Accounting for Incorporation: Part 2

Robert Hockett —

Introduction: From ‘Accounting For’ to ‘Accountable To’    

In an earlier post I welcomed legislation recently proposed by Senator Elizabeth Warren. Her Accountable Capitalism Act, I suggested, not only bids fair in the long run to render incorporated business firms less sociopathic, but also affords in the short run a fine opportunity to recall what corporate privileges are for. The latter, I argued,


are both analytically and historically best understood as ‘publicly’ conferred advantages accorded ‘private’ entities for ‘public goods’ that they provide. This interpretation of the origin and function of the corporate form, I noted, is simply inescapable when we observe the practice of conditional corporate chartering, and the law of corporate action taken ultra vires, that predominated from the dawn of American incorporation well into the 20th century.

Unfortunately, I also noted, once the 19th century conditions of capital scarcity and unreliable public revenue that had recommended incorporation as a necessary mode of ‘outsourcing’ public functions to private entities in the first place had receded, corporate history took a darker turn. Subnational state governments that once had chartered firms conditionally to discharge public functions now began to bribe them, with a view to gleaning franchise revenue. Charters now grew unconditional and firms were treated as accountable to no one but their largest shareholders. Firms grew ever larger in this new environment, and states grew weaker and ‘divide-and-conquerable’ where holding privileged ‘private’ firms to ‘public’ account was concerned. A ‘race to the bottom’ began.

What, then, I asked, is requisite to restoration of some version of the status quo ante – the world in which the truly extraordinary privileges of perpetual existence and asset-insulation (particularly limited liability, an illuminating synonym for which would be ‘limited accountability’) were conditional upon provision of some public benefit? The answer, I suggested, would involve a number of essential measures, all of which would capitalize upon the fact that it’s our federal government now that stands to mega-firms as our state governments once stood to smaller firms. I therefore promised in a sequel post to lay those out, and then to indicate how Senator Warren’s legislation would begin to take those necessary steps.

Well then, here we go.

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Accounting for Incorporation: Part 1

Robert Hockett —

Last month Senator Elizabeth Warren proposed an innovative – or better yet, restorative – new piece of legislation to the US Senate. Something like the Senator’s Accountable Capitalism Act, which would, among other things, hold corporations accountable to other stakeholders besides shareholders, is long overdue. It is in consequence much more than welcome. This owes less to the bill’s likely passage, however – it will probably die in committee this time around – than to the occasion its proposal affords us to recollect (a) what incorporation legally is and (b) what incorporation actually is for.


We seem as a society and as a legal culture to have forgotten how the corporation as a ‘publicly’ privileged mode of ‘private ordering’ came into being. Hence we have come likewise to overlook how the irreducible public/private hybridity of this now-ubiquitous institutional form gives the lie to familiar liberal and neoliberal clichés concerning a supposed fundamental divide cleaving both life in communion with others, and that life’s legal emanations, into radically distinct public and private ‘spheres.’

Senator Warren’s proposal accordingly provides not only lawyers, but also the broader public a rare opportunity to recall the true nature and purpose of incorporation – and, with those, the institutional continuum along which our contiguous public and private modes of life and collective agency are arrayed. In so doing, it also affords us an opportunity to restore to America’s productive life a critical institutional element that lay at the core of its economic ‘growth miracles’ and ‘social contracts’ alike during its most prosperous past eras.

I’d like in two posts, then, first to recall in detail what needs restoring and why, then to sketch how to restore it. In the present post I’ll stick to that what and why. In the follow-on post I’ll turn to the how – I’ll elaborate, in short, how Senator Warren’s proposal can be viewed as a sequence of first steps toward the requisite restoration.

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The Allocation of Economic Coordination Rights

Sanjukta Paul —

The concept of economic competition is central to policymaking deliberation in this country. Yet even as our understanding of that concept evolves to take better account of corporate power, our thinking about competition retains a fundamental blind spot. Simply, the boundaries of the business firm insulate many instances of economic coordination that would be deemed anti-competitive if they were to take place between firms or individual persons. The regulatory discrepancies that flow from this fact tend to entrench existing distributions of advantage, power, and opportunity rather than to balance it.

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Economic life necessarily involves competition and coordination; it always has, although our policy choices about how to allocate coordination rights change. Presently, both antitrust law and our dominant frame for economic policy more generally tend to favor top-down, hierarchical forms of coordination

grounded in ownership rights, while viewing more democratic, horizontal forms of coordination with skepticism. This deep-seated preference, which itself precedes the contemporary concern with promoting competition, can be traced in part to antitrust’s (and the law’s) original preference for protecting property rights over workers’ freedom of association and contract – even as the pre-New Deal courts invoked the freedom of contract in other areas of economic and labor policy.

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Sachs & Block on Labor Day

We’re back from our hiatus, and first up, this cross-post from On Labor, about a new blueprint for labor law. Shouldn’t every day be Labor Day?


This Labor Day, A Clean Slate for Reform

Benjamin Sachs & Sharon Block —

As divided as we have become as a country, we arrive at this Labor Day with a shared national understanding: both economic and political power are wildly out of balance, with dire consequences for the vast majority of Americans who find themselves on the losing end of this imbalance. Wherever we live, and however we vote, Americans know that both wealth and political influence are now radically concentrated in the hands of a tiny few.

What does economic inequality look like in 2018 America? Here’s an illustration: The average Amazon worker makes about $29,000 per year, while Jeff Bezos, the Amazon CEO, has a net worth of $150 billion. This means it would take an Amazon worker 5 million years, working full time, to earn what Bezos now possesses.

With respect to political inequality, the data is just as stark. Political scientists have shown that the preferences of the vast majority of Americans simply no longer have any impact on what happens in Washington. In fact, when the rich disagree wth the poor and middle class, the path our government takes has nothing to do with what anyone but the rich want.

Why is it important to consider this crisis of inequality on the day we set aside to honor labor?  Because the evisceration of the labor movement is in large measure what got us here, and resuscitating the collective power of workers is what will get us out of this mess.  The more we learn about inequality – both economic and political – the clearer it becomes that the strength of the labor movement is intimately connected with the equality of our nation. Sustain a strong labor movement and you can count on a more equal society. Kill labor and you kill equality.

The question on this Labor Day therefore must be how, in 2018, can we create a new labor movement, one that can unite the interests of a sufficient number of lower and middle income Americans so that they have the power to restore balance to our economy and politics.

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