Privatization and the Constitutional Delegation of Coercive Power in Germany

My new post, Privatization and the Constitutional Delegation of Coercive Power in Germany, is up on the Reason Foundation website. Here’s an excerpt:

The U.S. Constitution is silent on whether any sort of power can be delegated to private actors. The due process clause protects people from the bias of state actors, whether these state actors are public or private. Financial motives may of course stand in the way of a private party’s faithfully executing its disinterested public duties, but of course public officials can also be subject to bias, and the same constitutional doctrine applies to both. The Nondelegation Doctrine prevents Congress from giving up legislative power—whether the recipient of such power is public or private doesn’t matter. (Some courts have interpreted the Nondelegation Doctrine as barring any delegation of regulatory power to private parties [see my August 2013 Amtrak post], but whether that’s right or wrong, the fact remains that they do so without any explicit constitutional text.)

The situation is the same in most state constitutions, so any doctrinal distinction they make between public and private delegates is purely judge-made. In Israel, the Basic Law (the closest Israel has to a constitution) provides for the rights to liberty and dignity—“A person’s liberty shall not be denied or restricted by imprisonment, arrest, extradition, or in any other way,” and “One may not harm the life, body or dignity of a person.” Based on these extremely general phrases that make no reference to public or private, the Israeli Supreme Court struck down a statute allowing for private prisons—based on a high-level philosophical view that private-sector incarceration was illegitimate, regardless whether abuses were any more or less prevalent in private prisons.

Against this background, it’s interesting to see what happens when a country has constitutional text that actually addresses the issue of privatization. The German Basic Law (as in Israel, Germany’s equivalent of a constitution) has some general text, like the so-called “Democracy Principle” of Article 20(2): “All state authority is derived from the people. It shall be exercised by the people through elections and other votes and through specific legislative, executive and judicial bodies.” But it also has specific text related to the public-private distinction. In 1993, the Basic Law was amended to provide for the privatization of railways, and in 1994, it was again amended to provide for the privatization of postal and telecommunications services. A more longstanding provision—dating to the very beginning, in 1949—is Article 33(4), which provides that: “The exercise of sovereign authority on a regular basis shall, as a rule, be entrusted to members of the public service who stand in a relationship of service and loyalty defined by public law.”

On January 18, 2012, the Federal Constitutional Court of Germany upheld a delegation of coercive power to a private mental hospital against a challenge under Articles 33(4) and 20(2). The Court’s reasoning is interesting as an example of how other countries, under their own constitutional text, approach issues of privatization and the delegation of coercive power.

You can read the whole thing here. My previous Reason blog posts are available here, including my post on Contract Clause issues in public pension reform, the D.C. Circuit’s recent private delegation decision involving Amtrak, the Fourth Circuit’s recent antitrust ruling regarding the North Carolina Board of Dental Examiners, and the Supreme Court’s recent state-action antitrust immunity decision in FTC v. Phoebe Putney.

Note: Thanks to commenter Martin Holterman for alerting me to the existence of this opinion in February 2012.