislative process, not what all too often passes for it ― is also time-consuming, while one of the supposed virtues of the administrative state is its flexibility. Faster regulatory change, while it cannot actually be effective enough to substitute or account for the information transmitted through the price system, is more disruptive to markets.

If we actually want to address the issues that confront complex contemporary societies intelligently, the administrative state is not our friend. More often than not, it serves to reinforce the state’s ability, to say nothing of its resolve, to prevent individuals and businesses from acting intelligently in the face of complexity by eliminating or falsifying the information they need to do so. At best, the administrative state then tries to provide a simulacrum of an intelligent response ― as, for example, we ask bureaucrats to puzzle out who may come to our countries to work based on what they, from their cubicles, deem to be market needs, instead of simply opening the borders and letting employers and potential workers make their own arrangements.

Why, then, are people ― and more and more people, too, as the emergence of right-wing pro-administrativsim shows ― so convinced that the administrative state is necessary? Some, alas, are not especially interested in social problems being solved effectively. They even make a virtue of inefficient institutions, slower economic growth, and more coercion. Such feelings may be especially widespread among the common good will-to-power crowd. But more people, I suspect, simply misunderstand the situation. As Hayek pointed out,

those who clamor for “conscious direction” … cannot believe that anything which has evolved without design (and even without our understanding it) should solve problems which we should not be able to solve consciously.

They think that central direction, which only the state, and specifically the administrative state, can provide is necessary. They are mistaken, and in a way that is the sadder because they unwittingly demand the exact opposite of what they actually hope for.

Author: Leonid Sirota

Law nerd. I teach public law and legal philosophy at the Auckland University of Technology Law School, in New Zealand. I studied law at McGill, clerked at the Federal Court of Canada, and then did graduate work at the NYU School of Law.

4 thoughts on “The Disuse of Knowledge in the Administrative State”

  1. Leonid,

    Hayek did us all a great service in emphasizing the necessarily decentralized and inarticulable nature of knowledge and its relevance to the problems of governance. We cannot possibly have society centrally planned by a single will because there is no way for anyone to have that kind of information. Stalinist central planning is actually just an organized system of lying (upwards and downwards) and terror. Once the terror slips, the whole system falls apart.

    However, once the single will planning everything is banished from our thinking, it need not lead to the kind of dichotomous libertarianism you are propounding here. Indeed, any attempt to get to that system would necessarily involve a “great leap forward” that would blow society up.

    Hayek believed the price mechanism always and everywhere aggregated private information if not optimally then better than any other type of mechanism. But the only other mechanism he could envision was central planning. But neither politics nor administration in actually existing democracies work in the kind of centralized way he thought was impossible. Your faith in this model leads to a very misleading vision of administrative law.

    The reality is that we never have the kind of perfect market Austrian economics envisions. We certainly don’t have it when a provincial healthcare system buys a patented drug. The pharmaceutical company can charge a monopoly price because the federal government (and really a UN agency!) decided that this was the best way to get investment in R & D. And the market only exists because the social democratic post-war labour movement got some form of universal healthcare. (In Canada, as you know, drug coverage is idiosyncratic in different provinces, but it is nowhere a Hayekian market. And by nowhere, I mean nowhere in the entire world.) So there is no “criminalization of the pure market”, but a decentralized process of politicking and administrating by agencies that are independent of each other.

    Hayek didn’t really understand how democratic politics works, especially in federal countries, and he didn’t understand how the common law developed either (not entirely by decentralized discovery!). Politics, administration and markets are *all* unintended products of intentional action, so his basic argument for markets above all else doesn’t make sense.

    Once we understand that, and take on board Hayek’s point about unarticulated decentralized knowledge, we can see the danger of an excessively interventionist law of judicial review. Various executive agencies have decentralized knowledge they gain through experience and interaction with various constituencies in civil society. When a particular constituency gets upset, it may go to an MP or MLA or propose legislative reform. Sometimes things get on the legislative agenda; often they don’t. New ministers come and go and bring ideas from above. Also new ideas filter through particular professions. And then there is experience.

    If there is a hubristic central planner in this scenario, it is the Federal Court of Appeal or Supreme Court of Canada. If we take Hayek’s point seriously, the quality of information degrades at each stage of review and the ability of the reviewer to assimilate it degrades as well. This doesn’t necessarily mean that the “center” has no useful role to play, at least if we aren’t strict Hayekians. But it does mean that there is the danger of hubris based on some belief that law is a universal science that can unlock every key.

    Deference doctrines keep coming back even when there is ideological hostility to them – because they reflect the learned embodied experience of at least that part of the judiciary that is open to feedback. Just as we don’t want the central planner telling each business what it should produce or each landowner exactly what they should do with their land, we don’t want the judiciary telling every public health official or parole officer how to do their business – because they don’t have the embodied wisdom life gives.

    While I actually think your Hayekian vision is unlikely to prevail, I do worry about versions of the “culture of justification” that privilege articulation of reasons – because articulating reasons is what lawyers and judges are good at, and they have a tendency to think articulating reasons are way more important than they actually are.

    1. Gareth, in case that wasn’t clear, I didn’t think of this post as making the full case for anarcho-capitalism, if such a case can indeed be made, on which I am agnostic. I was debunking a particular (common argument) for the administrative state, and the fact that administrative agencies may sometimes know more than courts doesn’t prove that we need these agencies in the first place.

      And note that, of course, even on Hayek’s view, knowledge cannot be a justification for coercion. I may, as a matter of fact, know more than you about how best to use something you have, but that doesn’t justify me in taking that thing from you! Similarly, if you think for example about the Alexion case Mark and I discuss in our recent posts, whether or not the PMPRB knows more than the FCA about what price a medicine should be sold at doesn’t change anything to the fact that it lacks the authority to act on its purported knowledge.

      Deference doctrines keep coming back for any number of reasons, including, as Posner has argued, judicial laziness, as well as error we collectively fell into a century ago. If we want to be sure there is, nevertheless, a kernel of truth to them, we need clear out the mistakes that clutter our thinking, and I think my post contributes to that necessary process.

      1. Leonid,

        If anarcho-capitalism isn’t possible or desirable, then we are going to have some kind of state. And on the basis of Hayek’s own argument, the knowledge necessary for that state to function is going to be largely decentralized and tacit.

        If you accept that, and accept that a court on review can only deal with knowledge that can be made explicit and can be handled in a relatively centralized way, then don’t you need some kind of deference doctrine? It isn’t to say that courts shouldn’t sometimes overturn the decisions of administrators, but there is always a danger that they are missing some crucial point of implicit knowledge and so their intervention will have the opposite effect that they think it will have? Isn’t that just Hayek’s argument against central planning (which I accept, at least if we understand it in the high modernist or Stalinist sense)?

        You are right that just being better informed does not give a moral justification to coerce someone. But again we are always going to have to resolve disagreements somehow and so we are always going to be coercing somebody. Even private property and contract imply coercing people who cross property lines or fail to perform contracts. In most administrative law contexts, it is difficult to say which result implies less coercion. If the provincial pharmacare plans have to pay Alexion more, then they have to tax people or reduce services. Maybe in the context of imprisonment and psychiatric hospitalization we have a clear coercion/public welfare trade off, but generally I just don’t see it.

  2. I should say I think Lewans is as one-sided as (with respect) you are. While I think some of the popular views of “bureaucracy” are caricatures of Western administrative states, it is absurd to just attribute “efficiency” to it. The administrative state is certainly not always efficient. It is not subject to the competitive forces that ideally make private firms more efficient. There is to some extent a tradeoff between legality and efficiency. There are pressures that make bureaucracies more efficient, namely that there are political demands to do more combined with limited resources. The reason we need a state is that there are market failures. But of course no one who worked in a public bureaucracy would claim market failures are always worse than government failures.

    The less obvious contradiction is between saying we have “deep” disagreement about the issues he mentions and thinking these can be resolved by “expertise”. A disagreement that is just about effectiveness of means is just a technical disagreement, not a deep one. A deep disagreement is one that reflects different values. Sometimes administrative decision makers have to make value judgments, but they always have an issue about their legitimacy to do so. Relevantly, public health people have a lot more knowledge of epidemiology than the general public. They also are educated, urban middle-aged people with a belief in the efficacy of government. They are generally secular and at least broadly progressive. This doesn’t mean they hate religious people or rural conservatives or are in some big conspiracy to enslave anyone. But it would be pretty surprising if they were exactly in the median of the people they have jurisdiction over in personality traits, risk aversion and so on.

    The problem is that the critics of administrative decision makers do not just point out that technical expertise runs out and that value judgments are ultimately not scientific questions. Instead, they tend to claim that any examples of scientific uncertainty or updating prove that the whole scientific enterprise should give way to believing whatever makes us feel emotionally more comfortable.

    Lawyers are usually not populists in this sense. But they tend to think that their own folk ways are “the law” and that there is some special expertise in reading the words of statutes. To some limited degree, there is. But just like every problem can look like a public health problem or an economic problem to an epidemiologist or an economist, everything can look like statutory interpretation and conceptual analysis to someone who is good at that.

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