Part II of a refereed article that originally appeared in the Journal of Criminal Justice and Popular Culture. It is lightly re-edited and stripped of footnotes and references. If there is popular demand, I will post the "works cited" in the Intro section of the last installment.
The Marketocracy
What if the first planetary government turned out to be a marketocracy—all of humanity coppertops in a matrix of markets? Marketocracy is rule by market forces, government by faith that the market is a politically neutral force of nature. It is of-a-piece with the law and economics movement, which in its most sophisticated form takes such a broad non-monetary view of costs and benefits that it transcends its origins in mundane balance sheets. Of course, the farther it breaks from monetary notions of value, from the easy metric of currency as scorekeeper, the more it falls like Icarus by proximity to heated debates that are, in essence, qualitative. These are the debates that form the business of democracy as it has been understood in the modern world.
The political mechanisms of nation-states are the traditional fora for policy debate. In a marketocracy, policy debates are exercises in futility fueled by wishful thinking. It is useless to sanction pollution. If the market wants clean air and water, the market will pay for it. Otherwise, sanctions will put the sanctioning state at a competitive disadvantage and the air and water will remain as dirty as the market will allow. A fair wage is what an employer must pay without regard for how much it costs an employee to live. Safety should be designed into consumer products when consumers are willing to pay for it rather than by governmental fiat. The public face of politics cannot gaze too far from market rules.
Nation-states engage in public free market posturing combined with private grasping for regulatory advantage. They do so as clients of transnational corporations, which gain their power in a democratic manner. Corporations capture information technology, which captures public opinion and renders the oligarchic style of robber baron capitalism (i.e., the direct payoff) obsolete. The struggle of nation-states for hegemony over the preventable harms of their corporate creations is ongoing and the outcome is very much in doubt.
When confronted with corporate control of national governments, human beings tend to think in terms of horizontal integration, or market share. In fact, transnationals are interested in vertical integration (raw material to distribution of finished products) as a means to horizontal integration, and to the extent they succeed they destroy the competing interests that exist on sufficient scale for market forces to function as a check on transnational corporate power.
In a Cancun conference, agricultural-producing states confronted their customers and put a temporary hitch in the giddyup of globalization by demanding an end to agriculture subsidies in developed countries. Rich nations want to maintain agricultural sectors in their economies. To do otherwise would mean dependence upon less wealthy nations for food, the ultimate necessity. This stand-off will last until the same corporations own production as own distribution, and not a minute longer.
United Fruit Company, the transnational that gave us the term “banana republic," is interested in high prices where bananas are consumed, not where they are grown. Early in this century, its successors moved the United States to a trade war with Europe over market share to dispose of the same bananas acquired in the first place by national power in the service of corporate power! The corporate tail wags the national dog, reversing the original role of nations and their corporate creations.
Nation-States and Corporations
Kings created corporate charters as written grants of monopoly. A bad ruler granted charters to enrich his vassals and himself. A good ruler granted charters to encourage innovation and entrepreneurship. The corporate charter as a grant of monopoly from the sovereign came to the United States with English common law.
Even when monopoly was not expressed, the courts would imply it until 1837, when the Supreme Court finally held that a right to monopoly is not implied by the granting of a corporate charter in Charles River Bridge v. Warren Bridge. Even without implied monopoly, the corporate charter remained an efficient mode of business organization if no longer quite a license to coin money. The charter was issued by the sovereign, and the recipient acquired rights that could only come from a sovereign entity holding the police power and the power of taxation, sometimes including monopoly and sometimes even overt public subsidies.
To the extent that the development of corporations can be placed within theories of political economy, the beginnings are the mercantilism of Alexander Hamilton, using sovereign power to encourage economic growth, rather than the laissez-faire capitalism endorsed by Adam Smith. Some would even find a hint of socialism in the fact the sovereign could always reclaim any “rights” granted in corporate charters under the power of eminent domain. However, a taking under this theory would require payment for the economic value of the taking, the Court held in West River Bridge Company v. Dix, 1848.
To prevent a change in a corporate charter from becoming a Fifth Amendment taking requiring compensation, it was only necessary for the states to reserve the right to amend corporate charters at the time they were granted, a precaution that became common during the Jacksonian period. It was also during this time that general business corporation acts arose, granting blanket authority to incorporate through a regular bureaucracy in the executive branch rather than seeking a special legislative charter.
At this point, the law of general for-profit corporations parted company with the law of common carriers and utilities. The latter might still be the subject of legislative charters or franchises granting monopolies and even be granted the power of eminent domain, but these monopolies came with pervasive state regulation. The theory is that a public interest in access to utilities or common carriers justifies both protection from competition and pervasive regulation.
This limited view of state intervention in the market might be contrasted with the mercantilist position that all economic development is imbued with public interest. The latter view justifies tax abatements to attract industry and, in a more extreme iteration, use of the state’s eminent domain power to take private property for the benefit of a corporation.
This use of eminent domain power has always been recognized for redevelopment corporations (i.e., public purpose and nonprofit), but in the 2004-2005 term, the Supreme Court appeared to approve condemnation for transfer to corporations with only a vague economic development purpose and no binding agreement to accomplish the purpose in Kelo v. City of New London.
In light of Kelo, it is hard to imagine any federal constitutional limits on the eminent domain power for corporations short of flagrant corruption—a direct payoff to public officials in their private capacities. When this expansive view of corporate purpose as invariably benign is politically dominant, criminal liability or even civil liability for corporate misconduct becomes problematic. That is, any such liability must be created by elected legislatures and ultimately ratified by juries that presumably reflect a fair cross section of public opinion. In this climate, corporate interests and public interests are easily conflated.
The distinction between public interest corporations (common carriers and utilities) and for-profit corporations meant that regulation of the latter became a matter for statutes rather than corporate charters. General business corporations proliferated to the point that the corporation was just another organizing scheme for a business and the charter was a privilege available to anyone who could draft the documents and pay a nominal fee.
This proliferation of general business corporations made corporate charters a potential source of legitimate state revenue (i.e., franchise taxes), whereas they had always been an illegitimate source of private revenue (i.e., graft). The corporation, as it evolved away from monopoly, became the dominant form of business organization in the United States. The world economy phoenix that rose from the ashes of World War II simply assumed corporate organization. Still, governments were the parent institutions of corporations, state governments in the United States and national governments in most of the world.
The transnational corporation can be imagined in terms of power/control issues as it grows from a family business or partnership to a closely held corporation to a publicly traded corporation. Each form creates new powers and raises new control issues. The fundamental purpose of the corporate form is to pool investment capital. Early on this was accomplished by bestowing monopoly with a corporate charter. In the closely held corporation, the capital magnet is the ability to limit liability to the sum invested. Publicly traded corporations and the rise of fungible securities are the apex of capital accumulation.
At each level of development, the risk of preventable harms is greater. Monopolies can price-gouge, a practice that can be stopped by the sovereign if the sovereign is so inclined. Closely held corporations can be used to cheat other businesses, a practice that can result in courts deciding to “pierce the corporate veil” in order to protect the public interest. Securities markets offer vast opportunities for price manipulation and insider trading, and minimizing those opportunities is a major preoccupation of the modern regulatory state.
Globalization
What if the modern regulatory state is supplanted by marketocracy?
When the sovereign (in the anthropomorphic sense) lost personal control of corporations to bureaucratic charters, the law retained control through the ultra vires doctrine. Corporations could pursue the purposes for which they were organized.
The generality of the general business corporation led to an elegant simplicity of purpose: to make money. To maximize shareholder value. Therefore, the argument goes, the test of a successful corporate undertaking is not whether it makes a profit, but whether it produces a greater return on investment than other available undertakings. As new transportation and information technologies shrunk the planet, they expanded the universe of available undertakings for any given mass of capital.
The General Agreement on Tariffs and Trade and the World Trade Organization, the International Monetary Fund and the World Bank—the bugaboos of the American Left—are not the causes of globalization. They are the results of globalization. If these supranational entities did not exist, the first task of people who wish to control transnational corporations would be to invent them. Not, of course, in their current form as churches for the marketocratic faithful, but rather as leverage points for the interests of humanity.