The Constitutional Role of Economic Coordination Rights

This post is part of our series on the political economy of labor & the constitution. You can find all of our posts on this topic here.

Sanjukta Paul –

Arizona Teachers Go On Strike And March To State Capitol

(via Jacobin)

There’s a common notion that pervades legal and policy debate—including among fairly liberal Democrats—that collective bargaining mechanisms, and even public coordination of markets through minimum wages and working conditions, distort market outcomes and are therefore inefficient (though they may be justified by countervailing considerations). This position immediately sets up a kind of presumption against labor coordination or public coordination of markets to benefit workers, a presumption analytically and normatively supported by Law and Economics.

Too often, progressive and even left responses have been limited to asserting that considerations other than efficiency should be balanced with efficiency concerns—we should balance fairness, or humanitarian concerns, with efficiency for example; or worker voice, living wages, and so forth are indeed efficient because they correct market failures. Some critiques rely heavily on the idea that labor is different from other commodities, which can imply that we can understand everything else as a potential commodity.

While these approaches often have merit, the Law & Political Economy orientation should attend to deeper critiques of L&E emanating from fields such as economic sociology and heterodox microeconomics. These critiques call into question the coherence of basic theoretical assumptions that are indispensable to L&E’s prescriptions about what is efficient in the first place. For example, many economists now challenge the idea that prices are determined according to orthodox microeconomic assumptions, and that these “market prices” in turn maximize welfare by allocating resources in an optimal manner; a number of sociologists, meanwhile, emphasize the indispensable role of social coordination in markets.

Also, Law & Political Economy itself can pose a powerful internal challenge to L&E, by reviving and updating the old legal realist insight that all markets are legally constructed, and by applying that insight in the weeds of particular areas of law that today have been all but given up to L&E. Relatedly, the Legal Realist move of displaying, in detail, the historical contingency of certain rules of law takes on especial importance in the context of an analytic framework like L&E, which assumes certain market rules that are given by law, but also often ignores legal contingencies and treats law as derivative of independent economic principles.

No area of law has been more a fortress for L&E than antitrust law. (It has on occasion been imported directly from there into the courts’ understanding of the constitution—for example into First Amendment jurisprudence.) Therefore, antitrust law is an important “way in” to dissecting this conventional policy thinking about labor coordination (namely that absent some special showing it distorts ideal, welfare-maximizing market outcomes). And antitrust’s intersection with labor is a particularly promising location in which pulling on a few threads may help unravel a much larger portion of the framework. The reason for that is that antitrust’s interaction with workers and labor markets illustrates especially well how antitrust, and law generally, allocates coordination rights. The point here is not just to analogize the law’s treatment of capital and labor (“labor unions are like corporations”) to get to a normative conclusion. It’s to begin unraveling the idea, upon which L&E framework relies, that unmolested economic competition leads to welfare-optimizing outcomes … when that framework selectively “sees” and disfavors certain forms of economic coordination while selectively naturalizing others. Antitrust law, and L&E more generally, naturalize the forms of economic coordination embodied in the business firm, and also in a number of business arrangements controlled by powerful business firms. Labor coordination, by contrast, is both highly visible and disfavored in this analytic framework, even though it is nominally legalized by labor law and the labor exemption to antitrust law. One can see this ordering in the way that labor coordination and labor law are frequently subordinated to business coordination and (a particularly interpretation of) antitrust law in legal and policy debates about how to resolve uncertain questions of law.

For an alternative way of approaching the allocation of economic coordination rights, one that is closer in worldview to the Law & Political Economy orientation, we might look to the origins of antitrust law itself. We can find an affirmative alternate vision in these origins, informed by the legal and market conditions of the time, that is in many ways opposed to the basic assumptions of antitrust thinking today.

Markets, economic coordination, firms. Local and regional manufacturing economies that were transformed at various stages during the nineteenth century had previously been embedded in traditional market regulation, and vice versa. Sociologist William Roy puts this point so: “[m]ost industry was organized in local or regional communities that effectively prevented market dynamics from consistently undermining collective interests.” I would restate this slightly by saying that because market dynamics always involve coordination of one sort or another, traditional market dynamics often involved coordination that was not housed exclusively within firm boundaries—both in the sense that it involved inter-firm coordination, and in the (related) sense that it often involved forms of association other than those we would, modernly, recognize as firms (in which work and ownership were frequently not separated in the way that we now associate with firms, and with the legal and social category “worker”). In both senses, at least in many sectors and regions, coordination rights were once more widely dispersed across a larger set of participants.

Common law. The common law largely reflected and confirmed this ecumenical attitude to a variety of forms of economic coordination not exclusively contained within business firms. It’s well known that the common law of restraints of trade, a key concept on which legislators drew in drafting Section 1 of the Sherman Act, did not condemn horizontal price coordination beyond firm boundaries out of hand, although that is today considered the “supreme evil of antitrust.”

Corporate law. Corporate law was in transition when federal antitrust law was passed. The transition was already underway but really crystallized in the 1890s, culminating in the revision of New Jersey’s corporations statute in that decade. Prior to this transition, business firms and the source of their powers to engage in economic coordination were understood quite differently: the public source of that right, and the status of the corporation as a franchise, was much more foregrounded in both popular and legal consciousness. However, the new corporate law order eventually recharacterized corporate privileges as private rights, thus obscuring the role of the state in conferring them. The new order also generally expanded the legal privileges conferred upon shareholders relative to workers, creditors, and the public; and it conferred legal privileges that facilitated the centralization of power among shareholders in a way that likely benefitted the emerging national financial elite.

The trusts. The trusts were business associations that were national or near-national in scope, and which themselves helped to bring into being national markets. They were also creatures that bridged the two corporate law orders. As business and legal arrangements, they were necessitated by the old order (which put limits upon corporate mergers and activities, and upon firm size, geographical scope and purpose as a matter of state corporate law) but helped to presage the new one, in which corporate activities were seen as at once a private matter, more unambiguously good for society, and whose regulation by the state was viewed as an intrusion rather than as a privilege duly modified. The trusts were also the templates for the emerging mega-corporations that would define the modern American economy for decades to come.

Legislative debate. All of this brings us to the legislative debate, and the question of legislators’ view of economic coordination generally and labor coordination specifically. Legislators were responding directly to the rise of the aforementioned creatures, the trusts, and they were also responding directly to the farmer-labor led antimonopoly movement—both things they said many times during their discussions. That leads quickly to the inference that legislators disfavored the economic coordination typified by the trusts and favored the economic coordination embodied in the farmer-labor antimonopoly movement, which was as much about cultivating solidarity among the many as it was about breaking up economic control by a select few. The [antimonopoly] coalition was concerned not only with wages and working conditions, but with the inequality in economic coordination rights themselves, which had robbed many workers of their erstwhile autonomy and independence and had robbed others of the (post-emancipation) promise that they too would have it. Numerous statements by legislators show that they were affirmatively concerned about the concentration of coordination rights in too few hands: that indeed was the problem with the trusts. Dispersed forms of economic coordination, on the other hand (farmers, small producers, workers), did not pose this problem.

We have long known of the many statements by legislators to the effect that they did not wish to target worker or farmer coordination with the bill—often adding that farmers and workers were the people they aimed to help, not hurt. Understanding antitrust law as fundamentally about allocating coordination rights helps us to see these statements as an essential aspect of an affirmative vision—not as special exceptions or worse, interest-group placation. On the other hand, a failure to see this, along with the simultaneous naturalization of firm-based coordination, is what led to the well-known judicial construction of legislative intent as targeting labor coordination, in key Lochner-era decisions. And this Lochner-era crafting of our legal categories of coordination has been with us, albeit in modified form, ever since. Unseating L&E requires contesting them, and contesting them requires seeing them in the first place.

Sanjukta Paul (@sanjuktampaul) is an Assistant Professor of Law at Wayne State University. This post is a précis of Chapter 1 of Solidarity in the Shadow of Antitrust, under contract with Cambridge University Press.