Public Capitalism

The Political Authority of Corporate Executives

Christopher McMahon

• Publisher: University of Pennsylvania Press
• Year: 2012
• ISBN:
  9780812207262
• Topic: Business
• Subtopic: Government & Business
• Index: Business

In modern capitalist societies, the executives of large, profit-seeking corporations have the power to shape the collective life of the communities, local and global, in which they operate. Corporate executives issue directives to employees, who are normally prepared to comply with them, and impose penalties such as termination on those who fail to comply. The decisions made by corporate executives also affect people outside the corporation: investors, customers, suppliers, the general public. What can justify authority with such a broad reach? Political philosopher Christopher McMahon argues that the social authority of corporate executives is best understood as a form of political authority. Although corporations are privately owned, they must be managed in a way that promotes the public good. Public Capitalism begins with this claim and explores its implications for issues including corporate property rights, the moral status of corporations, the permissibility of layoffs and plant closings, and the legislative role played by corporate executives. Corporate executives acquire the status of public officials of a certain kind, who can be asked to work toward social goods in addition to prosperity. Public Capitalism sketches a new framework for discussion of the moral and political issues faced by corporate executives.

1

THE PUBLIC AND THE PRIVATE

THE IDEA THAT the managers of the major productive enterprises operating within a society should be understood as exercising a kind of political authority seems at first sight to require socialism. In socialist systems, most productive enterprises are owned by the state and their managers are functionaries of the state. Historically, the main attempts to establish socialist systems have involved the replacement of the market, as the social device that determines what will be produced, by a central plan. But market socialism, in which publicly owned enterprises produce for the market, is also a possibility. Market socialism seeks to preserve in a market context the socialist ideal of an economy run for the benefit of the workers. Such a system was found in the former Yugoslavia.

In our contemporary world, however, the operation of publicly owned productive enterprises in competitive markets is more likely to take the form of what is coming to be called “state capitalism.” Here, the goal of the arrangement is not, directly at least, to benefit workers but to provide revenue for, or otherwise serve the purposes of, a country’s government. Often the government is authoritarian or in some other way not under full democratic control. The phenomenon is most visible in the energy sector, where state-owned energy companies are dominant.¹

In this book, I focus on polities that have opted for a standard capitalist system, understood as one in which most productive property is privately owned and most productive enterprises are 10 responsible for their own financial viability.² Henceforth, when I speak of a capitalist system, I shall have such a system in mind. The main thrust of this book’s argument is that even when a polity possesses a standard capitalist system, the senior executives of its large corporations should be understood as exercising a form of political authority. Once this becomes clear, the choice between capitalism and socialism, which has played a central role in the history of the modern world and continues to be treated as a live issue in many countries, may seem to possess less moral significance.

In this chapter, I set the stage for the main argument by exploring in a general way the distinction between the public and the private.

The Private Sector

As noted in the Introduction, it is customary to distinguish two sectors of a capitalist economy: the public and the private. I understand the privacy of the corporations in the private sector to be a matter of legal ownership. Private ownership, as I am going to interpret it, is defined in negative terms. A corporation is privately owned when it is not owned by the state, where this includes ownership by departments or agencies of the state. Standard accounts of legal ownership resolve it into a number of different rights. The most important are the right to exclude others from an item, the right to use the item, the right to manage the item’s use by others, the right to the income derived from putting the item to productive use, and the right to sell or otherwise alienate the item.³ A corporation is owned by the state, I shall suppose, when the state or one of its agencies possesses all or most of these rights with respect to that corporation. A corporation is thus privately owned if all or most of these rights are held by private individuals or by legal entities that are not agencies of the state. The legal owners of a private corporation can be understood to comprise all of the people or entities to whom any of the incidents of ownership have been legally assigned.

In the United States, some profit-seeking corporations that are private in the sense just described are said to be publicly held, meaning that important incidents of ownership are assigned to a set of shareholders who can sell their shares in established markets. A publicly held corporation is legally required to make a report of its financial condition to the public and thus to actual or potential shareholders. A privately held corporation does not issue publicly traded shares and does not face such a legal requirement. The “public” that holds the shares of a publicly held corporation will usually include private individuals and entities such as pension funds or institutional endowments.

When I speak of large, profit-seeking corporations, I primarily have in mind large, publicly held corporations. Corporations of this kind form the core of a modern capitalist economy. But my argument that the senior executives of capitalist corporations should be understood as exercising a kind of political authority also applies to privately held corporations if they are large enough. As I explain in Chapter 2, the authority possessed by corporate executives cannot be grounded in property rights. Differences in the ownership structures found in a modern capitalist economy thus have no bearing on the political status of corporate executives.

Some corporations in the United States do not seek profits, however, and something should be said about these. One group consists of not-for-profit mutual-benefit corporations—Chambers of Commerce, for example—which are typically financed by member contributions that are not tax deductible. Another group consists of not-for-profit public-benefit corporations. Contributions to corporations of this kind are usually tax deductible. In some cases, contributors can acquire the status of members, and the boards of directors of a public-benefit corporation may be selected by its members. Examples of not-for-profit public-benefit corporations include certain public radio and television stations.⁴

A corporation is a legal entity of a particular kind, formed when one or more people incorporate. In the case of not-for-profit public-benefit corporations, the larger society makes incorporation available as a way to serve public purposes. There is controversy, however, about what possessing the legal status of a corporation implies in the case of profit-seeking corporations. Is a profit-seeking corporation merely a legal instrument by which certain people can advance their private interests? Or is corporate status conferred by the state with the expectation that corporations of this kind, too, will serve some public purposes?⁵

The argument I present in this book is a normative political argument, an argument concerning how political cooperation ought to be organized. It is thus independent of statutory and case law. I argue that the social authority held by corporate executives is legitimate only if it constitutes a form of political authority. Legitimacy derives from the fact that the corporations are managed as subordinate centers of cooperation in a larger cooperative structure, under ultimate governmental control, that is oriented toward the promotion of the public good.

The argument has implications for corporate law, however. Just as the legal system as a whole must take a form that is consistent with the legitimacy of government, so corporate law must take a form that is consistent with the legitimacy of the authority exercised by corporate executives. Under public capitalism, corporate decision making must be guided, ultimately, by a competently reasoned conception of the public good. So the legal system will have to provide for such guidance, either through the legal regulation of corporate activities or through the establishment of a body of corporate law that gives executives the flexibility to act on competently reasoned conceptions of the public good.

The implications for corporate property rights deserve special notice. My argument assumes that there are no natural property rights in productive resources. People may, simply by the nature of things, have property in their persons. They may own themselves. But their rights with respect to productive property are socially defined and, in the most important cases, legally defined. The decisions that establish the different rights associated with ownership of productive resources, and that assign these rights to particular people or legal entities, are made by the larger society with a view to the public good.

The supposition that there are natural property rights in productive resources—that ownership has a moral basis that would still exist in a pre-political condition where there were no laws—is a feature of John Locke’s political theory.⁶ There, the principal resource in question is land. For Locke, ownership of an unowned item is acquired by “mixing one’s labor” with it, provided there is “as much and as good” left for others. Thus one acquires property rights in a fish in the ocean by hooking it. Similarly, unowned land can be appropriated by developing it. The owner of productive resources also owns what these resources produce. Presumably, this includes productive resources of other kinds. Thus a landowner might use some of what his land produces to build a factory.

This picture is of doubtful relevance today, however. In the modern world, almost all property that is legitimately acquired is acquired by voluntary transfer from prior owners. For an example of Lockean original appropriation, we need to look to something like the assembling of a bug collection. Within the Lockean framework, it must be possible to trace the ownership of something acquired by voluntary transfer through a series of prior voluntary transfers to permissible acts of original appropriation. Robert Nozick suggests that the Lockean proviso concerning “as much and as good” can be interpreted as a requirement that appropriation not worsen the situation of non-owners, and he notes that this constraint applies to subsequent transfers.⁷ They, too, must not worsen the situation of nonowners, relative to an initial situation where there is no private property. Nozick argues that current property arrangements can be understood as meeting this condition. The institution of private property in productive resources has given nonowners a higher standard of living than they would have had in the absence of that institution.

Even if this is true, however, it does not follow that the current possessors of productive property are legitimate owners. It is obvious that the history of private property has not been a history of voluntary transfers originating in permissible acts of original appropriation. Rather, to a significant extent, de facto possession brought about in a variety of ways, including force and fraud, has been ratified by the law. Nozick’s entitlement theory of justice in holdings provides for the rectification of wrongful transfers, but it is unclear what this would entail in our current circumstances. As a result, the acceptability, as a matter of Lockean natural right, of the present pattern of ownership of productive resources is open to question.

We must, then, look to the law to provide a normative basis for ownership of productive resources in the modern world. This supports the “concession” view of incorporation, according to which corporate status is granted by the state as a means of promoting the public good. The opposing “inherence” view holds that the right to incorporate inheres in private ownership of productive resources and thus that owners do not need the imprimatur of the state to form a corporation. But even if a corporation is understood simply as a nexus of contracts, it is still a legal entity. The associated rights, obligations, powers, and immunities are defined by the law. Property owners in a Lockean state of nature have a natural right to form joint ventures with other owners. But they cannot form corporations because a corporation is a legal entity, and there is no government, and thus no law, in a Lockean state of nature. Incorporation presupposes the state. The inherence theory is a particular view about how the state makes, or ought to make, incorporation available to the legal owners of productive resources. It ought to make incorporation available at the discretion of the owners. The right to incorporate to achieve private purposes is thus conceded by the state in the expectation that giving people this right will be conducive to the public good.

The implications for public capitalism are straightforward. Public capitalism is a theory of the legitimacy of the authority exercised by corporate executives. It specifies that this authority is legitimately exercised only if it has the status of a subordinate form of authority within a larger structure under ultimate governmental control. Public capitalism thus places limits on the way corporate executives can use productive property. But there can be no argument that these limits are unacceptable because they conflict with the property rights of the corporation’s owners. The rights associated with incorporation are defined by the law, and corporate law can be given whatever form is necessary to ensure that the authority exercised by corporate executives is legitimate. Legitimacy requires that executives act on a competently reasoned conception of the public good, but as I explain in Chapters 3 and 5, this can be compatible with profit-seeking in a competitive environment.

Public and Private Morality

A framework of moral requirements governs interaction among individuals. Let’s call this private morality. Some of the requirements are captured by familiar, commonsense moral 16 principles, such as those that prescribe refraining from assault, keeping promises, helping people in distress, and respecting other people’s personal property. These requirements can be provided with a foundation in different ways, but one possibility is that the actions mentioned are necessary to honor claims to fair treatment. If this is right, the familiar principles can be regarded as identifying particular kinds of fair or unfair treatment that have, in the course of human history, acquired salience. It is unfair to advance one’s ends by assaulting people or by breaking promises.

The requirements governing interaction among individuals create for each individual a space within which she can give her life a distinctive shape determined by her particular concerns. To put it differently, the requirements governing interaction among individuals correspond to ways we must treat people if we are to respect their status as authors of distinctive human lives, lives marked by commitments and pursuits that need not be shared by other people. In this way, the requirements enable each individual to conduct a private life.

Individuals functioning in a public capacity, by contrast, are oriented toward the good of the society as a whole. The good of a society can be resolved into a number of component goods possessing moral significance. On the way of understanding these goods that I favor, they include forms of aggregate well-being within a human population. I call these morally important social values. One such value is distributive justice, which many writers understand to require that disparities of wealth and income not exceed a certain level. Maintaining a satisfactory pattern of distribution within a society can be understood as required by the value of fairness applied on a social scale.⁸

Other morally important social values are grounded in considerations of human welfare. A partial list of such welfare-based values would include social prosperity, the preservation of the environment (to the extent that it affects human welfare), the 17 fostering of community, the maintenance of the health of the population, the advancement of knowledge (understood broadly as encompassing the creation of an educated and informed populace), and the development of culture. National defense and the rule of law are further morally important social values, although they may be grounded in more than welfare. The appropriate reconciliation of all the moral considerations that govern the actions of individuals functioning in a public capacity, the requirements of private morality and the morally important social values, can be termed the public good. An understanding of how these different considerations ought to be balanced against one another will thus constitute a conception of the public good.

The value of distributive justice can be seen as a kind of public-private hybrid. Justice is a social value—John Rawls calls justice the first virtue of social institutions—but it plays a role in protecting the ability of the members of a polity to lead distinctive lives.⁹ One way it does this is by governing the distribution, within the polity, of the means of life.¹⁰ We can imagine cases where the value of justice conflicts with other morally important social values; for example, when an artistic genius demands exorbitant compensation for giving the society the products of her genius. Here distributive justice conflicts with the development of culture. More commonly, however, justice and the other morally important social values will be co-realizable. The welfare-based values correspond to forms of aggregate well-being in a human population, but they can also present issues of distribution. Thus maintaining the health of the population is a morally important social value, but it is accomplished in the first instance by distributing health care to individuals. So we can ask whether the distribution is just. When justice overlaps in this way with a morally important social value, justice grounds rights to receive goods or services that contribute to realization of the value.

An individual can function in a public capacity, a way that is guided by a conception of the public good, without being a public official. We typically speak of such people as performing a public service. Thus someone who reports a brush fire that, if not extinguished, would threaten a town, performs a public service, even if he is not a public official. To take another example, in describing newspapers in nineteenth-century France, a recent article says, “[I]t becomes obvious how efficiently the literary depiction of daily life functioned as a public service.”¹¹ In cases of this sort, the promotion of the public good takes place within the framework of private morality. It does not involve any violation of the requirements of private morality, and the agent is not required to sacrifice the pursuits that are distinctive of his life. Indeed, as the example concerning the literary depiction of daily life shows, the performance of a public service can be among the pursuits that make up a distinctive human life.

But the public good has a consequentialist aspect, and there is a danger that ...

Table of contents

• Cover
• Half title
• Title
• Copyright
• Dedication
• Contents
• Introduction
• 1 The Public and the Private
• 2 Legitimacy: The Private Model
• 3 Legitimacy: The Public Model
• 4 Morality and the Invisible Hand
• 5 Public Management
• Notes
• Works Cited
• Index
• Acknowledgments