The Duplicity of Law and the Cowardice of Capitalists

Harry Glasbeek (Socialist Project)

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Capitalism is ugly.

 

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[dropcap]T[/dropcap]he law’s shocking tolerance for the wholesale financial thievery in capitalism’s flagship nations presented capitalism’s gatekeepers with a political problem. It laid bare a central fact: there is one set of laws for capitalists and another for the rest of us. This is not to be acknowledged. Capitalism’s legitimacy depends heavily on the belief that the law is evenhanded and that capitalists, just like all other people, are subject to law. Law’s prestige derives from this evenhandedness, from its devotion to fairness. That is how it delivers justice. Vague as the ideas of fairness and justice are, once law is seen to fail to deliver on these fronts, capitalism is in danger as it stands to lose the patina of legitimacy law bestows on it. The peasants, as the self-proclaimed zillionaire Nick Hanauer warns, are then likely to bring out their “pitchforks”. He wants to retain the unearned privileges capitalism bestows on him and he urges his comrades to exploit the working class a little less crassly. Exploit, but do so slyly, is the advice he and the zillionaires’ intellectual gatekeepers (Stiglitz, Krugman, Summers, Carney, Lagarde) give their fellow exploiters.

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Living by the Same Rules?

[dropcap]T[/dropcap]he idea behind this advice is that capitalism and capitalists should not give fodder to non-capitalists to ask why capitalists are not required to live by the same rules as the rest of us. But it is becoming harder and harder for capitalism’s cheerleaders to ward off the questioning. All over the world, populations have been engaging in colourful and brave protests against a huge variety of capitalist brutalities and demonstrating their dissatisfaction by delivering surprise after surprise in election after election. Many people are angered and agitated by capitalism’s ravaging of their environment, of their standard of living, of their physical and cultural well-being, of their hard fought-for entitlements to participate in the selection and running of their own governments. The financial robberies and skullduggeries merely added fuel to this already smouldering fire.

To many, it is becoming painfully obvious that not only does capitalism hurt, kill and rob people, but also that some, a very few individuals, a few actual capitalists, benefit from those egregious inflictions of harm. There is a more easy-to-see gap between, on the one hand, law’s self-portrayal as being spiritually committed to the evenhanded treatment of conduct and individuals, that is, to the values that pertain to a liberal polity and liberal economy and, on the other hand, law’s actual working in a capitalist society.

For individual capitalists it is ideologically important to hide the gap between law’s claim to evenhandedness and its actual working. This opens a promising door for anti-capitalists. It is possible, indeed, rather easy, to show that if we can force law to live by its claimed aims and goals, capitalists can be outed as receivers of ill-gotten gains and participants in deviant, even criminal, conduct. It will become obvious that, for capitalists to enjoy their special privileges, it has been necessary to bend and twist law into a logical pretzel. This will go a goodly way to erode the legitimacy of capitalists and capitalism. It will also satisfy the desire for revenge that has impelled so many harmed people to go out into the streets and to call for radical change. There is a potential to change the terrain of anti-capitalist politics, to tilt it our way a little.

Let me elaborate.

Law’s Self-Portrayal

Canada (and the US, the EU, etc.) holds itself out as a liberal market capitalist democracy. The ideal of liberalism is the protection of the sovereignty of individuals. In law, all individuals are to be treated with equal respect. All are entitled to think and act as they choose, subject to restrictions that permit the majority of us to so think and act. As sovereign individuals we are expected to take responsibility for our conduct. Individualism, as opposed to collectivism, is the central social and political value it favours. This is reflected in the devotion we have for the Rule of Law which demands that law remains wedded to fair processes and neutral applications of the law by neutral and neutered adjudicators who treat all individuals as equals before, according and under the law. As law is both created by the State and provides the mode of exercising State power, law plays a role in ensuring that State’s inherently coercive power does not undermine the goals and values of law’s liberal project. That coercive State power is kept in check by independent judges and constitutional bills of rights. Law also sets out to restrain the State’s power to treat individuals as criminals; no one should be inhibited in their exercise of autonomy unless it can be justified by reference to the public good. The vote of each individual is to have equal weight as governments are elected to do their job. That job is perceived to be to facilitate and to promote private and individual self-seeking, rather than telling individuals how to behave.

By coincidence, as it were, this individualistic scheme and its opposition to coercion dovetails with the needs of the preferred idealized market economic model. If all act as self-interested individuals, none of whom can dictate conditions to any other, an efficient economy will ensue, one that enhances the freedom of all individuals to make their own choices.

Of course, these are ideals. There is much slippage. But, what is clear is that the model does not identify capitalist relations of production as having any particular salience. Capitalists are just seen as sovereign individuals, not warranting any special legal treatment. Their class position is of no interest to law. But, in fact – as the opening paragraphs show – liberal law does support the maintenance of a class-divided society. It hides this by making some vital assumptions, turning them into unchallengeable premises and by inventing a tool, the corporation, to give these assumptions a capitalist bite.

Law’s Assumptions

1. Liberal law does not question the grossly uneven division of wealth that prevails in our economy. Law does not care whether property has come to be owned as a result of [less than personally admirable] endeavour, the winning of a lottery or by inheritance (or even if it came from people who originally stole it). People either own means of production or not. The law considers them equals when they meet and engage with each other. The mere disadvantage of not having any wealth is not seen as a diminution of autonomy, of sovereignty of the wealth-less. If an individual does own property, it is seen to be part and parcel of that individual’s essence and cannot be taken from her by anyone unless there is some very special reason to do so. This explains the difficulties faced by governments when they want to tax the rich.
2. Liberal law, pretending that individuals all are equally autonomous, regardless of their wealth, assumes that any deal entered-into seriously between a rich and a poor person is a legally enforceable one. The voluntary choices made by all individuals are to be respected no matter how awful the terms of the deal may be for the property-less party. Individuals with no wealth, workers, in order to live, must sell some of the very things that make them individuals – their intelligence, physical abilities and imaginations – to another, a capitalist, who may do with them what he pleases. Workers are assumed to have voluntarily agreed to obey orders by the purchasers of their bodies and minds; they are assumed to agree to a level of personal harm to their bodies and minds.

Law’s assumptions have been internalized, normalized, making challenges difficult and permitting law to pursue the project it must honour to remain relevant to a capitalist society, namely, the maintenance and perpetuation of a class-divided political economy. This unarticulated agenda stays hidden even while it is given a boost by law’s creation of the for-profit corporation. Law pretends (law does a lot of pretending!) that the corporation is just that, a tool, a mere instrument to advance liberal political and market economic ideals.

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Fakery in Law

[dropcap]A [/dropcap]registrar will register a corporation on behalf of one of a multitude of applicants, provided they are over 18, sane and not bankrupt and have selected a name that is not already in use. As soon as the registrar signs off, a legal person is created with all the capacities of the adult individual loved by liberal law. Unlike the human individual, the corporation cannot be seen, touched, smelled, has no colour or mind or body. But, such is the magic of law, it can hold the property its founders put into it and do with it as a human being might. It becomes a legitimate market actor. Because it is an it, it must have a board of directors to set its policies, executive managers who will put the plans into effect and workers who actually work. All this is said to lead to efficiency because it allows the pooling of assets that will then be put to optimal use in a co-ordinated manner.

• First lie: The pretence is that the corporation is an individual. The best justification for its creation by law, however, is that, as a collective of human beings and assets, it will be more efficient than atomized individuals, each with their separate assets. It is, by design, not an individual in the liberal legal or the market economic sense. This is not just a debating point. As a collective, a corporation inherently has more power to coerce and to exploit than individuals do. This violates every basic tenet of liberal law and market economics.

To return: the corporation is said to be economically efficient. It does generate wealth. One reason is that it is immunized against the force of normal legal controls.

• Second lie: As the active capitalist, the corporation is responsible for the materialization of risks it has created by its activities. Of course, the corporation, as such, does not care whether it has to pay compensation and/or is punished. There is no way to use the normal sanctions of liberal, based on individual psychology, social awareness and fear of loss of liberty. The treasured liberal idea that all individuals are to be held responsible for their personal actions is defanged. Liberal law is rendered impotent by its own creature.

To return: while the corporation is supposedly like a real person, all its thinking and acting is done by human beings. As just seen, technically it can be held responsible for that thinking and acting, even though the impact of such responsibility is a muted one. Similarly, the responsibility of those corporate thinkers and actors also mutates in an unexpected way.

• Third lie: Directors, executives and workers, as individuals inside a corporation, have specific duties and obligations to the corporation, shareholders and outsiders. These duties vary in their scope, each attracting different remedies and sanctions. This poses problems for victims and regulators and enables directors and executives to shuffle the deck. They frequently arrange to have the corporation pay the damages or the fines provided that they are left off the hook. This is what happened in the banking scandals. Corporate law creates a malady: multiple personality disorder, a syndrome which facilitates the deflection of personal responsibility.

To return: investors of capital who expect a share of the profits reflecting the proportion of invested capital their contribution represents, are known as shareholders. They are seen as putting their capital at risk and are often referred-to as risk-takers.

• Fourth lie: Law presumes those red-blooded capitalists who invest their monies to be such virtuous contributors to the general good that they should be thanked – legally. They are given the privilege of limited liability. This means that they can never be asked to lose more than the amount they invested, even if the corporation in its pursuit of profits on behalf of those shareholders caused more losses than their investments represent. Their responsibility is not measured by their risk-creating conduct; the responsibility imposed is not that which is attached to a sovereign individual. Liberal law and market economics be damned! Worse: corporate law also holds that, as shareholders do nothing, being indolent gamblers laying about in the hope their bet is a winner, they should not be personally responsible for any violations of law committed by the corporation and its directors, executives and workers. They are given legal immunity, as well as fiscal limited liability. Individual responsibility is not for them. As well, note that the label ‘risk-takers’ is a blatant falsehood. The law allows shareholders to shift virtually all the risks imposed by their actions onto others. This links to another lie.
  

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• Fifth lie: The same law that holds that shareholders are not responsible for corporate wrongdoing (because, apart from being such generous contributors of capital, they are passive bystanders), gives them immense legal powers to control the corporation. They have the legal power to replace those directors and executives who do not bring the bacon and to offer sweet rewards to those who do. They are able to, and do, dictate, the profit-maximizing policies of the corporation. They, not corporations, are the capitalists. After all, corporations as mere things, do not care about anything. Those who run them give corporations the impetus to maximize profits and they do it to please shareholders. Directors and executives do have some reason to abide by the letter and spirit of the law but, as we have seen, they have little to fear from the law should they push the envelope as far as it can go and even further in their drive for profits. They do have much to fear from not pleasing shareholders; they have much to gain by pleasing shareholders. Shareholders, having been rendered legally immune can afford to be indifferent as to how their corporation and their directors and executives seek to satisfy them. Profits at any cost is the not-so-hidden mantra. They push directors and executives to be callous about the consequences of their risk-creating conduct. Despite proclamations of adherence to liberal ideals, the corporation is a legally created site of irresponsibility.

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It should now be plain that the reason that corporations maim, kill, dispossess, pollute, violate laws and social expectations, more so than any other group or institution in our society, is the fact that corporations are built to permit flesh and blood capitalists to exploit, ravage and pillage under cover of law, law that purports to set its face against the coercion and oppression of sovereign individuals by other individuals. It should not be surprising: in a capitalist system, law has to further the capitalist project. But, it is complicated. To be effective as a legitimator of capitalism, law has to demonstrate that it truly does endorse and enhance liberal norms and values at the same time that it may have to be antagonistic to them when it is pushed to satisfy capitalism’s needs. This is what opens the door to progressive people.

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Liberal Responsibility in the Non-Corporate Sphere

[dropcap]E[/dropcap]mployers are legally responsible when their employees carelessly and/or in violation of law harm outsiders. Tavern owners and other alcohol licencees are legally responsible when they continue to supply a patron when they could have anticipated that that patron could harm an outsider and did so. Churches are legally responsible for the acts of some of their employees when they abuse people in their care. The same is true of school boards, franchisors whose franchisees underpay or violate workers’ human rights, of police boards whose police officers violate people’s civil rights, and so on and so on. The fact that none of these, employers, tavern keepers, churches, etc., intended the infliction of injury does not negate their responsibility. This legal approach is based on the liberal notion that a person who controls an activity from which s/he expects to benefit should be responsible for the materialization of risks created in pursuit of those benefits. To take responsibility for one’s actions is the essence of liberalism. It is only when we cloud the issue by interpolating corporations that the usual rule is ‘forgotten’. Corporate law protects those who control and expect to benefit from corporate activities from being saddled with responsibility. Shareholders are allowed to cower beneath a corporate veil. Yet, these cowards, especially the very successful ones, stride around our polity like feudal kings used to do. The pretence is that this is not objectionable because shareholders, while seeking benefits from the corporation’s endeavours, do not control them. This is another lie.

• Sixth lie: It is often contended that corporations have far too many shareholders to be able to identify them all and that many, perhaps most, investors in corporations are not direct investors. Rather they contribute money to an institution that pools investments and buys shares with them. If anyone exercises control over corporate activities it is those institutions that act as intermediaries. But, this is not an accurate picture of our corporate world. There are many incorporated businesses that do not employ anyone. It is no trick to discover who controls their corporations and intends to benefit from them. Most of the incorporated businesses in Canada are small businesses. In fact 87.4% of all employer businesses employ 19 people or less. If incorporated – as many are in the hope of avoiding legal obligations – it is dead easy to discern who controls the enterprise for whose benefit. At the other end of the scale, of the top 500 firms listed by the Financial Post, 254 are privately held, that is, their shares are not traded precisely because those who run it want to control these firms without any intervention by anyone else. The identity of the controllers and beneficiaries is not a mystery. Of the other 246 major corporations whose shares are traded all the time, only 67 do not have a single or small group of shareholders who control the voting power in the corporation. While it will sometimes be technically difficult, it is feasible to find those who control corporate policies and whose failure to consider the consequences of pursuits engaged-in on their behalf should leave them no better off than a tavern owner or a church when it comes to legal accountability. Only the perpetuation of the lies that all shareholders are virtuous and passive and that controlling shareholders cannot be found prevents liberal law from being applied as it self-righteously claims it wants it to be applied.

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The Politics

[dropcap]C[/dropcap]apitalism, precisely because it is a system, is totalizing. We are all subjected to its coercions and are all implicated in its daily workings. We are impacted differentially and find it hard to fight it as a system. We need a tangible target. Understandably, the creation of the corporation as a tool to do capitalists’ bidding has served to make it appear to be the enemy. As the story told suggests, the corporation’s crafty legal design, leading to multiple personality disorder and an ordered site of irresponsibility, makes it extremely difficult to win individual battles, to get redress and justice, let alone meaningful reforms or radical change, when corporations are our targets. All too often, it feels as if we are fighting windmills.

There are flesh and blood human beings who profit from all this obfuscation. They are the real capitalists. If anti-capitalists set out to identify controlling shareholders whenever they engage in a local struggle against an oppression apparently perpetrated by a corporation, it would further not only the specific aims of the battle but also the struggle to break the hold capitalism has on our political imagination. Once it is accepted that controlling shareholders, that is, human beings supposedly subject to our laws, are responsible for the decisions that impose hardships, the logic of law can be used to ask them to account for their actions. Once these hidden cowards are forced to come out from under the veil they can no longer say that they cannot help it if ‘their’ corporate monies are used to make a mockery of our democratic institutions, and they can no longer say that they had no way of stopping the use of processes that make so many environments unlivable or poison workers, they can no longer say that they are not connected to the dispossessions of peoples and cultures. They control the corporations that do these things as they maximize profits on shareholders’ behalf. Anti-capitalists of all stripes will be able to see that they have tangible enemies who all belong to the same class. They will have targets that, unlike a pervasive invisible system or a legal artifice, are concrete and that, like the rest of us, will respond to pain and hurt. This just might wound the corporation and have some impact on capitalism.

It is worth a shot. “We have nothing to lose but the bosses’ smile.”[1] •

Endnotes

1. Greg Shotwell Live Bait & Ammo no. 76, Aug. 2010.