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CIAO DATE: 12/03
A Power Shift No One Noticed
On The Issues
January 2003
Control over independent regulatory agencies has traditionally resided with Congress, which created all of them. The recent controversy over the Securities and Exchange Commission suggests, however, that now Congress, the White House, and the public all take for granted that the independent agencies are the president's responsibility.
The political frenzy surrounding Enron's collapse and other corporate scandals may have produced—or at least exposed—a significant shift in the relationship between Congress and the White House. The efforts of congressional Democrats to pin some of the blame for the scandals on the president and the head of the Securities and Exchange Commission—and President Bush's willingness to act as though the SEC is his responsibility—may signal the end of more than a century of experimentation with independent regulatory agencies as a so-called "fourth branch" of government.
History of Independent Agencies
Independent agencies such as the SEC have always been regarded as "arms of Congress," outside the control of the executive branch. The president appointed the members and the chairman, but the terms for these officials overlapped presidential administrations, allowing—and encouraging—them to act without policy direction from the White House. The political fallout from the recent scandals has turned all this on its head.
These independent agencies are creatures of Congress, not the Constitution. The first, the Interstate Commerce Commission (ICC), was established in 1887 to control the powerful railroad industry. Later, especially during the Progressive and New Deal eras, a number of other agencies were created, several of which still exist—including the SEC, the Federal Trade Commission, and the Federal Communications Commission. Several others, such as the Federal Power Commission and the Civil Aeronautics Board, went out of business a quarter-century ago. The ICC closed its doors in 1995.
There was no clear reason, or constitutional rationale, why the duties of these bodies could not have been performed by regular executive branch departments. Presidents have expressed their unhappiness with this diminution of their authority, and some have tried to influence agency policies through the appointments process, but they have not confronted Congress on the issue. And Congress—always jealous of its prerogatives in the face of the executive branch's growing power—has never conceded that the independent regulatory agencies could take policy direction from the president.
Then, in 1971, the status quo was called into question. The President's Advisory Council on Executive Organization—known as the Ash Council after its chairman, Roy L. Ash of Litton Industries—recommended that almost all of the functions of these bodies be transferred to single administrators, appointed by the president and accountable to him.
The Ash Council's rationale for this reform was simple: If the president's policy control did not extend to these independent agencies, then his responsibility for them could not be clearly fixed and voters could not hold him accountable. Moreover, the president's policies, even if adopted by Congress, could be frustrated through contrary actions by the independent agencies.
The Ash Council's proposal, like many reform ideas, went nowhere. There was no support in Congress for enhancing the president's power, and the Nixon administration—beset first by economic problems and then by the Watergate scandal—had no stomach for challenging Congress. (The Ash Council's report did lead, however, to the creation of the Environmental Protection Agency, headed by an administrator who answers to the president.)
During the Reagan administration, however, the executive branch became more assertive. The Justice Department took the Constitution's separation of powers seriously, which by implication challenged the very legitimacy of the independent regulatory agencies. Nevertheless, because of congressional sensitivities and the continuing sense that these bodies were quasi-judicial in nature, White House officials were warned that all contacts with the independent regulatory agencies had to be approved in advance—or actually carried out—by the White House counsel's office. The Reagan administration never seriously considered taking on Congress through a legislative proposal that would bring these independent agencies within the constitutionally established structure.
The Presidential Role
All this history appears to have been forgotten in the politics of 2002. The Democrats, hoping to make an election issue out of the SEC's "failure" to stop "corporate corruption," proceeded to blame a Republican president for events that were solely within the authority of the SEC. There was no indication that departments or agencies unquestionably controlled by the president had any role for policing either the securities industry or the companies under scrutiny. So if President Bush was somehow responsible for what happened at Enron, WorldCom, Tyco, and the rest, it had to be as a consequence of some presidential authority over the SEC.
To be sure, the president had appointed the chairman and the other members of the SEC, but that in itself would not make him blameworthy unless one assumed that he was also directly responsible for how the SEC acted before, and after, the scandals erupted. That is the nub of the important but largely unnoticed change that has occurred: the unchallenged assumption on the part of all parties—in Congress, in the media, among the public, and even in the White House itself—that the president was fully accountable for an agency that has always been viewed as independent.
The significance of this change in the grand government scheme of things can hardly be overstated. Without legislation or judicial decision, the president has suddenly become electorally responsible for the decisions of bodies that were considered to be within the special purview of Congress, susceptible only to congressional policy direction. Of course, this functional revolution did not give the president any new powers with respect to the independent regulatory agencies. But the die is now cast. The way the American people look at the president's responsibilities apparently is changing, and that will affect the attitude of Congress. If the American people believe that the president should be responsible for the actions of the SEC, it will be difficult to convince them otherwise. Significantly, since Harvey Pitt's resignation as SEC chairman in November, the media have routinely referred to the president's choice to head the SEC, investment banker William H. Donaldson, as a member of the Bush "economic team."
The rest follows logically. If the president is to be held accountable for the independent agencies, he must have the power to control them. The Ash Council's original proposal—that the functions of these agencies be turned over to single administrators within the executive branch—takes on new life. It is now only a matter of time before Congress must concede this jurisdiction.
Peter J. Wallison is a resident fellow at AEI.
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