Regulation and private laws

Adam Ozimek wrote a piece titled “Can Regulation Create Good Jobs?” The jumping off point for the piece is the recent slate of discussion around Jimmy John’s requiring its employees to sign noncompete clauses:

The latest of these [stories] involves a sandwich chain that allegedly asked its line workers to sign noncompete agreements. Such stories often prompt calls for new regulations on employers.

I found this quote interesting because people who are upset about these kinds of noncompete agreements are not actually calling for new regulations. Instead, they appear to be calling for deregulation. That is, they are advocating that the state refuse to involve itself in the matter of noncompete agreements.

In this deregulated environment, people would be free to construct and sign noncompete agreements. But when they ran to the state to get the state to do something pursuant to the agreements (e.g. punish someone for not following them), the state would just shrug and say “sorry, we don’t involve ourselves in these kinds of matters; please work it out amongst yourselves.” This is, of course, the opposite of regulation.

Private Laws
Noncompete agreements are a subset of a larger body of things we might call “private laws.” Public laws, as you are probably aware, involve some legislative body writing words on a piece of paper, which the executive and judicial functions of the state are then required to interpret, enact, and enforce. Private laws are exactly the same as public laws, except it’s not a legislative body who writes the words on a piece of paper; it’s some private entity like a person or a corporation.

There is a massive potential universe of private law-making. Let your imagination run wild. Anything you could write on any piece of paper about any subject could, potentially, be a domain of private law-making wherein your writing the words down obligates the judicial and executive functions of the state to act.

I could, for instance, write “Adam Ozimek must pay me $100 if he responds to this post” on a piece of paper, sign my name on it, get it notarized, put a wax seal on it, and do every other formality imaginable. That kind of document could be a domain of private law-making. It isn’t — if I took that piece of paper to the state, they’d shrug and tell me to go away — but it could be. There is no logical reason why the state couldn’t decide that this is the kind of thing its going to get behind and enforce.

If the state decided to start enforcing private law-making of the sort described in the last paragraph, that would be regulation. If it decides, as it currently has, to ignore such private law-making, that is not regulation. If it enforced such private law-making before, but then decided to stop, that would be deregulation. In Ozimek’s world, however, these words are all reversed. He seems to think that the state getting out of some realm of private law-making is regulation! It’s truly bizarre.

Unilateral Private Laws
If you think the above example of a potential private law is strange because it doesn’t involve agreements between people, realize that we already have a lot of private law-making that doesn’t involve agreements. The most obvious example of such private law-making is wills, but there are other more exotic types of unilateral private laws like running covenants.

In the case of a will, a person writes some words on a piece of paper regarding how certain property is to be allocated upon death. This not an agreement. It is done unilaterally. The state could, in theory, refuse to pay attention to these words just as they refuse to pay attention to my Ozimek Law above. They could choose to allocate newly unowned property (which is what property is after someone has died) in some other way, or refuse to allocate it altogether. The latter would be the small government, libertarian approach: just deregulate unowned property.

But the government does none of those things. Instead, it has decided that a will-maker’s words should be enforced just like the words of a legislator. The will becomes just like a statute that the judicial and executive functions of the government must interpret, execute and enforce. The decision by the state to empower this domain of private law-making is a clear-cut form of regulation.

In the case of a running covenant, a land-owner creates rules for some piece of land that literally run into perpetuity, theoretically for millions of years after the creator of the running covenant has died. The specifics of this get to be a bit complicated, but, in essence, an owner of land can write all sorts of stuff into their deed that the state will interpret, execute, and enforce indefinitely. This could be something like “no tin roofs allowed on this land,” which would work just like a legislative rule against tin roofs (except restricted only to the land the deed covers of course).

Back in the day, racist white folks took advantage of this area of private law-making by writing, en masse, “no blacks” in their deeds. This created quite the conundrum as whites could conceivably act in concert so as to exclude blacks from just about all the good land in the country forever doing this. The Supreme Court eventually got involved though and said that courts can’t enforce these kinds of running covenants, even though the creation of a running covenant is understood as “private action” rather than state action. People can still write “no blacks” into their deeds. But now, when someone runs to the state to enforce such running covenants, the state responds with:

The truly deregulatory approach to all of this, in my opinion, is just to ignore private law-making altogether. People can still write all sorts of words down on pieces of paper. They can sign names. They can put seals on them. They can get notaries. They can do whatever. But, under a libertarian, small government regime, the state would just ignore it all. It would enforce the sparse public laws (like those against battery and murder and such), but it would simply refuse to involve itself in private laws (like contracts, wills, and running covenants).

The pro-regulatory approach to this subject is to create a domain of private law-making that the state will respect, execute, and enforce. Since it would be ridiculous to enforce all private law-making (see my Ozimek Law above), the state has to carve out some limited domain of private law-making that it will respect. The less private laws it respects, the less regulatory it is. The more private laws it respects, the more regulatory it is. Accordingly, refusing to respect private law-making surrounding noncompete agreements means less overall regulation. It is, on net, deregulatory.