Perspectives on Urban Space: An Analysis of Footpaths (Sidewalks)

   

In this paper, footpaths or sidewalks has been analyzed by placing it under the lenses of various perspectives on urban space primarily Marxist and feminist, partly humanist. In the first chapter, I have given an introduction to the sidewalks and different themes around sidewalks. In the second chapter, I have outlined the history and evolution of sidewalks and history of right to the sidewalks. Then the discussion turns to competing uses and meanings of sidewalks and a look at two topics- homelessness and street vending. Chapter 3 examines the association of sidewalk with homelessness and debates over public space. Chapter 4 examines sidewalks through angle of economic survival for street vendors and conflicts between established business and street vendors. Chapter 4 focuses on use of visibility of sidewalks in protests. Finally the discussion shifts to footpaths as a feminist issue and gendered spaces.

(Note: I have used the words footpaths and sidewalks interchangeably throughout the discussion)

Chapter I.
Introduction to Sidewalks

Footpaths or sidewalks are often taken for granted by most of us and is often undervalued as an urban element. Footpaths are public ground which provides connectivity between origin point and destination point. Most of us traverse through at least one footpath every day. Footpaths are modest, consistent bits of grey concrete, which find their place between buildings and roadways. They mostly have a common appearance, but form an integral part of any street and urban life. Sidewalk can be an economic space for vendors, a shelter for homeless, a space of dissent for protesters and political activists, and it can extend even up to the concept of urban forest for some environmentalist. The sidewalks have served for economic, political and social uses. Jane Jacobs called sidewalks as “the main public places of the city” in her book “The Death and Life of American Cities”. Sidewalks serve many purposes besides providing walking space for pedestrians. According to her, they are active sites to socialize. She also argues that sidewalks are an abstraction; it is nothing by itself. It has a meaning only in conjunction with other uses and buildings that border it (Jacobs 1961)

These footpaths, as Lefebvre would argue, are a produced space. According to him, terms of everyday use often help us in distinguishing and describing the social spaces. These words which define spaces are based on the practices and specific use of the space. These words make up unrecognized codes, which we later explain by thought, and as a part of the reflection on how we perform upon them, a spatial code is formed. It is our thinking which eventually leads to a system of space. Thus, there exists a dialectical character between codes and space. However, they do not isolate particular spaces. A social space, which Lefebvre visualizes as a social product, too, is a produced space and can be decoded and read (Lefebvre, 2007)

Also, gender is an integral component of this system of space that emerges. It is essential to understand gender in context to space, as it often goes unseen as a force behind the production and sustenance of these spaces. This embarks the onset of feminist perspectives on space, which decodes and put forward the deeply integrated relationship of spaces and gender, and exposes the dialectics among the two.

Themes on Footpaths

In this section I have attempted to describe briefly various themes around footpath which is relevant for spatial analysis of footpaths

Distinctiveness:

During my review, I found that there is a lack of literature on sidewalks relatively. This might be due to the reason of sidewalks being an undifferentiated part of the street. Streets and sidewalks conjoin to produce right of way for people living in cities. Sidewalks are also unavoidable like streets. But, I want to highlight that sidewalks are different from roads and have many different uses that I have highlighted in subsequent chapters. When we talk of roads they are meant only for vehicular usage, but when it comes to sidewalks, people have not only walked but also “socialized” in this urban space.

One can also find difference between sidewalks based on where they are located, its association with specific buildings and uses, and demographics around it. For example, sidewalks of Dadar and Chembur would have some differentiation.

Public-ness

The characterization of public spaces is difficult because of the variation involved, for example: access to a public office is different from access to a footpath. In public spaces of urban area the public-ness of space can be visualized as the extent to which people can access the space in question without requirement of permission either implied or expressed. Also, the assessment of public-ness of space can be done better over time.

Access to public space serves as a mechanism for assertion of rights of urban dwellers for participation in society. These struggles to assert the right to public space usage acquires different forms. Also, when it comes to sidewalks multiple stakeholders are involved in negotiation for activities and public access on sidewalks. These stakeholders range from municipal officials, street vendors, owners of the property adjoining footpath, homeless residents, political activists etc.

According to Mitchell, public-ness is not often responsible for making a space public. Rather he argues that, a space is made public when “one group takes space and through its actions makes it public (Mitchell 2003)

If we follow the continuum of private and public usage as given by Margaret Kohn to look into public-ness of footpaths, then most of the footpaths are public property. But, a significant control is also exercised by private owners over footpaths (Kohn 2004). Sometimes, these private-property owners are also responsible for maintenance. Sidewalks are often used by businesses which is beneficial to both business and other users of sidewalks too.

Contestation and Diversity:

Sidewalks play a role of shared space that accommodates a diverse range of population. Hence, contestation becomes a possibility in the case of sidewalks. Suppose if municipality or government brings any act or ordinance to regulate activities of public space, then it should not only be seen as a perspective of government. Rather, it can be visualized as a negotiation between conflicting interests of different groups.

A question arises why public spaces like sidewalk become a space of conflict. A simple answer to this question can be: due to the overlap of activities that are hosted by sidewalks. Different groups have different interests. Say for example, small businesses are in competition with street vendors. Pedestrians might have an objection for displays on sidewalks, on encroachment by shop owners or vendors.  The activity of one person on sidewalk may be in competition with other for a space which is limited. This overlap of interest of multiple groups over a narrow stretch of sidewalk leads to complexity.

Chapter II

Evolutionary History of Footpaths/Sidewalks

In this section I have attempted to review the history of evolution of sidewalks in different countries based on literature available and documentaries.

Starting this discussion, if I have to characterize history of sidewalk, then I would say sidewalk has a history that is “long but interrupted”. The history of sidewalk can be traced back to 2000 BC when sidewalks had their first appearance at a place in Anatolia (Turkey in modern times), and were called karum of Kultepe (Kostof, 1992). Another instance of footpath in early history is found for Cornith, an ancient city of Greece. If we believe some accounts, it can be said that use of sidewalks was prevalent in 4^th century, but none of the accounts mentions about date of construction.  “Semita” is the special word that was used by Romans for sidewalks which dates back to 3^rd century BC. . As I have mentioned in the beginning of this chapter the history of sidewalk is interrupted. Sidewalks had disappearance from the scene after Rome being attacked from the north (Kostof, 1992). In fact, there was no separate space available for pedestrians in European streets during medieval times. This period of interruption came to an end after Great fire of 1666 in London. Sidewalks reappeared after this Great Fire. Sidewalks found their space in the streets that were reconstructed after the Great Fire. Sidewalks became a common sight in London by middle of 18^th century, especially after the passage of Westminster Paving Act of 1751.

During the same period i.e. mid eighteenth century, foot pavements were existent in some exclusive streets of Paris. These pavements were known as trottoirs. Geist has described them as “unconnected, protruding limestone curbs, serving to hold or carts’’ (Geist 1983). An interesting feature that evolution of Parisian walkaways offers is ‘boulevards’. Walkaways got integrated into street system through boulevards. The development of Boulevards was something as a broad street lined with trees that segregated pedestrians from vehicles.

In the second quarter of 19^th century, there was rapid development of sidewalks. According to Kostof, sidewalks that lined Parisian streets were only 876 feet by 1822, but by 1850, total length of sidewalks measured around 161 miles (Kostof 1992). According to French Police ordinances of 1763 and 1766, permission was given for pedestrians to walk on protected side paths (contrealle’es) while horses were allowed at roadway’s center.

Figure 1 Paris Boulevard

Louis Daguerre, Paris Boulevard, 1839, Daguerre type (Image Source:smarthistory.org)

Let us shift to discussion on development of distinct meanings of sidewalks when they were constructed. According to James Winter, posts acted as a separation between footpaths and road in late 18^th and 19^th century streets. Footpaths were paved with egg shaped stones. The sidewalk and raised curb became a common sight in London after the coming of macadam paving. This had effects, for example carriage way became larger due to the pedestrians walking increasingly on streets. But, the sidewalks also became “more sharply differentiated from the other parts increasing the amount of legal ambiguity about what the term ‘street’ was meant to convey’’ (Winter 1993).

History of Right to sidewalks

When I look back towards the history from right to the sidewalks angle, I find that some of the social groups have demanded deference from members of other groups that they have encountered on sidewalks ,to lay an emphasis on their status and maintain their status. For example, obligation on Afro-Americans for differential action in shared spaces.  Even some city ordinances have backed these norms. According to Fyfe, sidewalks are both sites of resistance and domination (Fyfe, 1998). Exclusion and stigmatization were used as a mechanism to maintain difference in statuses in public interactions. Women were stigmatized for their appearance in public since 19^th century and faced exclusion from sidewalks. Some of these exclusions produced reactions, and when they have been discriminatory or oppressive, people have asserted their equality and right to the city (Fyfe1998). Sidewalk is a shared space where people traverse out of their necessity and hence they provide arena for negotiation of inequality and exclusion. Dailey argues that sidewalks altercations have served as ‘‘a metaphor for broader questions of racial domination and subordination.’’(Dailey 1997) Hierarchies are upheld and challenged through public encounters. Encounters that are disruptive represent interactions between groups.

There was negotiation of acts of domination or deference as people passed each other. Historically, high status was reflected in uninterrupted walk and deference was expected by individuals having low status. This was true in the case of women too. In this way even a small thing like movement or walking on sidewalks reinforced social norms and conflicting hierarchies.

Chapter III

Footpath as Shelter

I would start this discussion on footpath as space for shelter by stating a line that I have written after observing urban space of Mumbai: The everyday life of homeless people living in Mumbai reflects the reality of urban space of the time we live in. The vulnerable and poor people are forced to live on perils of urban space like corners of streets, pavements, spaces underneath flyovers and bridges, railway stations. They are undergoing a deep struggle for their survival with dignity. They experience harassment constantly and live in fear and uncertainty.

One only needs to step out of his residence to witness that the quantum of people living on the footpaths of city increase every year. Notably, this is after considering the fact that Mumbai’s 60 per cent population lives in slums which is highest in percentage compared to any other parts of the country.

Before moving on to further analysis, I would like to quote some facts and figures about the state of homelessness which is a kind of social epidemic at national level ( Source of data : “Without Walls” an exhibition run by Columbia University)

• There is a 20 per cent increase in population which lives on country’s streets in the period 2001-2011
• The problem of homelessness is higher in metropolitan cities due to paucity of affordable shelters and housing. Around ¼ of homeless people of India lives in eight big metropolitan cities. Mumbai, Chennai, Bangalore, Hyderabad, Delhi, Pune, Kolkata , Ahmedabad
• Mumbai has a total number of 57000 homeless people (Census 2011). But, if we consider data provided by activists the actual figure is much greater than the official figures. A rough estimate is around 1.5 to 3 Lakh
• The percentage of woman who are homeless is 25 per cent of the total homeless population
•  The percentage of infants is around 8 per cent
• The literacy level is very low for homeless people. 53 per cent of total homeless population are illiterate
•  Around 70 per cent of homeless people do work but whatever they earn is not enough for them to afford a permanent shelter
• According to a study by the organization Build (Bombay Urban Industrial League for Development), 96 per cent of homeless are in the state of homelessness for over last five years
• The same study says that 60 per cent of homeless people of Mumbai have spent around twenty years residing on streets.

Now, I will shift discussion towards analysis of footpath as public space for shelter and the conflict over it. The activities in public spaces can have direct interference amongst them. There are multiple groups in a public space and use by one group may lead to disruption of other groups’ space vision. If we consider someone sleeping on a footpath, it shouldn’t be his/her best or only option for residence or shelter. If someone sleeps on a footpath, then he or she forces others to oppose this usage of space. It also leads to the decline in accessibility of space for some other activity. But, I would argue that footpaths are the spaces for both housed and homeless residents. Hence, it should have accessibility for some necessary activity. I strongly argue that some of the public spaces should have their availability for homeless people who don’t have accessibility of private space for their sustenance.

The activities which are linked with homelessness include sitting, sleeping, talking etc. They are common activities, however when it comes to homeless people, the same activities are perceived in different manners. Grooming, time spent on footpaths and begging is considered as a marker for homeless people irrespective of them being homeless or not. Some people argue that there should be a complete ban on anyone from public space. Many cities have built an assumption that there should be prohibition on ordinary activities of homeless people as the discomfort caused to other people due to these activities are sufficient to prohibit.

For the homeless people living in a public space, they have memories associated with each location where they live. It can range from shops’ porches which provide them shelter in the rain, or busy footpaths where they have suffered loss of their loved ones. For many homeless, footpaths are closest to home. Although, these homes are the ones which have no safety, no privacy, no roofs providing protection from rains or winter winds, but nevertheless homes. Such homeless people can rightly be called as people “without walls”

Figure 2 Footpaths as Shelter

Footpath becomes a home for a family living on a footpath outside a hostel in Chowpatty (Image Source: Scroll.in)

Prima facie, this image seems to be some random people sleeping on streets. But, actually, it is a five member family. They have been living on the same pavement for more than 10 years. For them, their home is the space between the dustbin, tree and the signal.

There is a popular belief that homeless families are itinerant. But, when I interviewed some of them, I found that they are residing at the same location for years which is in contradiction with popular belief. One can see markers of life of homeless people on the wall that support them. These walls sometimes become canvas for the doodles of children going to school. Sometimes one can see photographs of deceased members of family or Gods on these walls.

Figure 3 Markers of Life

Photographs of God on walls put up by a family living on a footpath in Chembur (Image Source: My own camera)

Chapter III

Footpath as Economic Space

I would start the discussion on footpath as space for economic survival by giving context of 1961 Bollywood movie Tel Malish Boot Polish which had a classic song “ Ek Ana Boot Polish, Do Ana Tel Malish” [1] Link to the song : https://www.youtube.com/watch?v=h0bBwWsGBTo . In this song, there is a street vendor who has a footpath shop. He feels proud that he does not do begging or stealing but does hard work to earn a living. Yet, he is not allowed by world to live peacefully. This struggle is faced by millions of street vendors in a rapidly urbanizing India.

Figure 4 Footpath as space for economic survival

A fruit vendor in Chembur area vending for economic survival (Image Source: My own camera)

This is a common sight on footpath of Mumbai i.e. a vendor who has set up his temporary shop on footpath. Street vendors are identified as self-employed workers in the informal sector who offer their labor to sell goods and services on the street without having any permanent built-up structure (National Policy on Urban Street Vendors [NPUSV], 2006, p. 11).

Figure 5 Footpath as economic space

A footpath in Dadar used as a space for economic activity ( Image Source: My camera)

Edward Soja, a well-known geographer says “relations of power and discipline are inscribed into the apparently innocent spatiality of social life’’ (Soja 1989). Street vending apparently looks as an ordinary activity, but when this activity becomes conflicted, it gives us a reflection of struggles over social change and attempts for its management.  Street vendors are denied the opportunity for using footpaths to do economic activities due to the influence of merchants who are established in nature and upper-and middle- class citizens (Bromley 2000). Street vendors in order to fulfill their economic needs have done negotiations for presence by challenging or evading regulations. In this process, they assert their claims over the city.

The use of footpaths for vending and conflict related to it, better termed as “street vending wars”, can be thought of as a struggle over the uses and meaning of public space. This struggle is between a public which has precise ideals for order and a counter-public which includes poor residents; immigrants etc., and are in need of a space for various social and economic activities. (Fraser 1992).

 The vending war also gives a reflection of conflict among users of footpaths who compete with each other over the narrow footpath strips. Businesses which are in direct competition with vendors are in constant opposition of street vending. Another reason due to which some businesses fight is: image of neighborhood. Municipalities generally align themselves with business and property owners through enactment and enforcement of various street vending regulations.

Chapter IV

Footpath as Space for Protests

Figure 6 Footpath as a space for protests and dissent

Mahul residents protesting on a footpath of Vidya Vihar (Image Source: groundxero.in)

I would start the discussion on footpath as a space for dissent by highlighting the recent issue of poor living conditions in Mahul village. Mahul is in news from last few months due to protests by residents of Mahul against their forced resettlement.  Recently, there was a new addition to it when they occupied footpaths for their protest. The above image is from the same protest that happened on footpaths of Vidya Vihar (Ghatkopar.) I will not go deeper into the actual Mahul issue but, I would rather focus on how footpaths are used as a space for expressing dissent, as in the above case.

In many countries including India, footpaths have been historically used by many groups as a space for expressing opposition to actions of government. These groups have fought for political, social or economic justice. According to Mitchell, these groups, by protesting on streets and interrupting normal flow of traffic have forced society to take them into notice. (Mitchell 1996)

In broader terms, sidewalks are used here as political space. There are two different views regarding footpaths as political spaces. The first view has perception of sidewalks as a public forum that is inclusive and enables political action, dissent and debate. Barthes holds the same view about sidewalks and says that sidewalks are settings of space where “subversive forces, forces of rapture, ludic forces act and meet’’ (Barthes 1986). Lees argues that sidewalks are space where ‘‘marginalized groups make themselves visible enough to be counted as legitimate members of the polity’’ (Lees 1998). According to Mitchell, freedom of speech and expression provides for right to “take to the streets” (Mitchell, 1996)

In contrast to the first view that I have described above, second view sees dissent on sidewalks as obstructions to street. According to this view, protests and demonstrations on sidewalks are threatening for safe rhythm of our everyday life. These acts of dissent hinder the free walkability of pedestrians and vehicular traffic and create chaos. Protests on footpaths interfere with passage or movement of others. This interference is undesirable and uncomfortable. If I have to summarize this view I would say that this view gives greater privilege to public safety in comparison to the rights of people who are dissenting.

Now, I will try to look upon the reasons for this usage of sidewalks as space for protest. Public acts of dissenting are meant to counter powerful interest.  Hence, these acts must be disruptive and visible in nature. Although, when we look “walking” as mode of transportation, it is no longer primary mode of transport in cities like Mumbai. But, still footpaths are important because they wind throughout the city and adjoin private properties and roadways.

Each one of us has to walk a portion of our way towards destination via footpaths. Although, we may not walk all the way to our destinations on footpath; but still they will be used to enter or exit the destination. Suppose in the case of Mumbai, most of the people travel by local train to their destination, but still they have to walk for sometimes on footpath to reach the local station or while exiting from the station. Footpaths are also likely to be seen by motorists who are plying on road. Thus, footpaths provide protesters a space that has critical accessibility to most of the city.

The same reasoning can be applied in the case of Mahul residents protesting on footpaths. The residents chose the site of footpath for protest because by protesting on footpaths they are disrupting the movement and are much more visible.

 

Chapter V

Footpath as Feminist issue

I would like to start this discussion by setting context through a “gender behavior exercise” that was done by some feminist philosophers. This exercise was conducted to see gendered differences in behavior on sidewalks: it was expected that a woman will get out of a man’s way and the expectation that a man won’t do it for woman. In this exercise students were assigned task of walking down the footpath and not to get out of the way of men and report the happenings. Several women reported of being bumped into other people. What is more interesting to know in this study is what the researchers found out with their interaction with some male students. It was actually a gender behavior that was learned by males that they have to walk down the middle of the sidewalk or some crowded spaces and also that they tend to keep their head up and  their eyes are directly ahead with no concern to say ‘excuse me’ and also not to worry about bumping into someone. Our everyday experience is also quite similar with the results to the study. The behavior on the footpath of males is like if they are entitled to middle of the sidewalks.

Space can be seen in the light of a natural space where it is populated by political forces, and as absolute space, which is religious and political in character by virtue of being formed on due to interaction of bongs of consanguinity, language or origin. (Lefebvre, 2007)

Shilpa Phadke elaborates on how spaces both private and public which are hierarchically ordered through various inclusion and exclusions, therefore, play an instrumental role in reinforcing social power structures. These spaces are often influenced by socio-cultural, political norms and institutional arrangements which provoke different ways of being and belonging. Thus, the effects of spaces are different on different genders. “Gendered spaces” refers to the socially constructed geographical and architectural arrangements around space that regulate and restrict women’s access to those spaces which are connected to the production of power and privilege in any given context (Phadke, n.d.)

 Phadke in her project report on Gender and Space argues that danger and risk are often gendered in urban life, but, when it comes to planning and designing of public spaces, it is rarely done so to facilitate access of woman to such spaces (Phadke 2011).

The same is true for public space of footpaths. In my study, I traversed through various footpaths of Mumbai and found an interesting thing about lighting on streets. It seemed to me that the urban planning in Mumbai focuses more on lighting the streets than the footpath used by the pedestrians. This is a case of class bias- of giving priority to cars over people which can be extrapolated to bias against women. With growing instances of sexual harassment against woman, lack of lighting on footpath makes it unsafe for women. In an attempt to interact with women using footpaths regularly, I found out how women perceive footpaths as unsafe and vulnerable spaces. These conversations suggested high levels of anxiety and discomfort associated with walking on footpaths.

Katie Matchett, an urban planner says that “Footpaths are a feminist issue”. She argues that we have designed a transportation system that discounts travel needs of women. Moreover, women often have to travel with children. According to her, footpaths are not designed wide enough to accommodate a woman walking with a stroller. She puts it as: “When we design our transportation system in that way that doesn’t favor women’s travel along footpaths I really see that as a feminist issue.”

A feminist critique of the right to the city demonstrates that though great gains have been made in gender equality, sexual discrimination persists within everyday life (Beebejaun 2015)

To Sum Up

Though the current urban planners might be cognizant of the need for ensuring security for women, I however think that this security idea is problematic. For ensuring security the two commonly deployed methods are police and surveillance which in turn could act as instrument of oppression and restriction for woman. I feel that the guiding factor for inclusive planning must be comfort and not only safety and security. By comfort I mean sense of belongingness and absence of violence. This sense of belongingness would not come from policing and surveillance.

A city space like footpath must be inclusive for all sections of society including the street vendors, homeless residents, and women. I feel that there is a need that urban planners focus on this inclusion issue. This will lead to a more successful urban democracy. There should be no barriers like caste, class gender and other artificial barriers for possession of equal right to every dimension of urban space. A bottom-up approach and participative approach should be followed in the planning process to create users that can equally use a public space like a footpath.

I would conclude by giving example of Pune Municipal Corporation’s Urban Street Design Guidelines that has taken a progressive step in urban design. The mentioned guidelines make it an inclusive project for population like the street vendors as well. The outline reads: “Streets are for all users – not only vehicles but also pedestrians, public transportation and cyclists. They are the great meeting and vending places too! Our streets must be designed for all uses they support, capturing the essence of the surrounding locality” (USDG-PMC 2011)

Figure 7 PMC Street

A snap from urban street design guidelines of PMC (Image Source: USDG, PMC)

Another thing that I would like to highlight in conclusion is: we should consider multiple rights to the city and recognize the co-existence of contested publics within the urban space. It may result into more ways to include different experiences into planning. I feel that we need to re-engage with multiple uses of space within a framework that is attentive to differences.

 

References

Lefebvre,H.(2007). The Production of Space.  Blackwell Publishing. Pp-15-53.

Jacobs ,Jane 1961 . The Death and Life of Great American Cities. Pg 39-71.The Modern Library, New York

Mark Purcell (2014) Possible Worlds: Henri Lefebvre and the Right to the City, Journal of Urban Affairs, 36:1,141-154, DOI: 10.1111/juaf.12034

Phadke,D.(n.d.). Re-mapping the Public: Gendered Spaces in Mumbai. Women and the Bulit Environment. Pp-53-73. Retrieved from http://moodle.tiss.edu

Phadke.D 2004 . Gender and Space Project. One World Foundation India

Yasminah Beebeejaun (2017) Gender, urban space, and the right to everyday life, Journal of Urban Affairs, 39:3, 323-334

Sideris, Anastasia L.and Ehrenfeucht, Renia.2009 Sidewalks: Conflict and Negotiation over Public Space .MIT Press

Kostof, Spiro. 1992.The City Assembled: The Elements of Urban Form through History. New York: Brown.

Soja, Edward. 1989. ‘‘The Reassertion of Space in Critical Social Theory.”Postmodern Geographies. New York: Verso.

Mitchell, Don. 2003. The Right to the City: Social Justice and the Fight for Public Space. New York: Guilford Press.

Kohn, Margaret. 2004. Brave New Neighborhoods: The Privatization of Public Space. New York: Routledge.

Geist, Johann F. 1983.Arcades: The History of a Building Type.Cambridge, MA: MIT Press

Winter, James. 1993.London’s Teeming Streets: 1830–1914. New York: Routledge

Fyfe, Nicholas R. 1998. ‘‘Introduction: Reading the Street.’’ In Nicholas Fyfe, ed.,Imagesof the Street: Planning, Identity and Control in Public Space(1–10). London: Routledge

Dailey, Jane. 1997. ‘‘Deference and Violence in the Postbellum Urban South: Manners and Massacres in Danville, Virginia.’’ Journal of Southern History 63(3): 553–590.

Bromley, Ray. 2000. ‘‘Street Vending and Public Policy: A Global Review” International Journal of Sociology and Social Policy 20(1/2): 1–28.

Barthes, R. 1986. ‘‘Semiology and the Urban.’’ In M. Gottdiener and A. Lagopoulos, eds., The City and the Sign: An Introduction to Urban Semiotics(87–98). New York: Columbia University Press.

Lees, Loretta. 1998. ‘‘Urban Renaissance and the Street: Spaces of Control and Contestation.’’ In Nicholas Fyfe, ed.,Images of the Street(236–253). London: Routledge.

Mitchell, Don 1996. ‘‘Political Violence, Order, and the Legal Construction of Public Space: Power and the Public Forum Doctrine.’’ Urban Geography17(2): 152–178

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Administrative Adjudication: Need and Constitutionality of Tribunals in India

Administrative Adjudication: Need and Constitutionality of Tribunals in India

1. Background/Context Setting:

I would like to start this paper by giving background of two articles that I came across, published in The Hindu newspaper. First one is written by Krishna Das Rajgopal. This article focuses on requirement of autonomy for tribunals. The central theme coming out of this article is that the “tribunals perform an important and specialised role in justice mechanism. They take a load off the over-burdened courts. That is why while making the appointments to the Tribunal; it must be ensured that independence in working is maintained. They hear a wide range of disputes related to the environment, armed forces, tax and administrative issues”

Second article that I came across and took reference is written by K. Vivek Reddy. This article raises some institutional concerns related to tribunals and how they affect jurisdiction of High courts. The theme emerging out of this article is that there has been relentless attack from parliament and, even Supreme Court on Jurisdiction of our 24 High Courts through rampant tribunalisation.

These two articles give two different pictures associated with tribunals. My discussion in this paper mainly focuses on context provided by above mentioned articles. In the beginning, I have provided an overview of tribunals, their needs based evolution. Afterwards, I have delved into the international arena of administrative adjudication and tribunals and, compared it with what we have in India. Then I have discussed about the constitutionality of tribunals and reasons for their growth in modern society. In the end I have done an analysis based on shortcomings of tribunals and has proposed some solutions to overcome these shortcomings. I have taken reference from various reports of Law Commission, recommendations of Law panel and various scholarly articles. Let us begin with introduction and how needs led to evolution of tribunals.

2. Introduction to tribunals:

This section is divided into two sections based on issues faced by judiciary and government and subsequent rise of tribunals.

2.1 Traditional Judiciary and tribunals:

Normally, justice is administered by the courts according to law. One of the essential features of modern democracy is the independence and impartiality of judiciary. The procedure for solving a dispute through a normal judicial process is as follows: The plaintiff or the applicant starts the suits or proceedings by presenting his plaint or application. The defendant or the other party states his case in a written statement. The plaint and the written statement are known as pleadings. Issues are framed out of such pleadings. Issues are either questions of law or questions of facts which the court has to decide on the basis of evidence led by the parties. Witnesses are examined, cross examined and re-examined. Arguments are heard. After the arguments, the Judge delivers the judgement. A decree passed on judgement is drawn.

The above mentioned technical procedures adopted by the courts result in delay and expenses. In the context of socio-economic functions of the modern state, there may be several matters which cannot be efficiently and justly decided by judicial process. Further, solving many of the disputes pertaining to socio-economic programme or legislation of modern times is not possible with formal impartial position taken by the judges of the ordinary courts. Quite often, policy oriented decision may be necessary. For these reasons, a number of administrative tribunals have sprung up which have been entrusted with the task of performing judicial or quasi-judicial functions.

2.2 Government Functions and Tribunals

The functions of government have increased phenomenally. This increase has led to the executive having enormous powers and higher legislative output. Consequently, this leads to increased litigations. Also, this leads to restrictions on the freedom of the individual .This implies that individuals and authority will have constant frictions between them. The emergence of  tribunals in many countries including India can be seen as a process to fulfil objective of public good oriented justice-a new type of justice Technical experts manage these tribunals. They offer flexibility in operations. They have informality in procedures Thus; they are quite significant in adjudication process. Due to these reasons, tribunals have sprung up.

3. Tribunals:  Definition

In this section I will give a couple of definition of tribunals and administrative tribunals. I have not delved much into this section. I am giving definitions which seemed most comprehensive to me.

3.1 Tribunal

The word tribunal is derived from the root Tribunas which is a Latin word meaning a raised platform on which the seats of the tribunes or the magistrates are placed. Hence, the word tribunal implies a place for making decisions, a high or principal resort for litigants.

3.2 Administrative Tribunal:  Blancy and Oatman   define administrative tribunal in Encyclopaedia of Social Sciences as: “Administrative Tribunals or Administrative Courts are authorities outside the ordinary court system which interpret and apply the laws when acts of public administration are attacked in formal suits or by other established methods.” ( Source: Reference 1)

TCA Ramanujachari defines as: “They are governmental bodies appertaining to the executive and not to the judicial branch of the state though in various matters they are armed with judicial powers analogous to those normally carried out by courts of law” (Source: Reference 1)

4. Organisation of Administrative Adjudication: International Arena and India

I have looked after organisation of administrative adjudication in different countries. What I saw is that, there is very less uniformity. We need to look from various angles of organisational set up to see how administrative adjudication exists in different states.

4.1 Political Executive

UK: The ministries have been vested with various adjudicatory functions. For example a parent who has a grievance against the orders of a local authority asking for compulsory attendance of his child can file an appeal before the ministry of education

France: It has concept of ‘minister judge’. The minister has a lot of adjudicatory functions. The ministers can also hear appeals. They have to take decisions personally in such cases unlike other countries. They delegate functions to lower authorities, committees or commissions.

USA:  Such powers are not usually available with the ministers. But, the President enjoys vast powers of decision making in a large number of matters.

India: In India, the practice is to confer powers on the government and not on individual ministers as such.  According to the rules of allocation of business, ministers exercise these powers. There are very few laws in India which do not confer such powers on the Governments of either Centre or states.

4.2 Other administrative authorities like Heads of departments, Secretaries or officers on special duty:

UK: There is devolution of powers on many functionaries in their own names, not on behalf of the ministers.

France: It has very interesting position. There is an important office called ‘Prefect’. It serves as controller and administrator and can delegate its powers to other heads of services. He can order administration of laws, acquisition or reacquisition of property, arrest and search people without warrant. Here , the administrators enjoy a power called ‘ Privilege d’ action d’ office’ i.e. the civil servant is empowered to enforce his own decision without the recourse to the courts.

India: In India, Legislatures confer vast adjudicatory powers on administrative tribunals.

4.3 Boards and Commissions:

In cases where a large scale of discretion is required, Boards and Commissions may be preferred.

U.K.: Boards and Commissions exist in large numbers. But, they are not as independent as in other countries like USA. They are under the direct control of the concerned minister, who is responsible to the parliament.

USA: Independent regulatory agencies are very important agencies exercising administrative adjudication. It is said that being apprehensive of the president becoming a dictator, the American Congress wanted to create agencies independent of the President. These agencies would be vested with adjudicatory functions in administrative matters. This was achieved by creation of such commissions like Inter State Water Commission, Federal Power Commission, Federal Communication Commission, National Labour Relations Board etc.

India: We have a considerable number of Boards and Commissions which have been created by law and vested with many adjudicative functions. Examples are, The Railway Board, Handloom Board, and Handicrafts Board etc. Our constitution itself created certain independent commissions like Union Public Service Commission, Election Commission, and Finance Commission etc. Many commissions have been created by executive orders like Central vigilance Commission etc. The commissions may hear cases and award decisions. They can take up case even of their own initiatives, the function that distinguishes them from law courts.

4.4 Administrative Courts and Tribunals

U.K.: In UK we see establishment of a large number of tribunals to decide disputes of a particular kind. Some of them have trappings of a Court of Law having a well-defined jurisdiction as well as permanent sessions. They deal with various issues such as employment, property rights social security, immigration, mental health etc. The prime concern of these tribunals is ‘claims of citizens against state’. Examples of tribunals in UK include, Transport Tribunal, Industrial tribunals, Employment Tribunals etc.

Also a noteworthy point that comes out from research that I did on administrative tribunals in UK is that, tribunals are very well free from pressures from ministers.

France: The Tribunals are fully independent of the judicial courts and have their own hierarchy. The administrative court of first instance is called the Tribunaux Administratif  against whose decision an appeal may be filed before Counseil d’ Etat. Here, the tribunals have a wide jurisdiction and can entertain the cases arising out of contracts and torts. The French judicial system has also provided for as Tribunal des conflicts-a special tribunal. This tribunal disposes of conflicts involving both judicial and administrative functions. Some examples of administrative tribunals in France are – Cour de Comptes (Court of Accounts) , Cour de discipline Budgetaire ( Court of Budgetary discipline)  , Counseil de Revision ( Review Council)

USA: In USA there is strict separation of power. That is why we observe that US Supreme Court does not exercise administrative adjudication. It is an appellate court mainly. In USA there are various Independent Administrative Courts which resemble more with judicial courts rather than Administrative Tribunals. Their members are called Judges. The President appoints these judges. They hold office during good behaviour. The procedures adopted in these courts are also like a judicial one. Examples of such courts include Courts of Claims, The US Customs Court, The US Court of Custom and Patent appeals, Tax Courts, Courts of territories etc.

Administrative tribunals in USA exercise not judicial but only quasi-judicial powers. They deal with a wide range of problem which requires expert knowledge and experience.

The Tribunals in USA are divided into four parts:

Independent Administration courts: They have judicial procedure.

Special Administrative Courts: They are integral part of some administrative systems and they only adjudicate.

Regulatory Bodies: They have all kinds of powers like administrative, quasi legislative, adjudicatory. These bodies are independent of executive control.

Licensing Authorities

Canada: If we look upon system of administrative justice in Canada, it seems to be large and well established. Canada’s justice system is based on two pillars. Tribunal system is considered to be one of the pillars. But, it is not a very old phenomenon in Canada; rather it is a phenomenon of recent origin. Tribunals were established to regulate the aspects emerging out of the expanding economy, administration of social programmes etc.

The decisions made by tribunals are on behalf of the provincial and federal government. Tribunals are empowered through “Empowering legislation” passed by the federal or provincial legislature.  They are sometimes commonly called ‘Boards’ or ‘Commissions’. They make decisions for various issues, for example dispute between people or between people and Government .Courts have power to review their decisions. Some examples of Tribunals in Canada are Canada Agricultural Review Tribunal, Canadian Human Rights Tribunal, and Civil Resolution Tribunal etc.

Australia: Tribunals are quite important as a part of the Australian Judicial system. They are established to lessen the burden on an overloaded civil court and to provide simple, low-cost access to fair and swift justice to Australian citizens. Administrative decisions of the government can be reviewed by tribunals in state, for example, Victorian Civil and Administrative Tribunal. Some other examples of administrative tribunals functioning in Australia include Administrative Appeal Tribunal, New South Wales Civil and Administrative Tribunal, Workers Rehabilitation and conciliation tribunal, Migration Review Tribunal, Equal Opportunity Tribunal etc.

India:Various enactments have created a large number of statutory tribunals in our country. They are responsible to determine various issues of administrative nature. They adjudicate on these issues in judicial spirit. Some are ad-hoc tribunals set up for a particular purpose only while others may be a permanent one. Normally, the tribunals, here are independent of administrative machinery of the government. The members of these tribunals are usually a mixed lot i.e. combination of members with judicial background and those having administrative experience.

We have some purely quasi-judicial tribunals and some purely administrative tribunals. Examples of quasi-judicial tribunals include Income tax appellate tribunal, state transport appellate tribunal etc. Examples of purely administrative tribunals are Union Public Service Commission, State Public Service Commission. Some part of Indian context is also covered in section on constitutionality of tribunals.

Other Countries: A very brief overview of administrative tribunals in some other countries:

In Japan, there is no administrative court as such but there are family courts.

In South Africa, there are Justices of Peace, Industrial Tribunals, and Children’s Court etc.

In Finland, there is a parallel system of administrative tribunals and the highest tribunal is called Supreme Administrative Court.

In Greece, there are also administrative courts like Social Insurance Courts, Labour Arbitration Courts etc.

In Austria, there is an Administrative Court which is called “Verwaltungs-ferichtsof”

In Spain, there are administrative courts, generally called Courts for Public Order as also municipal and regional courts and also labour Courts

5. Need of tribunals: Analysis through reasons for growth and advantages:

I discussed in Section 1 of this paper that, how the needs led to evolution of tribunals connecting it with judiciary and government functionaries. Now I will delve into the need for tribunals by drawing an analysis through looking into reasons for growth of administrative tribunals (discussed in Section 5.1) and advantages offered by these tribunals. These advantages have led to conferring judicial power on authorities (as discussed in Section 5.2)

5.1 Reasons for growth of tribunals:

The growth of tribunals can be attributed to following reasons:

Welfare State: Prior to the emergence of welfare state, law courts were custodians of rights and liberties of individuals. They give precedence to individual rights. But, as welfare state emerged, individual rights were surpassed by social interests. The decision making system provided by the law courts is elaborate and costly. Hence, the need arose for a technique of adjudication which could fit in a better manner to be responsive to social requirements of time. Thus, judicialisation of administration would serve the purpose to enforce social policy and legislation.

Rapid expansion and growth of trade, industry and commerce: Work load of law court is enormous and they do not seem to be in a position to deal with such enormous load. This leads to delay in deciding the cases. On the other hand administrative tribunals are more rapid, cheaper and efficient than ordinary courts.

Technical Cases: Sometimes ordinary judges are incapable to understand technical problems because law and jurisprudence traditions are more important to them. They are brought up in such traditions .These technical problems arise due to modern complex social and economic processes. Expert knowledge of administrators is required to tackle such problems. This requirement is fulfilled by administrative tribunals.

Quick and firm Actions: Some situations require quick and firm action. Examples of such situations include prevention of illegal transactions in foreign exchange, ensuring safety measures in local mines, etc. If these situations are dealt upon by ordinary courts of law, this would result in heavy loss for the exchequer. In these situations prompt and fair actions can be ensured by administrative courts presided by experts.

5.2 Advantages offered by tribunals /Reasons for conferring judicial power on authorities:

Hood Philips states that the following are the reasons for the Legislature conferring powers of a judicial nature on administrative authorities:

“The reasons why Parliament increasingly confers power of a judicial nature on Ministers or Tribunals more or less closely related to the Government Departments- to administrative Tribunals in the wide sense- may be stated positively as showing the greater suitability of administrative tribunals, for the particular kind of work that has to be done.” (Source: Reference 1)

Expert Knowledge: Many of the questions that have to be decided under modern social legislation call for an expert knowledge of matters falling outside the training of the lawyer, an understanding of the policy of Legislature, and experience of administration. They are not primarily legal questions, though at some stage, a judicial habit of mind may be required.

Cheapness:  The vast number of questions that arise from day to day, affecting the interests of thousands of people, must be disposed of much more cheaply than can be done in the stately and costly Courts of Law. The speed and informality mentioned below contribute to the relative cheapness of administrative justice.

Speed: Again, if these questions are to be disposed of without delay. Instructions must be devised and procedure adopted that will despatch the business much more speedily than the ordinary courts can do. Indeed, the courts would not have time to take over all this work in addition to what they already have, without being entirely reconstituted and so losing their present identity.

Flexibility: Government Departments follow their own precedents. Rigid doctrine of binding precedents are adhered to by the courts But, this rigid doctrine does not hamper new administrative tribunal. This provides greater freedom for developing new branches of law, basis of which lies in modern social legislation. This suits the needs of the welfare state.

Informality: Administrative tribunals are not bound by such complex rules of procedure or such stringent rules of evidence that prevail in ordinary courts

Another reason for establishing administrative tribunals is that they are also able to carry out the policy, rather than act as an impartial arbitrator.

6. Constitutionality of Tribunals:

Now I will move on to the constitutionality of administrative tribunals in India. I have discussed articles mentioned in Constitution of India related to administrative tribunals and their implications and a brief history of gaining constitutionality.

6.1 History of Constitutionality: The first point to note in constitutionality of tribunals is that, Provisions related to tribunals were not present in the original Constitution. First of all, establishment of Administrative Tribunals was recommended by Swaran Singh Committee. The recommendations of the committee are summarised as follows: (Source: Reference 3)

A. There is a need to set up administrative tribunals. These tribunals may be set under Central Law. Tribunals should be set at both state level and centre. They should decide service condition related cases.

B. All-India Labour Appellate tribunal should be set up. They have to decide appeals from Labour Courts and Industrial Tribunals.

C. Tribunals should decide disputes related to revenue, land reforms, ceiling of urban property, procurement and distribution of food grains etc.

 As a result of recommendations of Swaran Singh Committee report, provisions related to tribunals were added by 42^nd Amendment Act of 1976. A new part-XIV A was added by this act to the constitution. Title of this part is ‘Tribunals’ .It consists of two articles- Article 323 A and Article 323 B. Article 323 A deals with administrative tribunals and Article 323-B deals with tribunals for certain other matters.

6.2 Articles related to  tribunals: .Article 323 A has empowered the Parliament to provide for the establishment of administrative tribunals for the adjudication of disputes relating to recruitment and conditions of services of the centre, the local bodies, public co-operations and other public authorities. In other words, Article 323 A enables the parliament to take out the adjudication of disputes relating to service matters from the civil courts and high courts and place it before the administrative tribunals. The Parliament passed Administrative Tribunals Act in 1985 in pursuance of Article 323-A. This act has authorized the central government to establish one Central Administrative Tribunal and the state administrative tribunals. The importance of this act lies in the fact that it has provided a method for speedy and inexpensive justice to the aggrieved public servant.

Under Article 323 B, the Parliament and the state legislatures are authorised to provide for the establishment of tribunals for the adjudication of disputes relating to following matter:

Taxation, Foreign Exchange, import and export, Industry and Labour, land reforms, ceilings on Urban property, Elections to Parliament and state legislatures, Food stuffs, rent and tenancy rights.

I have drawn a comparison between Article 323-A and Article 323-B. They differ in following aspects:

Article 323 A	Article 323 B
Establishment of tribunals for public service matters only	Establishment of tribunals for certain other matters.
Only Parliament can establish tribunals under this article	Both Parliament and state legislatures can establish tribunals under this act according to matters under their legislative competence.
No hierarchy of tribunals. Establishment of one tribunal for the centre and one for each state or two or more states.	A hierarchy of tribunals may be created

7. Characteristics of Tribunals:

Before moving on to analysis part I would like to state briefly some of the important characteristics of tribunals based on discussions till now. I have summarised the key features or characteristics of tribunals in point-wise format stated as follows:

1. They are established by the executive under provisions of a statute
2. Though they perform quasi-judicial functions or judicial functions , they are not courts
3. They are not bound by the technical rules of the Civil Procedure code and the rules of evidence of the evidence act. Nevertheless they adopt rules of procedure which may be prescribed by rules made under the statute or may be adopted by the tribunal itself
4. Such tribunals have the powers of civil courts in certain matters and their proceedings are considered to be judicial proceedings
5. They have to follow the principles of natural justice in deciding the cases

F.  Usually, their function is to decide disputes arising out of the programme of a welfare state. The dispute referred to them      may not be the conventional type of dispute that arises before an ordinary court.

8. Analysis and Conclusion

8.1 Shortcomings with Tribunals:

I would discuss some of the shortcomings of tribunals in the context set by article of K. Vivek Reddy mentioned in beginning of this paper. The discussion focuses mainly on how tribunalisation has inflicted damage on our High Courts.

8.1.1 Tribunals and High Courts: There has been a relentless attack on jurisdiction of our high courts. High courts were at central position for framers of our constitution. All disputes are resolved by our high courts as opposed to American model of separated federal and state judiciary. But, rampant tribunalisation by Parliament has done damage to High Courts. They have been replaced by tribunals for disputes under certain acts like Competition Act, Companies act, SEBI Act, Electricity Act etc. High Courts are by-passed as a direct appeal can be made by a person aggrieved by order of appellate tribunal. Some institutional concerns are raised due to this:

Constitutionality: High courts have constitutional protection which is not the case with tribunals. Executive does not control appointment process and service conditions of high courts. But tribunals have allegiance to parent ministries.

Accessibility: The accessibility of tribunals is lesser as compared to high courts. There are very less number of benches of the tribunals. For example Securities Appellate tribunal has only one bench sitting in Mumbai. Similarly NGT has only four benches.. Consider a situation in which, there is a shareholder in Meghalaya. He or she will have to travel to the Securities Appellate Tribunal in Mumbai if he or she wants to challenge any order of Securities and Exchange Board of India. This results in expensive and difficult to access justice.

Increase in load of Supreme Court: Supreme Court has become a mere appellate court because of direct right of appeal to Supreme Court from Tribunals.  There is a backlog of over 60,000 plus case in Supreme Courts. The filtering mechanism of high court is less available in case of tribunals. If this mechanism was available, Supreme Court could deal only with substantial questions thereby maintaining quality of court’s jurisprudence. Comparing it with international arena, US Supreme Court takes cases only when Circuit Courts of Appeal have divergence among the opinion. When original jurisdiction is exercised by Supreme Courts, right of citizens to challenge erroneous order gets undermined.

Lack of Training for budding Supreme Court Judges: High Courts serve as training ground for future Supreme Court Judges. They provide experience and insights to the future Supreme Court judges as they have to deal with multiple cases under a particular area of law. Due to side-stepping of High Courts in favour of tribunals, Supreme Court Judges have to deal under specialised law for the very first time.

8.1.2 Other Shortcomings

Other than these institutional concerns some general point that comes out as disadvantages of tribunals while analysing are put as follows:

Violates Rule of law: Administrative tribunals seem to be negating Rule of law. The Rule of Law means that everyone should be equal before law. No man should be privileged to have a separate code of law for his conduct. But administrative tribunals do not regard parties at disputes as equals. Also administrative tribunals often make for themselves, separate procedures and laws.

No Set Procedures: Often we see that administrative courts do not have any set procedures. Sometimes even the principle of natural justice is violated by them.

Summary Trials:  While looking into tribunals I find that often, tribunals do not follow any precedents and hold summary trials.

Lack of Publicity: Also I observe that rules of procedures of tribunals may not provide the publicity of proceedings: their reports of the decided cases may not be published and, where published they may not state the reasons for taking decisions.

Lack of judicial training: Administrators and technical heads who man the tribunals may not have law background or training in judicial work

8.2 Proposed Solutions

It cannot be denied that administrative adjudication has many shortcomings. But, in a modern complex society, it is a necessity like delegated legislation. Based on my analysis, I am proposing some safeguards to maintain impartiality in administrative adjudication. These safeguards are as follows:

A. Appointments/ Selection Criteria:

Legal training and experience should me made mandatory for persons manning tribunals. While making appointment of members, Supreme Court should be consulted. A possible solution could be that appointments be made by a committee led by Chief Justice of India.

I read a report of the Law Commission to the government, led by former Supreme Court Judge, Justice (retired) B.S. Chauhan which says “While making the appointments to the Tribunal, it must be ensured that independence in working is maintained” (Source: Reference 2).The theme is that independency should be maintained while making appointments to tribunals and, also executive’s influence in normal functioning of tribunals should be minimal. That is, the selection of members should happen in an impartial manner. For this, selection committee must not be headed by a Secretary to the Government of India. To summarise, during selection making process government agencies should be minimally involved, reason being Government is litigant in every case.

I also find that the current system does not show uniformity in the qualifications, tenure and service conditions of Chairman, Vice Chairman and other members. Thus, in my view, making this process uniform should be major concern to ensure that present system works efficiently.

B. Code of Judicial procedure: There is a need to devise and enforce a “judicial procedure code” for tribunals. I have observed variability in administrative adjudication procedures in India.

C. Reasoned Decisions: I went through multiple orders passed by various tribunals .The orders passed by tribunals are not extensive. They should contain reasons accompanying decisions, which they normally do not. In my view “Good laws” are that laws for which, one can give reasons. A decision that is properly reasoned convinces the person who is affected by it. Also, it acts as a check against misuse of power.

D. Judicial Review: As we are a nascent democracy, power of judicial review is very important. I have observed that appeal to the courts of law is permitted for some tribunals. But, there are also some which seek to make their decisions final and ban judicial review. Therefore, I suggest that jurisdiction of Supreme Court; especially the jurisdiction of High Court must not be curtailed as highlighted in previous discussion also. Presently, parties do not have an opportunity to move to High Courts against the orders of some tribunals. They have to move to Supreme Court directly. Power of Judicial review is same for both high court and Supreme Court. Therefore, we need to allow parties to challenge a tribunal order before the High Court which have territorial jurisdiction over tribunal.

Several institutional benefits are offered when a case travels from High Courts to Supreme Court. When Supreme Court confronts two high court rulings which are conflicting in nature, then it gets a better position to resolve a dispute.

E. Easy access to justice: Presently, we have very less number of benches of tribunals which affects people’s access to justice. Therefore, I suggest that the number of benches of tribunals should be increased so that they cover geography of whole country. This will also ensure easy access to justice for the people.

F. Bar to Reappointment: The independence and fairness of the tribunal is compromised by bar on reappointment of chairman and others. The same theme is pointed out in Report of Law Commission as mentioned above “One may be inclined to decide matters in a manner that would ensure their reappointment,”. Thus, like other commissions, for example Union Public Service Commission, there should be a bar to reappointment for chairpersons and members of administrative tribunals.

Let us sum up

Tribunals still have remarkable disposal rate- 94 %.( Source- Reference 2). And, we also see that that role of administration in citizens’ life is increasing. Thus, tribunals are going to play an important role in redressing citizens’ grievances as per my view and analysis.

References:

1. M.L. Jand , The Administrative Tribunals- Law and procedure

2. Law Commissions’ Report, titled “Assessment of Statutory Frameworks of Tribunals in India”

3. Swaran Singh Committee Report, 1976

4. M. Laxmikanth, Public administration

5. Krishna Das Raj Gopal, “Devaluing High Courts”

6. K. Vivek Reddy, “Law panel wants more autonomy for Tribunals”

History of Regulation: The Great Crash of 1929 and Birth of Security and Exchange Commission(SEC)

A Review of the events leading to the ‘Great Crash of 1929’ and contribution of James Landis in development of the Securities and Exchange Commission (SEC) which is considered as most successful of all federal regulatory agencies.

1. Introduction:

We are gradually heading towards 90^th anniversary of what we call as the greatest financial crisis ever i.e. “The Great Crash of 1929”. I would rather like to call it as the greatest financial lesson that we chose to ignore to again witness a crisis in 1987 and 2008. We can say it to be the biggest crash in the stock markets since the beginning of the records. Years of booming prosperity in USA during 1920s ended in a catastrophe. First time, investors had put a large amount of money on the basis of speculation.  But, the market experienced a very sharp fall. Large chunk of wealth of people got eroded. It was followed by widespread failure of banks. Millions of people lost everything. Poverty was really all around. It was really pitiful that a depression followed the crash and this depression spread all around the world. The depression continued for more than a decade. Historians consider it as a prelude to World War II.

I have tried to plot the situation in words during the time of crash to give a feel of the seriousness of the disaster.

Wednesday 23^rd October, 1929: Plummeting of share prices on New York Stock Exchange. Investors were shocked as the market only rose for the last five years, never witnessed a fall.

Thursday 24^th October 1929: As a result, investors sold 2.5 millions of shares. People were coming to trade stocks in large numbers and market moved into a ‘downward spiral’.  People could sense that some change has occurred, though they didn’t know the exact change. Prices started falling rapidly $3, $5, $20 a share. There is a saying that New York stock exchange ‘screamed and puffed’, as the drop that exchange was witnessing was very terrible and sharp. People were in a shock because of the happenings on the stock exchange. A gathering of thousands of people could be seen in front of the exchange .Streets were filled with huge crowds. People were desperately waiting for any kind of news from inside of the exchange but in vain. Despite of their efforts they were unable to know what was going on. The thousands of people waiting outside were completely unaware of the scale of disaster that was unfolding gradually. They could not even imagine that prosperity that they thought was perpetual would be swept by a financial disaster in next few days.

News daily published on October 25^th, 1929 (Source: Internet, http://www.history.com) read as:

October 28, 1929: Black Monday, The ‘Dow Jones Industrial Average (DJIA)’ experienced a decline of around 13 per cent. (Source: Stock Market Crash of 1929 | Federal Reserve History)

October 29, 1929: Black Tuesday, Market experienced a drop of nearly 12 per cent.

The declining trend continued, and by mid of November, Dow value experienced a loss of 50 per cent i.e. lost half its value. The downward slide went on till 1932 summer when the closing value of Dow was 41.22. Dow has never fallen below this value in 20^th Century. If we compare this value with the peak value, we find a difference of around 89 per cent. The impact was so severe that it took nearly 25 years till November, 1954 to again return to heights during pre-crash period.  (Source of data: Stock Market Crash of 1929| Federal Reserve History).

Now, I will try to depict the crash through graphs. (Source of original graph: Student paper, University of Notre Dame). I have modified it according to the need for better understanding.

After the crash, people argued that finance should be nationalised. Government should take over banks and financial system. ‘New Deal’, the basket of projects and programs introduced by President Roosevelt during ‘Great Depression’ for restoration of prosperity in USA, was looking for a mid-way between unregulated capitalism and nationalism and socialism.

Now, James Landis comes into the picture, aging just 29 years at the time of the great crash. Landis proposed for ‘regulatory commissions’ which would adjudicate on case by case basis. And essentially what was created was Securities and Exchange Commission in 1934. He was one of the original New Dealers who wrote the charter of Securities and Exchange Commission (SEC), when USA was reeling with depression and on the verge of bankruptcy. Securities Act of 1933 and the Securities Exchange Act of 1934 is still regarded as the two regulatory statutes that has been most skilfully crafted by Congress, owing to ‘legislative draftmanship’ of Landis. The SEC installed a bust of Landis to celebrate its 70^th anniversary. This tells us the importance of contribution of Landis to the development of SEC. Landis helped create many policies to provide the structure and the way businesses operate in USA, even today and his role brought excellence in public services in USA. He played a remarkable role to bring stock exchanges of USA under the ambit of federal regulation. He is regarded as one of the “Prophets of Regulation” in USA (Source: Thomas K. Mc Craw, Prophets of Regulation: Charles Francis Adams, Louis D. Brandeis, James M. Landis, and Alfred E.Kahn). He was profiled as “The legend of Landis” in an article of Fortune (Source: Thomas K McCraw, Book Review, Dean of the Regulators).

He was the youngest dean of the Harvard Law School and adviser to Joseph E Kennedy, who was the first head of the SEC. Later on, he became chairman of SEC.

In this paper, I have attempted to review the events that led to Great Crash of 1929, the rise of Securities and Exchange Commission following this crash and the significant contribution of James M. Landis to the development of this Commission. These need not be viewed separately; rather they are linked with each other in my view.

2. Literature Review of Great Crash: Understanding through eyes of eminent writers:

In this section, I have tried to review the literature to find out the factors that led to Great Crash of 1929. I have taken a path of visiting through views of different writers presented either in their original work or reviewed by some other author.

2.1 H. Parker Willis

(Source: H. Parker Willis, “Who Caused the Panic of 1929?” The North American Review)

According to H Parker Willis, Federal Reserve System was the root cause of Great Crash of 1929. The banking funds were used heavily in order to promote the speculation. But, there was no satisfactory protection.

He criticised Federal Reserve for ‘easy money policy’ prevalent in the year 1927. Fed also failed to quickly raise interest rates during March 1928 and 1929. Critics have also blamed Federal Reserve for ‘inflation of credit’ and ‘tight credit’ as the cause.

2.2 Irving Fisher of Yale:

(Source: Irving Fisher, The Stock Market Crash-and After)

He has presented a very deep analysis. In analyses that were done earlier to him, the focus was mainly on simple political explanations. But, Fisher has delved deeper into financial and economic aspects.

Fisher argues that new securities that were offered gradually flooded the market, peak of which was achieved during September and October of 1929.  This was like throwing the market into a never ending gorge. According to him, it was an error on part of Federal Reserve not to raise interest rates.

New York City banks had to withdraw from the call loan market due to an outward flow of 500 million dollars in gold. Their place was now taken by individuals, corporations and foreigners as they were attracted by high rate of interest. This resulted in a “rebound effect”. This effect can be understood as coming back of American capital to home from overseas due to call loans offering high returns. Hence, the foreign banks were compelled to increase their interest rates. This resulted in a kind of financial crisis abroad due to which foreign holders had to liquidate their holdings in America.

2.3 Alexander Dana Noyes:

(Source: The Stock Market Crash of 1929: A Review Article, Author(s): Maury Klein, The Business History Review)

According to him, easy money decision adopted by Federal Reserve was a wrong decision. In addition to it; he has looked at the issue of ‘export surplus’. According to his figures, export surplus was 2.7 billion dollar for four years at that time. This was much higher compared to previous surpluses. This resulted in a rapid increment in foreign loans mainly from Central Europe and South America. Notably, these loans were of inferior quality.

According to him, the illusion of increasing prosperity and increasing prices is what that led to abyss. ‘Orgy of Speculation’ which is considered as responsible for crash, was fuelled by this illusion

.2.4 Frederick Lewis Allen:

(Source: Frederick Lewis Allen, Only Yesterday: An Informal History of the 1920’s; The Stock Market Crash of 1929: A Review Article, Author(s): Maury Klein, The Business History Review)

Allen has depicted the 1920’s as “New Era”. On the one side it has end of World War I and on the other side it has the great crash. He has portrayed a new era in which life quality has improved for a wide range of people. These people believe that this prosperity is going to progress upward for an indefinite period. Allen has given the concept of ‘chain reaction’ that helped to spread gospel of New Era.

2.5 Galbraith:

(Source: Galbraith, Great Crash)

Galbraith agrees with the view of Allen. Though there was a massive participation in stock market speculation, this is not the most striking thing for Galbraith. The striking thing for him is how this animal of speculation was occupying central position in the culture of America.

He argues that cause of crash was preceding orgy of speculation. He claims that no-one knows the reasons of this orgy. He dismisses the argument that easy credit was the impelling factor that led to margin-buying of stocks by people. He has laid emphasis on the ‘mood’. It is more important factor for him than interest rate and credit supply.

2.6 Milton Friedman and Anna Schwartz:

(Source: The Stock Market Crash of 1929: A Review Article, Author(s): Maury Klein, The Business History Review)

They have argued ‘inflation’ as the root cause of the crash amongst the various complex causes. By inflation, they imply an unwarranted increase in bank credit and currency.

2.7 Patterson:

(Source: Patterson, The Great Boom and Panic: 1921-1929; The Stock Market Crash of 1929: A Review Article, Author(s): Maury Klein, The Business History Review)

He has agreed with the earlier theme of inflation. Credit was extended not only for businesses but also for speculation. This resulted in a debt condition that was illiquid and was present on an enormous scale. He argues that international financial troubles also contributed to this crash.

Aftermath of World War I, America recovered very well. From 1925, the notion of ‘New Era’ emerged. People believed that this era of boom is perpetual. According to him, the problem got aggravated with Federal Reserve loosening credit. He argues that it should have been tightened at that time. Even the political world lacked appetite to take any action. President Coolidge took no action to stop it, rather provided approval for expansion. Though, Hoover had scepticism about what was going at that time, but lacked appetite to go to public.

These events resulted in what Patterson termed as “grand illusion of the new era”. There was always an option for Federal Reserve to use instruments of credit control and currency. It could have prevented either extremes from occurring i.e. burst or boom. This could have ended the business cycles’ tyranny which has recurring expansion and contraction. But, unfortunately Federal Reserve never bothered about it. On the issue of credit inflation, his views were same as Willis and Hoover.

2.8 Robert Sobel:

(Source: The Stock Market Crash of 1929: A Review Article, Author(s): Maury Klein, The Business History Review)

He has emphasised on social and psychological factors leading to the crash. According to him real cause of the crash was not market runaway. But, it was Wall Streets’ weaknesses. Crash can be thought as a resultant of morbid nexus between speculation and business. This was aggravated by inability of political and financial leaders.

2.9 Barrie A Wigmore:

(Source: Barrie A. Wigmore, The Crash and Its Aftermath: A History of Securities Markets in the United States, 1929-1933; The Stock Market Crash of 1929: A Review Article, Author(s): Maury Klein, The Business History Review)

His analysis seems to be different from previous ones. He has not focussed much on the story part. He has just given an outline of the story. His emphasis lies on financial components. For his analysis, he has collected and compiled data from nearly 142 companies. He has done an excellent analysis of performance of stocks. Based on his analysis he says that speculative mania was not limited to small investors, it had caught financial professionals as well.

At last, he has provided factors which contributed to the crash. These factors include credit tightening by Federal Reserve, shut-down of many small banks in the country, influences from international arena, fall in important sectors of economy namely automobiles, construction.

2.10 Harold Bierman Jr.

(Source: Harold Bierman Jr., The Great Myths of 1929 and the Lessons to be Learned)

He has justified the title of his work .I find that in his work, he has greatly explained what we call as “great myths” related to the crash of 1929. He has refused to accept the seven popular myths related to the crash, the most prominent myth being, stocks were “obviously overpriced”. He has done analysis of various types of data. Based on these data, he says that ‘ratio of share price to the earnings of the people’ was reasonable at that time. He does not stop here in his analysis. He has compared the crash of 1929 and 1987 to delve deeper. By this comparison he finds a confirmation that, in either case it is not possible for anyone to say something exact on the drastic drop in stock prices.

He calls this unpredictability “an extremely important lesson”. He terms the balance between pessimism and optimism of stock market as ‘delicate’.

2.10 Eugene N White:

(Source: Eugene N. White “When the Ticker Ran Late: The Stock Market Boom and Crash of 1929”; The Stock Market Crash of 1929: A Review Article, Author(s): Maury Klein, The Business History Review)

He has explained crash as a classic example of “asset bubble”. He has focussed on ‘fundamentals’. According to White, fundamentals played the role of initiator which drove speculative bubble. He disagrees with the view that Federal Reserve did nothing to slow down the boom. But, tighter monetary policy adopted by Fed backfired and economy went into a recession.

White agrees with the views of other writers that 1920’s was a period of growth and prosperity. Notably, America’s industry and commerce underwent a major transformation in its structures and fundamentals also. White argues that, this shift of fundamentals can be thought of as initiation of the boom.

Delving into the causes of the crash, White says that there was no good news in the market that could help in revival of market in aftermath of September when market was on a decline. In fact, bad news affected enthusiasm very badly, accompanied by increasing interest rates, tightening of credit, doubts about growth of production. These events led to markets’ ‘downward drift’ eventually resulting into a crash.

2.11 Robert Shiller:

(Source: Robert J. Shiller, Irrational Exuberance, Princeton, N.J., 2000)

In his work, he also talks about ‘speculative bubble’ like earlier writers. He has used the term “irrational exuberance” for explanation of Bull Market of 1929.

He has tried to find whether media impacted investors at that time. Based on his survey of newspapers that were published in the days surrounding the crash, he concludes that 1929’s stock market crash cannot be considered as impact of news stories.

3. Events leading to The Great Crash of 1929: The Story

In this section, I have attempted to present a general story of the events leading to the Great Crash of 1929 based on my analysis. The specific causes have already been discussed in previous section. I have gone through various research papers, documentaries, blogs, articles, history on websites of US Agencies on The Great Crash to do analysis and build a story out of it.

3.1 Aftermath of World War I:

The events happening in present does not always have its cause in the present. To have a better understanding of the present event, we need to look back into the past. Same applies to the Great Crash of 1929. I am trying to explain, how the events that happened a decade back led to the crash. In the World War I, USA was on the winning side alongside Britain and European allied powers. Any war leads to de-stabilisation of economy due to the hefty sum that gets exhausted in fighting the war. Due to this, Britain and other European countries were financially exhausted after the war. But, interestingly economy of US was not affected much. In fact it was the only economy which was not destructed by war and was flourishing. The same pattern has also been observed in World War II. This is due to the fact that Europe needed loans to rebuild themselves and this loan was provided by US. I would say WW1 was a great contributor to the “Roaring 20’s” in US.

3.2 Change in American life: Culture of Consumerism develops:

As mentioned above, there was an expansion in US economy post war. This led to a change in everyday life in US in 1920s. It was witnessing rapid electrification and a technological growth. Even, the smaller towns got electrified. Domestic consumption was increasing rapidly. Prior to the 20’s goods like car etc. were considered as luxury goods. But, the situation changed. The luxury goods were now becoming necessary goods. In short we can say that culture of consumerism was thriving.  During this period, the scale on which mass consumption occurred had never occurred before in the history of USA.

Another important thing that came in my analysis is the innovation of “instalment buying” and the idea of “buy now, pay later”. Let us understand what these animals are. This is an innovation in which people could buy a product, however costly it is. They had an option that they do not require to pay the whole amount at the moment of buying. Rather, they could buy now and pay for it later in instalments by taking credit. ‘Buying on credit’ is the key idea to focus on for our analysis. People got addicted to this system of credit buying. This led to prevalence of socio-cultural phenomenon of ‘instant gratification’. This was a kind of ‘play culture’ that developed along with this consumerism which says “We believe in instant gratification. Take care of now; do not worry about the future, live for the moment”. People formed a view that if a person is born in America, he has all the right to be rich.

These are very important socio-cultural aspects that would help in our analysis of the crash.

3.3 Liberty Bonds and Investing Culture:

Now, People of USA had two things ‘greater disposable income’ and ‘easy credit’. But, as it happens in any consumerism culture, people were still not satisfied. They wanted to grow richer. Hence, they were searching for some newer ways that could make them richer. Keeping this in mind, we would shift our discussion to “Liberty Bonds”. Let us understand what these liberty bonds were. As discussed in above sections, European countries wanted loan from US to rebuild them. To provide them with loan, US Government needed money. But, the question arises where would money come from? The answer to this question is from ‘people’. The next question is how? The answer is through ‘Liberty Bonds’. The Liberty bonds were the bonds that were being sold to people by US Government to raise money from the people in order to fund European war-hit countries. Now, why the people would buy?  They would buy because they could get interest out of it. These bonds were promoted by celebrities like Fairbanks, Charlie Chaplin on request of Government. But, why all this should concern us?

This should concern us because these bonds developed a ‘culture of investing’ in US. By virtue of buying these bonds, a lot of people were now ‘investors’. They invested in securities, the very first time in their lives. They were getting interest at the interval of 6 months. They could also do trading of securities in market. They were getting habituated to see the price of the bond that they were having, in newspaper every day. Now the ordinary man of America was habituated to buy securities which he had never bought earlier.

3.4 Securities market opens up: Role of Charles Mitchell:

The discussion above was focussed mainly on ‘ordinary people’. But, there are always some people having grit who want to extract advantage of every situation to maximize their profits. The same was the case with America of 1920s. These people were ‘Wall Street Bankers’ and the new situation which they were planning to take advantage was ‘investing culture’. We know that American financial system has always revolved around Wall Street either historically or today. During 1920s Wall Street was not open for general public. It essentially comprised of few ‘elite bankers’ working together by forming groups. They were doing all the business amongst themselves and general public was nowhere involved in the picture.

But, at the same time, the investing culture was growing fast in US and Wall Street bankers were keen to devise a mechanism to extract money from people to maximize their profit. To their advantage came a man named ‘Charles Mitchell’. He was then president of National City Bank. He did a good amount of analysis and concluded that they need to do two things. First is to do marketing of other instruments like common stocks, corporate bonds. Secondly, create awareness among public that these investments are decent.

The argument he put up was that, people ‘willingly’ purchased bonds when the government employed this instrument to raise capital. Now, private companies can also use this strategy. There is a strong possibility they would surely purchase share and capital if tempted properly. The temptation could be in the form of lucrative profits. There was a need to remove the stigma associated with stocks that stocks are not for general public because of the riskiness involved. Liberty bonds somewhat removed this stigma.

Mitchell’s idea worked finally. Now, private companies could also raise capital through general public. He started exploitation of the market that seemed very lucrative to him. Within a span of year, he started many brokerage houses in every corner of the country.

3.5 The Speculation mania grips the country:

Let us understand this animal of speculation which is considered to be the major contributing factor to the crash.

“Speculation is the act of conducting a financial transaction that has substantial risk of losing all value but with the expectation of a significant gain” (Source: Investopedia).

Simply it can be understood as: Market is dynamic, you don’t know what is going to happen next. Still you do financial transaction in bull market. Why? Though there is no firm evidence of anything, but there is always a chance that you could gain heavily with financial transaction. Risk of loss is always there. But, there is always a possibility of large profit, hence this risk gets offset. This is a general understanding of speculation.

The similar phenomenon happened with people of US back then in 1920s. With opening up of the market for general public and with some initial gains, people of US got gripped in frenzy of speculation. Both general people and finance professionals were in the grip. The numbers in which they participated was unprecedented. The frenzy spread countrywide in US rapidly. Both, big cities like New York and small towns, got embraced by this frenzy. But, the question arises how this all became a possibility? The answer is ‘technology’. The share prices that were displayed on Wall Street could reach country side through ‘telegraphic ticker tape machines’. This machine was capable of printing the prices of shares that were displayed on Wall Street in a span of few minutes. One could find ticker tape in nightclubs, in railroad depots, in beauty parlours, on ocean liners.

The market became a pervasive part of America’s play culture in the 1920.One could make a profit of $17000 just from a half thousand dollars capital. There were ‘wild speculations’ in all kinds of securities; movie company stocks, aeronautical stocks, all the auto company stocks. One of the hot stocks of the 1920s was Radio Corporation of America; it was a lot like today’s Google. American investing public felt a connection with the products in which they were investing as they were also using the same product. If I take a rough figure, securities market had around three million Americans in it .People believed that Wall Street is a changer of fortunes and the bull market is great. It is going to have perpetual rise in shares.

Every popular magazine every newspaper every radio station was fascinated by what was going on in the stock market. People charted the activities of celebrities like Charlie Chaplin or Groucho Marx and were fascinated by what stocks they happen to be speculating. It wasn’t just celebrities becoming speculators, the big Wall Street speculators were becoming celebrities themselves .They were thought of as creative entrepreneur who were bringing wealth to America. Joseph Kennedy, father of the future President Kennedy was one amongst this new breed of shrewd financial superstar. People were fascinated because some of these men like Joseph Kennedy were ordinary folks. They were men from nowhere and their rapid rise on the market was a kind of inspiration to ordinary folk. Stories circulated that anyone from Bell boys to bobbins could make easy money on the market.

3.6 Culture of Investing by Borrowing:

 I have discussed earlier how American Consumerism resulted in the culture of ‘buying on credit’ and ‘buy now, pay later’. Now, the significance of this culture will come into picture. Earlier, people used credit to buy products of daily use. Now, they started buying shares on credit. In short American consumerism penetrated into the share market. Due to the prevalent belief of people in the bull market, they didn’t hesitate to borrow hefty sums of money. Share prices were rising continuously, they could now speculate with the borrowed money. ‘Buying on margin’ or ‘Margin buying’ is the exact term coined for this process of purchasing shares. The figures say that, around ninety per cent of the stocks were purchased with money that had been borrowed.

Even, bigger problem that I analysed is the ‘absence of rules’. Due to the absence of any stringent rules, there was ‘no limit on borrowing of people’. This resulted in huge borrowing by people to buy stocks. This was made possible through ‘brokerage firms’. The mechanism was such that if you have to buy stocks worth $100, you needed only $20. Where was the rest $80 coming from? The brokerage firm provided the credit of $80 for buying. (I have taken arbitrary numbers for explanation.) . In the late 20s everything seemed to go up and up. Then that $20 could turn into investment that was worth 200 or 300. The US economy turned into what I call a ‘loan economy’ due to huge loans being given to buy stocks. Suppose, if $100 loan in total was sanctioned by US banks in 1920s, it comprised $40 loan for stocks.

As more and more money poured into the market, demand for shares increased, subsequently increasing the prices of stocks. Stock Market witnessed a growth of fifty per cent in 1928 within a short span of 1 year. Seeing this growth, investing public again borrowed more and more. This became a chain reaction.

3.7 Women also get into picture

Wall Street was hungry for new punters. Till now, women were not in picture, whatever was the reason, may be gender prejudice or something else. Wall Street was ignorant towards them earlier. But they now thought that woman can also be a potential investor. During 1920s, a large chunk of women were going to the college. As they got educated in college, their horizon expanded. By now, women had developed a great deal of interest in the securities market because they wanted to build wealth of their own and stock markets provided a way for them.

2.8 Buzz on Speculative devil:

Republican Party was in power in America during the prosperous period of 1920s. In 1920s Calvin Coolidge took charge as President. Coolidge had also invested in stock markets. Back of the mind, he was aware of the ever growing mania of speculation that took share market in its grip. Calvin Coolidge typified recklessness of 1920s as “fair devil”.But, the thing that amazes me is that, still he remained silent.

He was famous for saying that “the business of America is business”. Though, the Government knew about the devil of speculation building up but never took it seriously. Probably, they were thinking that there is growth in business, growth in economy, the best thing for government is to avoid interference and stay away.

3.9 Influence of bankers on Government: Nexus of elite bankers and Government:

During the Coolidge presidency Wall Street spark continued to grow ‘unchecked’. One could easily identify that strong links developed between Coolidge’s administration and group of elite financiers and bankers. We can call it as an ‘inner circle’ within Wall Street. They could now influence financial policy of government with their connections and immense wealth. For example JP Morgan Bank – the elite firm having highest prestige. Even its location just opposite to the stock exchange tells the whole story and its importance strategically. It would play a key role in events to come as senior partner. 

This resulted in a minimal government ‘regulation’ of Wall Street. The strong links between politicians and elite bankers prevented it. While ever rising values of investments took care of inexpert speculators. In reality, they were suffering because of ‘minimum government supervision’, but unfortunately they did not know about all this. A lot of market manipulation was going on at that time. It was rampant. As people like you and I began to put our heart and money into the market, then it really matters that government supervise.

1920s stock market can be thought of as a ‘big gambling casino’ having no element of fairness and democracy. Professional speculators rigged the market. Small scale investors were simply unaware of all this and put their life savings into it. Investors like Joseph P Kennedy cashed on this innocence of gullible investors. It was not a simple story that Kennedy just picked the right stocks. These smart investors devised a mechanism to trick innocent investors. The game started with focussing on an individual stock and start purchasing it relentlessly. This was to happen in a quiet and co-ordinated fashion. In this way, a specific stock would get hyped. They would buy that stock and then dump in the market. In this way profit went to them and loss was bear by average investors. This manipulation of market was not limited to few smart investors, but I find that many investment houses that were thought to be elite were involved in this.

3.10 Lack of Political Courage: No appetite for regulation

A new Republican President Herbert Hoover addressed Americans that America is much more prosperous than earlier times. The prosperity that America is experiencing has never been experienced before. But, behind the scenes, Hoover was also less confident about this prosperity. Hoover had scepticism in his mind about the happenings in the Wall Street and the US economy in general. But he did not have the political courage for his convictions. So when he became president, he took no step to stop or control this wild fervour of speculation. He should have asked the Federal Reserve to tighten the rules on margin speculation in the stock market. But unfortunately, he did nothing for it. Like his predecessor Coolidge, he also had no appetite for regulation of the marketplace.

But, there was a person named Paul Warburg who broke ranks with the Wall Street aristocracy and issued a bleak warning. He warned about a general ‘depression’ that could bind the whole country. His prediction was based on his findings that collapse of market is going to happen due to unwarranted spread of ‘orgies of unrestrained speculation’. But, his prediction was paid no regard. Investment bubble kept expanding. This bubble was fuelled by addition of new companies to the stock exchange of New York. I found a data while doing analysis which says that there was addition of 60 new companies and 100 million shares between month of April and September in 1929 (Source: Student Paper, University of Notre Dame)

3.11 Market Volatility starts increasing:

One day apparently Joseph Kennedy said “if the shoeshine guy knows as much as I do about the stock market maybe it’s time for me to get out”. (Source: Interview of Joe Kennedy III, grandson of Joseph Kennedy).

In September 1929, the market became increasingly volatile. President Hoover was getting uncomfortable with this volatility back of the door. Herbert Hoover did keep making inquiries among his Wall Street friends asking if he should be concerned and what he received was a memo from Thomas W Lamont. Lamont was associated with JP Morgan. The memo said that there is no need for any kind of intervention of the government in the market. Lamont reassured Hoover to remain calm and there seems absolutely no reason to be concerned and the memo ended with the line: “the future appears brilliant”.

3.12 Finally the Crash:

 A destabilisation or crash was inevitable now, after all these events. And it happened, the market crashed. October 24, 1929, is considered to be the beginning of crash. This day marked the beginning of ‘panic selling’ and is often regarded as ‘Black Thursday’. People suddenly started selling their stocks. In no time investors sold millions of shares. The short term reason triggering the sudden loss of confidence on 23^rd October, 1929 remains unknown. Some argue that it was sudden fall in automobile stocks which triggered, but exact reason still is a mystery.

As per my analysis, US stock prices were experiencing a decline in early 1929 also. But, by the fall of 1929, prices touched the levels at which investors could not anticipate reasonably of earnings in future. The situation got aggravated by the gradual decline of prices in October 1929 due to some minor happenings. This led to investors losing confidence and suddenly the bubble that stock market was experiencing till now, burst. It was different from most of the market disasters, which are normally one day event. But, the Great Crash was a ‘series of events’. It stretched for a week from Wednesday, October 23 to Thursday, October, 31.  Trading of 70.8 million shares occurred in these eight frantic sessions. Dow Jones average experienced a drop of 53 points from 326.51 to 273.51 (Source: The Stock Market Crash of 1929: A Review Article, Author(s): Maury Klein, The Business History Review). This decline seemed very dramatic, hence the term ‘Great Crash of 1929’

Needless to say that much of these stocks were bought on margin i.e. by the means of loan. Prices kept declining and now, the investors were forced to do liquidation of holdings. The price fall worsened after this. If we consider September to be the peak and low to be November , there was a decline of 33 per cent in stock prices using ‘Cowles Index’ for measurement ( Source: Great Crash of 1929| Federal Reserve History). 

4. Establishment of SEC:

(Source: Joel Seligman, The Transformation of Wall Street: A History of the Securities and Exchange Commission and Modern Corporate Finance; Creation of SEC, http://www.sec.gov.in)

As discussed in previous sections, nobody was in support of regulating the securities market prior to the Great Crash of 1929. We have also seen that there was a surge in security related activities in aftermath of World War I, all ‘unregulated’.  But, there were some proposals that federal government should ask for disclosing finances and take steps such that stock could not be sold fraudulently. But, these proposals were generally ignored and not pursued seriously.

The stock market crashed in 1929. This had serious effects on confidence of public in the markets. The confidence plummeted. Investors, either big or small, suffered huge loss of money in the Great depression that ensued. Banks had given loan to the brokers and investors. So, they also suffered. 

Now, there was a dire need to take some steps to help in recovery of economy. Multiple hearings and meetings were done by Congress in order to detect the root problems and then work on finding its solutions. It was agreed that, first thing we need to do is, take measures to restore faith of public in capital market.

The Securities Act of 1933 was passed as a result of brainstorming done in these hearings. After a year Securities Exchange Act of 1934 was passed. These two laws were together responsible for creation of Securities and Exchange Commission (SEC) in 1934. It was believed that SEC will re-establish confidence of investors in US Capital Market. In fact, this was the primary motive for establishment of SEC. But, the question arises how it would restore the confidence? The answer to this question was provision of information to the investors that could be believed as reliable and frame ‘clearer rules’ for ‘truthful dealing’.

We often hear advertisements on TV about advantages of mutual funds. But in the end it also says “Mutual funds are subject to market risks”. These two laws did something similar to this. Companies which were offering securities for investing dollars were legally bound to disclose to the public, reality of their business. They must tell about the securities that are being sold by them and what are the risks. The stakeholders involved in trading and selling securities i.e. dealers, brokers, exchanges must be fair and honest to the investors.

The main figures involved in all this was: Franklin Delano Roosevelt: then President, Joseph Kennedy, father of President John Kennedy, first chairman of SEC. There was also a man who was not in the front picture till now, but his contribution could be considered as the most significant. He was none other than James M Landis one of the ‘Prophets of Regulation’ in US. I find his role as remarkable to bring stock exchanges of US under ambit of federal regulation. At the age of 34, he became commissioner and at just 36, he became a chairman of SEC which is venerable. (Source: Donald A Ritchie, James M. Landis: Dean of the Regulators, Cambridge: Harvard University Press, 1980)

5. Contribution of James Landis to the development of SEC

5.1 A brief background of James Landis:

James M Landis was born in Tokyo. He was the son to missionaries. He came to US when he was only thirteen. He studied at Princeton and Harvard Law School. After studying, he went on to do teaching instead of practising law.

5.2 Tenure as a professor at Harvard Law School:

As a teacher at Harvard Law School in his initial days, he took sessions dealing with legislations. He helped students to do research on “Blue Sky Laws” These laws were made to safeguard investors from dishonest securities salesmen. The term blue sky implies that stock salesman tries to sell everything even the above blue sky. He got mentorship of Professor Felix Frankfurter there. 

5.3 Drafting of Securities Act of 1933:

Frankfurter, mentor of Landis, arranged to send Landis to Washington to draft Securities Act of 1933. There were three persons who were mainly involved in drafting of the Act, namely Thomas G Corcoran, Benjamin Cohen and James M Landis.

Among three, two of them i.e. Cohen and Landis were influenced strongly from economic thinking of Justice Louis Brandeis who was judge at Supreme Court. This influence also got reflected in drafting of the act i.e. in the form of fullest preservation of ‘economic diversity’.

Landis was of view that administrative agency should be granted wide discretionary power. It should be allowed to make policy. On the other hand there were Cohan and Corcoran. Note that they were the ones who lost huge sums of money in stock market crash of 1929. That is why they were very much apprehensive of the financiers, a lot more than Landis. Their wish was to draft a law which contained ‘specific prohibitions’ Hence, the final act which was finalised contained blend of the two thoughts.

Landis improved the system of bringing witnesses. Earlier, prevalent system was of ‘subpoenas’. Subpoena is a writ ordering a person to appear in the court. In this system Regulatory agencies issued subpoenas for bringing witnesses. They were allowed to seek orders of court only in case of failure of appearance of witnesses. Landis modified this system. He made non-compliance an offense that could now be penalised. This transferred the court challenge burden from agency onto the witness.

He is also credited to formulate “stop order”. This order gave regulators advantage in form of time for investigating registrations of new stock. This order could stop selling of the stock till the time of completion of investigation.

Now the next task was to decide fines and terms of prisons for people of their involvement in fraudulent selling of stocks, mainly corporate executives. Landis completed this task also successfully.

He also assisted Ben Cohen in preparing list of requirements that were essential for registration of new stocks. But his assistance was limited to addition of a few requirements. Preparation of original list is credited to Cohen.

5.4 Contribution as Federal Trade Commissioner:

After drafting, Landis returned to Harvard.  Securities regulation was allocated to Federal Trade Commission (FTC) according to provisions of Securities Act. But, FTC at this point lacked expertise in it.  They got limited to small fraud policing because there were very few large firms who were not issuing new stocks due to the scepticism associated with Securities Act. They needed a consultant to handle their Securities Divisions. Landis could serve this purpose. Hence, he was called by FTC to serve as a consultant. Later, he went on to become Federal Trade Commissioner on request of Franklin D Roosevelt.

5.5 Contribution to Securities and Exchange Act of 1934:

The Securities Act of 1933 led to the situation where Wall Street was trying hard to lobby against the Act. They even threatened a “strike”. In response President Roosevelt asked Congress for clarification of the Act. This could end atmosphere of confusion and again develop confidence of business in federal regulation. Hence, Securities and Exchange Act of 1934 came into scene. Again, the triplet of Cohen, Corcoran and Landis were asked to write this act.

But, this time involvement of Landis was not as direct as the other two. Also, there were many groups in Washington which were trying to influence law making so as to bend law in their favour. Landis played a tricky game at this point. He acted in a way that all the groups thought that law was being made in their favour. But the actual law was different. He promoted the version favoured by his own group. The final draft of Securities and Exchange Act was a blend of inputs provided by all the contributors. But, the major portion was Cohen-Landis- Corcoran draft. But, interestingly, securities and exchange regulation was still assigned to Federal Trade Commission and Federal Reserve in these versions of bill. But, then question arises: How was SEC created as a separate agency? I would credit “Senator Cartel Glass” a democrat from Virginia for creation of SEC as a separate agency. He had drafted ‘Federal Reserve Act’ earlier and wanted to keep Federal Reserve Board away from gambling of stock market.  Glass persuaded Congress for adding provision for creation of SEC and finally Congress agreed to it and birth of SEC occurred.

The Securities and Exchange Act was passed by Congress on June 1, 1934, and the Securities and Exchange Commission got operational on June 6, 1934.  Now, the ball was in the hands of Roosevelt. He had to disclose his preference for SEC. The name of Ferdinand Pecora and James Landis featured in the list. It was expected and was not a surprise. But, the real surprise came in the form of Roosevelt suggesting Joseph P Kennedy as chairman of SEC.

5.6 Contribution as Adviser to Kennedy in SEC:

Kennedy was actually a smart being and realised the talents of Landis very soon. That is why Landis was provided all the freedom by Kennedy to create ‘administrative practices and legal procedures’ for the SEC. Landis supported Kennedy in his efforts. Kennedy and Landis wanted that SEC not only gets limited to strict role of prosecutor because the need of the hour was to restore nation’s prosperity. They wanted co-operation of SEC and Wall Street.

Their continuous efforts started giving results. Around 25 stock exchanges filed their application in pursuance of SEC Act. Not only stock exchanges, but also securities were being registered by corporations. A rough figure of Securities that were registered by corporates stands around 3000. All these efforts were directed towards the goal to boost the markets by restoration of the confidence and bringing in new money.

5.7 Contribution as Chairman of SEC:

Joseph P Kennedy quitted from the position of chairman in September of 1935. James M Landis became the obvious choice for his successor. Landis now became chairman of SEC. On analysis, I find that more or less his intentions were also same as that of Kennedy. He also wanted co-operation with Wall Street and ‘self-regulation’ of exchange. Landis was an outstanding administrator and there is no question mark on his level of intelligence. In addition to it he was strong-willed to fight any adversity. During this time, participation of SEC was limited to a “friend of the court” as reflected out in American Public Service Company’s case against Public Utilities Holding Act of 1935. In this case constitutionality of the Act was challenged.

Now, brainstorming by Landis began. He experimented with Electric Bond and Share Company which was the biggest electricity utility company of that time. Landis tried negotiating with the President of the Company but in vain. SEC chairman played the trick by pre-arranging a suit with a judge who was more sympathetic. The judgement was in support of SEC. In this way, Public Utilities Holding Company Act was endorsed as constitutional by Supreme Court.

At this time, SEC also got overburdened by the load of investigation for securities regulation. In a month it had to investigate 400 cases on an average. This was enormous and there was a need felt to lessen the burden.  Again Landis and the Commission found the way out. They transferred the cases to business committees of exchanges for “self-regulation”.

Though, Landis got accusations and criticisms that he is not taking any strong action to protect the investors. He was cautious in his approach. According to him, maintenance of economic diversity was important. Smaller exchanges need to be protected as well. He thought that if he takes any step to remove any bad side of New York Stock Exchange, it could result in destruction of exchanges that were working on a smaller scale.

He was a master in drafting legislations and rulings. There was a huge reliance upon him to draft rulings in SEC. Nearly; all the commissioners entirely depended on him in this aspect. I found a very interesting event that shows his legislative draftmanship: Landis did not take the bar exam till the age of 48. At the age of 48 when he decided to take the exam he feared that he might fail “Dean of Harvard Law School” failing in bar exam. But, interestingly, the first question that featured in that exam was a law drafted by Landis himself. (Source: Interview of Donald A Ritchie, Biographer of James M Landis).

5.8 Extension of Tenure:

Landis wished to return to Cambridge and work as dean. But, again he was persuaded by President Roosevelt to stay back. Due to this, he had to stay back in office till 1937. This was the time when stock-market and the whole economy was suffering from relapse and was deteriorating. A severe recession knocked the door. There was blame game going on. SEC regulations were blamed as the root cause by New York Stock Exchange’s President.

But, according to Landis, this decline was due to the speculators. They were back to the markets and were trying to make benefit out of prosperity of New Deal. He was completely against withdrawal of government regulations as it would de-stabilise the markets.

He left office in August 1937 and was succeeded by William O Douglas. His contribution to SEC was not limited to only his tenure as chairman. Douglas took lessons from Landis. A statement of Douglas tells it all: “Under Jim, we were taught how to get things done.  And now we’re going to go ahead and get them done” (Source: Chairman’s speech on the website of SEC http://www.sec.gov.in)

Under chairmanship of Douglas, New York Stock Exchange went through major revision. This included provision of a public representative, technical staff and a paid president for the exchange. This change of rules may be thought of as winning of “self-regulatory policies” which were advocated by Landis.

To sum up:

Based on the above discussion, I conclude that the role of James M Landis as very significant in development of Securities and Exchange Commission which is considered as most successful of all federal regulatory agencies. Though he was a believer of free market capitalist system he also held the belief that there are always some persons who in order to take advantages try to manipulate the market. Hence, ‘government regulation’ is a necessity to prevent any abuses that has occurred in the past. I agree to him being called as one of the ‘Prophets of Regulation’ in USA. (Source: Thomas K. Mc Craw, Prophets of Regulation: Charles Francis Adams, Louis D. Brandeis, James M. Landis, and Alfred E.Kahn, Cambridge: Harvard University Press, 1984)

I will close this paper by summarizing career of Landis in his own words: “I have always considered that my work with the Government was to try to make administrative regulation sufficiently effective so as to enable capitalism to live up to its own pretensions” (Source: Donald A Ritchie, James M. Landis: Dean of the Regulators, Cambridge: Harvard University Press, 1980)

References:

• Donald A Ritchie, James M. Landis: Dean of the Regulators, Cambridge: Harvard University Press, 1980
• The Stock Market Crash of 1929: A Review Article, Author(s): Maury Klein, The Business History Review, Vol. 75, No. 2 (Summer, 2001), pp. 325-351
• James M. Landis: Dean of the Regulators by Donald A. Ritchie Review by: Thomas K. McCraw Source: The Business History Review, Vol. 54, No. 3 (Autumn, 1980), pp. 397-399
• Creation of SEC, www.sec.gov.in
• Thomas K. Mc Craw, Prophets of Regulation: Charles Francis Adams, Louis D. Brandeis, James M. Landis, and Alfred E.Kahn, Cambridge: Harvard University Press, 1984
• Stock Market Crash of 1929| Federal Reserve History
• Student paper, University of Notre Dame
• H. Parker Willis, “Who Caused the Panic of 1929?” North American Review 229
• Irving Fisher, the Stock Market Crash-and After
• Frederick Lewis Allen, Only Yesterday: An Informal History of the 1920’s
• Galbraith, Great Crash
• Robert Sobel, The Great Bull Market: Wall Street in the 1920’s
• Barrie A. Wigmore, The Crash and Its Aftermath: A History of Securities Markets in the United States, 1929-1933
• Harold Bierman Jr., The Great Myths of 1929 and the Lessons to be Learned
• Eugene N. White “When the Ticker Ran Late: The Stock Market Boom and Crash of 1929
• Robert J. Shiller, Irrational Exuberance, Princeton, N.J., 2000
• Investopedia
• Joe Kennedy’s later recollections
• Joel Seligman, The Transformation of Wall Street: A History of the Securities and Exchange Commission
• Chairman’s speech on the website of SEC www.sec.gov.in

The Journey Begins

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Good company in a journey makes the way seem shorter. — Izaak Walton