Corporations Revisited

The issue of demands continues to surface (and die) at the Occupations, with a recent casualty being a ‘jobs for all’ platform proposed at Occupy Wall Street. Media coverage has obsessed about the lack of demands, yet it has missed the fact that a number of General Assemblies have approved one: end corporate personhood. As far as we can gather, this is the one point on which the OWS and the Occupy Boston groups have agreed on, and at our various discussions at Occupy Boston in particular, it is the one demand we find nearly everyone there actively supporting. Although we addressed the corporate personhood issue before, it is worth revisiting given its emergence as something of a consensus position.

At a tactical level calling for an end to corporate personhood, especially while rejecting most other demands, is just politically tone deaf. For one, why would a movement claiming to represent the interests of 99% begin with such a technical and dislocated demand? It is hardly high on the list of the many groups and persons who are suffering from the current economic order and who might very well tacitly support the Occupations. While Occupy enjoys a fair, though unmeasurable, amount of tacit popular support, at some point it will have to convert at least some of that support into active support. To do that, it will have to show political insight into the needs and desires of those potential supporters – workers, debt-burdened consumers, immigrants. Corporate personhood is hardly high on their list, and it is certainly not the main obstacle to meeting their demands.

Moreover, the demand to end corporate personhood is a tactical mistake because it is so middling and indeterminate. It seeks to tear down some aspect of the present, but does not even hint at the ultimate structure of ownership, scale of production, and justice of distribution that a more desirable economic order would have. Ending corporate personhood is neither a broad and radical desire, like a demand to create jobs for all or demand to nationalize banks and socialize investment, nor is it a concrete demand, like a millionaire’s tax and suspension of foreclosures. In other words, it does not seem to offer either a utopian vision nor any immediate improvement in the majority’s economic situation. The demand speaks to a kind of poverty of imagination and, at a more mundane level, betrays an odd unwillingness to think about the immediate concerns of the 99%.

Of course, we know why the idea of ‘corporate personhood’ has seized the Occupiers’ imagination. In the Citizens United case, the Supreme Court used the idea of corporate personhood to defend the free speech rights of corporations and to undermine federal limits on campaign contributions and political ads by corporations and unions. Further, Citizens United was decided against the background of Kelo v. City of New London. That case expanded the legitimate use of eminent domain to allow the state to force property owners to sell their land to the government for the purposes of having that land resold to private development corporations (rather than be put to use by the state itself). If the corruption of democracy is generally associated with corporations and concentrated wealth, these cases have made corporate personhood the special object of contempt.

Citizens and Kelo were both bad cases, but they were not bad cases because of the very idea of corporate personhood. They were bad cases because they constructed the legal personality of corporations in bad, undemocratic ways. There is nothing inherent in the very idea of a corporate person that leads to undemocratic outcomes. As we pointed out in our previous post on corporations, a corporation is a collective economic entity with certain powers, rights, and liabilities. These features of its legal ‘personality’ are artifacts of law. The undesirable legal changes to corporate governance – by judges and legislators – are a sign that democracy was already corrupted well before the expansion of certain corporate powers. Under conditions of real democracy, we might construct this legal personality in ways that were more suited to serving the public interest.

In fact, there are elements of corporate personality that still bear the traces of democratic control. In many civil cases, corporations are subject to ‘strict liability.’ That means they are economically liable for the harm some decision they make causes, even if they did not intend harm others and could not have known of the consequence. This is not the kind of liability to which an individual person can normally be held. (An individual generally is liable only if some kind of intent – even if only at the minimal level of negligence – is present.) Part of the reason for this difference in liability is to acknowledge the greater social power that corporations have, and to impose a discipline on them given the risks they take. Knowing they face strict liability, and the prospect of massive damages from hostile juries, forces a degree of self-supervision of corporate activities. Civil lawsuits might not be the best way to deal with the unequal social power of corporations. But the point is that the lower standards of intent that corporations face is a feature of how lawmakers have constructed their legal personhood. That corporations have legal personality is what makes that personality subject to democratic control.

Thoughts on Corporations

Ever high minded, The New Republic has seen reason to explain to us why the Occupy movement is hysterical  and dangerous. Worse yet, trotting out an Cold War trope, TNR thinks the General Assembly political form “has an air of group-think about it that is, or should be, troubling to liberals.” Group-think so very unlike, of course, corporate boardrooms, trading floors, and, dare we say it, editorial boards. (We struggle to remember the last war TNR failed, so predictably, to support.) Luckily, we have that venerable mouthpiece of radical criticism, Business Insider, to remind us of some of the reasons why one might be on the street these days. Its summary of the economic situation is excellent, and very helpfully arranged with illuminating graphics.

For our part, we think the Occupy movement, like most protest movements, is mixed, and still in formation. Having spent the weekend at Occupy Boston, and yesterday facilitating an open air class at the camp, perhaps the most noticeable and exciting feature of the movement is the desire and willingness to think everything anew. The freeing of the imagination may, in fact, be the first and most significant effect of these protests. And just about everybody there seems to be open to debating all kinds of new ideas.

Of course, the imagination can go anywhere, and the Occupy movement will have to make some choices down the road. To the end of trying to think through the different possibilities, we discussed alternative ways of thinking about debt and corporations at the class yesterday. Below are some of our initial thoughts on corporations. The basic message we were trying to work through was ‘democratize, don’t destroy.’

Our economy is based on artifacts. Property, contract, money, corporations, these are all economic domains based on law and convention. Markets themselves are not natural, they are products of law. There is no such thing as ‘the market,’ with necessary and natural features. There are markets. The ‘fictitious’ character of our economy sometimes becomes the object of attack, especially when some of these fictions seem out of control and not work to our benefit. Anyone who has been to an Occupy event will have met Ron Paulites, who not only want to end the Fed, but also return to the gold standard. The return to the gold standard is offered with the, in our mind misguided, comfort of appearing to return to something concrete – gold. Abolish the fiction, so we can get back to the real thing. (A return to the gold standard would contract the money supply so severely that it would make the credit crunch of 2008 look like a hiccup.)

But it’s not just the Paulites who want to abolish the economic fictions that seem out of control. One also sees a lot of signs against corporations. ‘Corporations are not persons,’ is a familiar one. In so far as these signs are protestations against the Citizens United ruling, which used the fact that corporations are ‘legal persons’ to argue that they have free speech rights, we agree with these signs. But these signs often express a kind of parallel antagonism to the Paulite rejection of fiat money – abolish the fiction, return us to the real thing. Real persons, actual gold.

That is, in its roughest outlines, the ‘destroy’ side, or at least ‘refuse’. But the problem is that in large, global economy, based on the division of labor, there is no way out of such abstract or seemingly ‘fictitious’ relationships. And in fact, there are some very good things about them, on the basis of which one could start thinking about alternatives. In the case of corporations, we can think of at least three aspects of its legal or ‘fictitious’ personality that are a good thing. For one, abstracting for the moment from the specific rules of ownership and control, a corporation is a large amount of cooperative workers who work towards a common end. It is a collective economic agent. As such, it can take advantage of economies of scale, and these economies are potentially enormous (think of electricity, or steel, or even health insurance. Those actuarial risks are much more reliably calculated over a massive population than a small one.) There is no reason, in principle, why these economies of scale cannot benefit everyone. One can imagine large scale production dramatically reducing the amount of hours any given person must spend doing necessary work. That’s not our society – in which one in six have too little or no work, while many of the rest have to work too long. But it could be our society – and an important feature of that society would be using the productivity of large scale enterprises to meet human needs with minimal effort.

Second, a corporation is a separation of ownership and control. The ‘mom and pop store’ – the real fictions of the American economy, since 80% of US workers are employed in businesses of 500 or more (more than any other industrial economy) – is one where ownership and control lie in the same persons. But a corporation works by this separation owners and controllers, shareholders and managers, which is part of the reason why this construction ‘legal person’ is required. Over the past thirty years the ‘shareholder revolution’ has meant that this separation of ownership and control has worked largely against public interests. Previously passive shareholders have demanded higher profits, bigger dividends, which required transforming managers into creators of (short-term) shareholder value rather than managers of a long-term enterprise with various interests (worker, public, etc…) at stake. There is not much to defend in the old, pre-1980s managerial capitalism, but what the new relationship has meant is distributing more value to shareholders by squeezing workers. Slackwire recently graphed dividends against corporate profits, and produced a great graph of the shareholder revolution, showing the rapid rise in dividends plus net share repurchases (read the whole post, it’s excellent):

These dividend payouts, and shareholders cashing in, came from reorienting activities to the short-term share values, and by keeping wages low – hardly an arrangement that has served the public interest. (Especially since households compensated for stagnating wages by borrowing, and we know how that has gone.) But there is nothing necessary about this particular relationship between owners and controlers.

In fact, the separation of ownership and control at least used to be considered, by the Left, as one of the good things about corporations. It suggested that, against reigning ideology, the rentiers (shareholders) didn’t do much, since it was managers that ran day-to-day operations. Why, then, not euthanize the shareholders, have workers hire managers, and democratize the firm? And more broadly, the point is that the relevant stakeholders in a corporation – whose very existence is recognized, in American law, as necessary only to serve a public interest – are not just shareholders but also its workers, and the general public. As an artifact of law, the structure of ownership and control could be changed so that the idea – creating this collective agents for the public good – could better fit reality. (The best summary we’ve read on these questions is still the ‘Governance’ chapter of Doug Henwood’s Wall Street, available for free download.) Again, this democratization of the corporation hinges on seeing its artificiality or ‘fictitiousness’ as a good thing – as a feature of it being a creature of law, which we can change and control.

Finally, our one other thought is that corporations are said to take risks, and to engage in risky behavior that endanger the wider community. And part of the reason why it does that is because of its fictitious personality, the fact that its managers and shareholders only bear limited risks, that corporations can ignore all kinds of negative externalities, and this leads to bad outcomes. This may be true, but it is not an inherent feature of collective economic agents. It’s a matter of how we have constructed laws and incentives, such that we often socialize the risks but privatize the benefits of corporate activity. But there is nothing in itself wrong with giving certain collective agents the power, within appropriate constraints, to take risks. Taking risks, making a bet on the future, is a necessary feature of large scale economic activity and progress. It would be nearly impossible for an economy to do things like develop new planes, which take decades to develop, test, and manufacture, or new energy technologies, if it did not allow groups to take a bet on the future, to take risks with some portion of our economic surplus. How we arrange which risks are taken, and who bears the relevant risks, as well as who benefits from the distributions is again a matter of law. But it is not the risk-taking itself that is the bad thing about corporations.

These are not final positions, but initial thoughts, produced in response to the emerging economic thinking of the new Occupy movements, and with the hope that the initial, quite justifiable, feeling of rejection of fictions might be transformed into a more positive and constructive attitude, that finds a vision of the future in the seedbed of the present. The other alternatives we have heard discussed, especially ones that try to eliminate all of our seemingly fictitious or unreal economic practices, seem to us to be more of a rejection of the division of labor and large scale production itself. It’s hard to find a positive vision in that.