The Corporation Problem (with Gary Chartier)

This week, Gary Chartier joins us to discuss the libertarian corporation problem. 

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Corporations are so commonplace, so ubiquitous, and considered so necessary that we barely stop to ask whether it’s ever been justifiable in the first place. Here to help us tackle one of the great, relatively forgotten questions in Libertarian history is Gary Chartier.

Gary Chartier’s Wikipedia entry

His archive at the Center for a Stateless Society

Corporations: A Contractual Program” in Literature of Liberty, December 1979

“The Limited Liability Corporation” in Literature of Liberty, September 1982

William Leggett, “The Restraining Law and Its Abominations,” August 1836

00:12 Anthony Comegna.: After Locofocos, or early Libertarians in New York clambered together to agitate for a new state constitution that would democratize the process of incorporating businesses, American economic history entered a revolutionary phase. For Locofocos, it was a blindingly bright accomplishment, but in hindsight, it was yet another troublesome compromise. By now, corporations are so commonplace, so ubiquitous, and considered so necessary that we barely stop to ask whether it’s ever been justifiable in the first place. Well, here to help me tackle one of the great, relatively forgotten questions in Libertarian history is Gary Chartier. He has a PhD in philosophy from Cambridge, he teaches law and business ethics at California’s La Sierra University, and he’s been one of the country’s leading left-Libertarian thinkers for some time now.

[music]

01:10 Anthony Comegna: Welcome to Liberty Chronicles, a project of Libertarianism.org. I’m Anthony Comegna. So I think you have a particularly interesting personal history of intellectual influence and change over time. Could you, Gary Chartier, give us your, how I became a Libertarian story?

01:36 Gary Chartier: I think, like a lot of Libertarians of my age, I’m 51, I grew up with Goldwater-ite parents. I programmed computers, I read science fiction, and I was socially awkward. So it was a really, in some ways, a pretty natural progression. I found myself radicalizing the views that my parents had, moving from their position, which was in many ways pretty conventionally conservative Republican, with a few interesting exceptions. And so I’d ended up embracing Libertarian views by the time I was, say, 14 or 15, 14 probably. And I had started down the path toward being a fairly radical Libertarian. And then I got, as it were, sidetracked in college, as I think probably happens to a lot of people. I encountered issues in college that I hadn’t really thought about sufficiently, issues having to do with poverty and social inequity of various kinds. And that sent me down a detour in the direction of what was, in many respects, probably fairly conventional social Democratic politics of the kind you might associate with a lot of people in academia.

03:03 Gary Chartier: What really, I think, largely re-radicalized me was the one-two punch of George W. Bush and Barack Obama, two amazing guys who showed me just how awful the state could be in different ways. And their support for the warfare state, their commitment to corporate privilege, and so forth, these things really prompted a great deal of cynicism on by part and led me ultimately to discover the work of Libertarians like Roderick Long and Kevin Carson, and as a result to discover that there was a way in which my early commitment to Libertarianism could be reinvigorated in tandem with a, I think, much richer and more thoughtful responsiveness to a range of social problems.

04:08 Gary Chartier: And so I could come home, and yet of course not just come home, but come home now to a strand of Libertarianism that I had been, at best, pretty minimally aware of, the modern descendants of Benjamin Tucker, and Lysander Spooner, and the 19th century individualist anarchists, who really, as I discovered, were up to really fascinating things, and whose ideas continue to thrive and flourish in the very capable hands of people like Roderick and Kevin and Charles Johnson, and Sheldon Richman, and others. So I took a long detour and came home. I think that’s the short answer.

04:43 Anthony Comegna: And do you call yourself a left-Libertarian?

04:47 Gary Chartier: I do, at least in contexts in which that’s helpful.

[chuckle]

04:52 Gary Chartier: If you read the Wikipedia article, left-Libertarianism, you’d find that there are at least three rather different meanings of that term, including anarcho-communism, the sort of neo-Georgists position that might be associated with Steiner and Vallentyne and Otsuka, and then the kind of view that we would be inclined to embrace. And so sometimes it’s helpful to talk about left-Libertarianism. Sometimes it’s probably more useful to spell things out in more detail. Sometimes I’ll use the term “left-of-the-market anarchism,” but I think context is everything.

05:25 Anthony Comegna: What exactly is the left part of that, then? What do you see as the leftist element in this kind of Libertarianism that you ascribe to, which we’ll dig into a little more here soon?

05:38 Gary Chartier: Yes. So that’s a great question. Obviously, there’s no platonic universal that is the left, and we find in different contexts quite different meanings associated with that expression. As a lot of Libertarians will know, the origins of the left-right distinction seem to have to do with where people sat in parliament, but clearly, that’s a different world than the one we’re in now. I guess, the French parliament particularly. There you might have thought that the basic left-right distinction was one between the friends of the king and the enemies of the king, the friends of freedom and social equality and the opponents and the friends of authority, and there’s something to that.

06:30 Gary Chartier: I guess what I’m tried to spell out what I have in mind in talking about the left, I tend to think of what I regard as the best elements of the new left in the ’60s, which obviously had, itself, a variety of Libertarian elements, and so I probably stacked the deck by going in that direction. But I tend to think about opposition to exclusion, subordination, deprivation and war, and obviously that needs to be spelled out in a lot more detail. And obviously there’s overlap with a variety of other positions there. But when I think about the left, I’m thinking, therefore, about, broadly speaking, a family of positions committed to social inclusion, unhappy with hierarchy, in favor, therefore, of empowerment, and again, very much opposed to violence as a means to solving social problems.

07:28 Anthony Comegna: I think in today’s context, one of the major monkey wrenches in a system like that is the corporation. Now, this is an institution that Libertarians have been attacking for centuries now, even though we might forget that in today’s intellectual paradigm of Libertarianism, there really is not much space for a left Libertarian critique of the corporation, although it’s been around forever. For hundreds and hundreds of years, Libertarians have been talking about the problems with corporations. I asked you here to help me tackle this issue of Libertarianism’s corporation problem. I remember several years ago when I was a young Austro-Libertarian student, I was going to one of the year’s more popular education events, that people on a circuit always are sure to stop here too. And two of my favorite historians were there giving a joint session on, I don’t know, something like problems in the 19th century.

08:28 Anthony Comegna: It was about American history. And I asked them. I was beginning my own honors thesis as an undergrad, working on William Leggett, and he’s one of these early Locofocos and critics of corporations. And I was curious about why did people like William Leggett and these radical Jacksonians, why did they hate corporations so much? And they thought they were monopolies and all this. I asked them, both of these historians, “Why did these people hate corporations so much?” And they basically shrugged their shoulders. They had no idea and they said they didn’t know what to tell me. And I was hugely disappointed. I walked away from that event thinking, “These purported experts have overlooked one of the major questions in the history of their own movement.” I just could not understand that. Then I spent my time in graduate school trying to answer the question, and I came to the history of Locofocoism. Now, I wanna ask you, can you briefly tell us what is the issue that historical Libertarians or classical liberals, what is their issue against incorporation?

09:33 Gary Chartier: It’s great that you emphasize that we’re talking about a Libertarian heritage of criticism, of corporate power, quite possibly the corporate form, that go back several centuries. I think modern American Libertarians often have a kind of historical tunnel vision, in virtue of which Libertarianism really somehow emerges post-World War II, the split between Murray Rothbard and the folks around Bill Buckley. And clearly, there’s a much, much richer heritage there. Later Libertarianism, because of some historical accidents associated with the Cold War, has tended to be identified with the right. But the classical liberal Libertarian tradition includes a whole lot of anti-status quo politics over many centuries, that certainly feels much more leftish to me. It’s perhaps not altogether surprising that there’s been this concern about the corporation.

10:40 Gary Chartier: And that’s because it seems as if, first of all, the corporation has been a locus of state-secured privilege. The corporation has been a particularly visible example of the business entity or business association that secures and obtains a variety of cartelizing privileges and subsidies and so forth. That’s certainly true, in particular with regard to the corporate form itself, and certainly the associated important feature of limited liability. There’s at least an interesting argument about the degree to which entity status, the idea that the corporation exists in an important way separately from all those who are involved, whether that could be itself established by contract. But if it could be established by contract, as many Libertarians have suggested, there’s obviously the problem that what the state’s done has been to artificially reduce transaction costs and make it, at any rate, much easier for people to simply opt into that form rather than to do so, perhaps with the negotiation, with alternatives on the table, as they would if it weren’t pre-available in virtue of general corporation statutes.

12:01 Gary Chartier: There’s also, separately, the problem of limited liability, which clearly has been a persistent concern. So, we have, of course, two kinds of limited liability, limited liability in contract and limited liability in tort. And so limited liability in contract, you might think, would be relatively easy to establish by contract. But, again, if you did that, you would still have to negotiate, and there still would be alternatives on the table, and those transaction costs would have to be taken into account.

12:42 Gary Chartier: Limited liability in tort, of course, is a… And I should say, just to back up, for folks who aren’t legal geeks, when we talk about limited liability, the idea is that, in a lawsuit, whether in contract or tort, the corporation’s assets are at stake but not the assets of the shareholders, the assets of the shareholders that are not themselves directly part of the corporation. So, obviously, this serves as a real incentive for people to invest in a corporation, because they know that while they may lose their investment, their own personal assets won’t be at stake at any rate.

13:19 Gary Chartier: So, limited liability in tort clearly is another matter entirely because, here… So, suppose, for instance, we’re talking about a case in which the corporation poisons the groundwater and causes a bunch of people around a manufacturing plant to get cancer. So, here, we have a situation in which those people don’t have, in general, any kind of prior contractual relationship with the corporation, so they can’t agree by contract to limit any suits in which they might engage to ones concerned just with the assets of the corporation as a whole. So, you might think, if the shareholders really are owners, why wouldn’t they themselves be, in one way or another, liable for the debts of the corporation? So if the corporation becomes liable because of… Say this instance where it’s proven to be groundwater, why stop with the assets of the corporation itself? So, again, there are arguments to be had about that, but the point, again, is that the law simply solves that problem on behalf of the corporation without allowing for perhaps the kind of flexibility and the kind of potential risk that would have to be sorted of out more carefully.

14:39 Gary Chartier: So, you’ve got these features of the corporate form itself that I think many Libertarians have rightly seen as status; and then there’s just the fact that the corporation, once it exists, quickly becomes a locus, as I say, of state-secured privilege in various ways, and the corporation can become a means of concentrating wealth that then can be wealth that can then be used to, in one way or another, pursue, again, these front political process. So, all of those things, I think, have troubled people over time.

15:11 Anthony Comegna: Now, Alexis de Tocqueville famously wrote about associationism in America, especially the power of people just simply associating with each other on a voluntary basis, in basically clubs whose purpose would be to do a certain thing, like build a school in the town. They would get together and form a Town School Association and would have the goal of building a school within a few months, and then they would go ahead and do that. And meanwhile, in Paris, you would have to petition the bureaucrat in charge of education to eventually come to your town out in the countryside and build a school, and it would take years. So de Tocqueville said, well, this American pattern of associationism is really incredibly efficient, and it explains a large part of their democratic culture, it’s reflective of their democratic culture, and it helps produce this amazingly prosperous condition that they enjoy. How is the incorporation any different from an association? Is it simply that corporations are associations with monopolies or privileges attached to them?

16:25 Gary Chartier: What seems clear is that de Tocqueville’s cheering for associations can’t have been, in any straightforward way, cheering for corporations, because, certainly, many, probably almost all, at the time he wrote, of the American associations that performed these various civic goods obviously weren’t incorporated. So clearly, incorporation wasn’t crucial for that, and the corporate form was certainly apparent in societies like England’s, where the same level of associational freedom and associational vitality weren’t yet. So, I think it’s pretty important to treat those as distinct.

17:08 Gary Chartier: Associations, obviously, are wonderful, and that’s something that any free society is gonna depend on, the ability of people to form and reform a variety of free associations. But, when the association acquires, just straightforwardly, as a result of state privilege, entity status, so that it’s no longer just the people involved, but it now has some kind of independent existence, when it can then go on to hold assets and to avoid liabilities in ways that depend on its having that entity status, and that’s certainly when it becomes a pressure group in search of long-term privileges, whether we wanna say that makes it something that’s qualitatively different from de Tocqueville’s associations, or whether you want to say, no, this is really just a special kind of association. I’m not sure how much turns on that, but what’s clear is that the additions are troubling in a way that the association form itself is not.

18:17 Anthony Comegna: I’m wondering, why did so many liberal or radical thinkers who were anti-corporate over the centuries, why did they so closely link the idea of monopoly and corporation? Plainly, it was possible for smaller people, I suppose, people who were not at the very top of the power elite. It’s possible for them to open corporations, especially, like you said, in an environment like the US or Britain as time went on in the 19th century. But yet there was still this linkage of the idea of monopoly, like some medieval king granting out monopoly, privileges to some special toadies of his, to go do the mining in this region, or to go conquer some territory in America, and then you own it all. And the idea of corporation, people pulling their capital toward a particular business venture. Why was there such a strong linkage for so long?

19:15 Gary Chartier: So you’re the historian, and I suspect really could answer the question better than I can, but I have the sense that the fact that for so long the corporation was a special creation of the state made a huge difference here. So of course, first of all, for a very long time, the only entities that were described as corporations were state entities, so the city might qualify, for instance as a corporation. So then you have kings extending this privilege of special status to favored groups. Well, I think it’s unsurprising that these favored groups didn’t just want to petition, let’s say, for entity status or even for limited liability. They were at the same time getting special monopoly grants. And so I think it would have been quite natural for the king to grant a corporate charter that came with a set of monopoly privileges. And so because of that, then, I think it would have been very clear to people over an extended period that when a corporate charter is granted by the royal authorities, this isn’t just a kind of innocent inducement to business activity, but it really is intended precisely to confer on the king’s cronies a kind of privilege that clearly otherwise wouldn’t have been available.

21:00 Gary Chartier: And so then we move to general incorporation statutes; obviously, some of that element of cronyism goes away, because the charter isn’t just handed out on an arbitrary discretionary basis to the king’s cronies. But at the same time, people are very much aware that when businesspeople pool their resources in an entity that is separate from themselves and that therefore can give them some kind of insulation against poor choices, that in various ways they’re going to be incentivized to engage in bad behavior and then they may well engage in utilizing the wealth they’ve pooled to seek privileges in one way or another from the state. I think there’s certainly been a progression then in the history of the corporation, but it seems to be that the early history set the tone. And the fact that that early history was in the backdrop would understandably have made people suspicious, and the continuing mischief-making engaged in by corporations even after joining the corporation certainly would’ve encouraged that kind of suspicion on the part of the public, and certainly on the part of Libertarian critics.

22:20 Anthony Comegna: Now, as I’ve covered on the show before, the triumph of general incorporation state by state, it happened in constitutional conventions, and it started really with New York in 1846 and the Locofoco movement to reform that state. And the corporation process was at the very top of their list, and it was one of the things they were most effective in changing. They helped democratize the institution by generalizing, who could actually get a corporation set up and how it happened, and it extended limited liability to all sorts of different corporate activities and far, far more people than ever before could now incorporate their business. And there’s this explosion of new charters in the late 1840s and throughout the 1850s, and corporations just are everywhere at that point. It’s not just railroads and bridges and steamboat companies and stuff like that. It’s all sorts of things becoming incorporated, so that by the time we get to today, 150, 160 years later, corporations are everywhere. They’re ubiquitous, they’re considered totally necessary, proper, they’re rarely questioned as a good thing.

23:34 Anthony Comegna: And even we Libertarians, whose history is built on this, we forget that it was ever a question, whether these are justifiable institutions in the first place. I’d like for us to try to tackle some of the critiques of the anti-corporate left-Libertarian point of view here. Are we just a couple of modern-day Luddites here arguing about something that is clearly a benefit?

24:01 Gary Chartier: So, no, I think we’re not, that’s the short answer. It seems to me that the… Given the alternative, the alternative that there would be statutorily privileged entities created by legislative acts and entitled to really unique legal positions, the push by the Locofocos for general corporation certainly seems like a breath of fresh air and, indeed, an instance of, as you say, democratization. I think it’s interesting to wonder what the Locofocos might have said had the risk of special incorporation not been on the table, what kinds of arrangements they would then had favored, if they hadn’t had to counter that other possibility. And so, while they certainly saw it in pressing for the changes they did to level the playing field, clearly a more level playing field would be established in the case in which really the issues would have to be sorted out by contract and by common law court decisions, and there wouldn’t be any possibility of state intervention.

25:21 Gary Chartier: So, yeah, I don’t think we’re Luddites to think that the general incorporation statutes, even if dramatic improvements on what preceded them, still in one way or another unnecessarily reduced transaction costs and not necessarily reduced risks while probably at the same time encouraging wealth concentration in the hands of corporations and thus perpetuating some problems. So, I don’t wanna at all be dismissive of the positive step that the Locofocos took, but I think we can do better over time.

26:00 Anthony Comegna: Now, is it true that you’re simply a rabid social justice warrior who wants to be able to strip or review corporate charters whenever you feel like they’re doing something wrong? You know, maybe take away a company’s charter if they host Jordan Peterson or something?

26:15 Gary Chartier: You know, that thought hadn’t actually occurred to me. [laughter] I’m just not interested in playing those games. I’m certainly not interested, I think, in any legal arrangement that lets courts or legislatures or executives, that lets any entity, whether in a state form or a stateless society, just arbitrarily, willy-nilly, fiddle with the legal status of individual entities. My preference is that we sunset the corporate form entirely and let people craft arrangements through contract and through argument in courts about where to draw lines, for instance, with regard to shareholder liability, that really can be reflective of how things can turn out in the absence of state transaction saving, cost-saving measures.

27:19 Anthony Comegna: I’m wondering, then, how exactly would that work, do you think? Especially in today’s climate where there are so many potentially disruptive new technologies out there, either underway right now, being developed right now, in production and in distribution at the moment, something like the Bitcoin distributed ledger. That’s in action, and that could dramatically transform the way we do contracts. How do you think some of these things would work? How would people pool their capital together and limit their liabilities for actions taken by a gigantic corporation? You know, something like Uber that is potentially responsible for all sorts of liability. Why would people invest their money in an operation like that, that is untested, charting new waters every day, trying new things, and there’s so much risk in that. Why do that if you can’t use the force of government to protect your investment?

28:21 Gary Chartier: Yeah, it seems to me that if you’re thinking about the kind of risky environment that we’re in now, it certainly makes sense to ask the question as courts, I think, are perfectly capable of doing, “Am I a passive investor or am I simply pretending to be a passive investor to shield myself from liability?” When in fact, I really am more influential over corporate decisions than I perhaps like to advertise. And we know, so again, this is all about the transaction cost issue [28:56] ____, we know that court can, as the expression goes, “pierce the corporate veil” in particular cases when it does seem as if limited liability and entity status are being used to shield bad actors against liability for the mess they’re making even now. So it’s not as if that’s somehow impossible now, it’s just that the pre-existing corporate form and corporate protections make that harder.

29:32 Gary Chartier: So I think the flip side is certainly true, that you might well expect common law courts to begin with the assumption that truly passive investors in publicly-traded corporations really did operate at enough of a distance from global decision-making, that they might not be responsible, not because of any general principle of limited corporate liability, but because their role is really not that of owners, despite the language that’s often used; really, they’re not that different, perhaps save for banks lending money to corporations, just that they have very variable returns. And you were gonna say something.

30:13 Anthony Comegna: Now, I wonder about that, because that seems to me a little like saying, “Oh, Northerners had nothing to do with slavery. They were just funding the slave trade and sailing the ships and things like that.” I’m not so sure that you can be a passive investor in a company.

30:33 Gary Chartier: That’s an interesting possibility. I think one can ask the question, I guess, in the case of the investor, how much control does that investor have. I think it seems to me that’s a factual inquiry about the extent of influence that the investor potentially has. And then one can ask the question, if the investor has a certain amount of influence, did the investors seek to exercise that influence? And I do think, again, unavoidably, the courts would find themselves engaged in factual inquiries about that. How precisely they would draw those lines, I’m not sure. I just think that, unavoidably, courts would find themselves engaged in the kind of thinking that probably common law courts did to some degree in the 19th century, asking, are we going to stifle productive investment from which we all benefit if we assume that any or all investors, who are arms length investors, are fully liable. And maybe you wanna respond, “No, there are so many bad things that corporations might do, that it really is worth holding the Sword of Damocles over the heads of individual investors.”

32:06 Gary Chartier: You might think, however, in those cases I can imagine that there would be insurance arrangements that probably would be invoked in one way or another to provide shielding. We’re gonna have to stop and think about the economics of such arrangements, but I think that the bottom line is, a corporation that wanted to attract investment from anonymous members of the general public would, it seems to me, need to provide some kind of security there. You couldn’t just assume in advance, I suppose, that a court would rule in a certain way. And so, yeah, perhaps in that case what you’d need to do would be to say, “If you choose to invest here, recognize that the value of your shares is constrained by the fact that we do have to keep paying for this liability insurance for you. If you wanna buy in, that’s a possibility.” And so there might be a certain kind of a self-regulating mechanism there. We’d have to talk more about the institutional arrangements, but that’s unfounded.

33:08 Anthony Comegna: Well, now, this leads me back to an earlier thread. I’m wondering, again, then, what happened in the 20th century for Libertarians to stop concerning themselves very much with the question of corporations? Is Ayn Rand to blame for making us love and respect businesspeople so much and their great bigness as entrepreneurs or is it really the fault of, I guess, the Cold War, which just sort of automatically identified everything with the smacking of the left with communism and Libertarians can’t have that, so we’re on the right. What really happened here, or is it something maybe more sinister that we also have had our interests, material interests in the corporate form?

34:00 Gary Chartier: Yeah. Great questions. It seems to me, as I observed before, it really seems to me that the post-World War II identification of American Libertarianism with the corporate sector is an anomaly. It seems pretty clear that there wasn’t much enthusiasm for big business on the part of the so-called Old Right, and certainly not on the part of 19th century and earlier, in the Libertarians and classical liberals. It seems me this is really a anomalous feature of the unstable alliance between the Cold War Buckley right and Libertarians, like Murray Rothbard and Frank Meyer. So, I think that political background undoubtedly matters, in the sense that somehow the enemy of my enemy is my friend, which is I think almost always a bad basis for decision-making.

35:08 Gary Chartier: I think Rand surely has to bear some blame here for telling us that big business is America’s persecuted minority. I mean, Rand herself, at her best, certainly knew how to paint pictures of businesspeople who were anything but members of a persecuted minority and certainly knew how to manipulate the system. But by saying things like that, she certainly did encourage a kind of moral blindness, I think, on the part of the modern Libertarians who came of age in the ’50s and ’60s with regard to the merits of not only the corporate form in the narrative sense, but sort of the role that the large corporations played in American social and political life.

35:54 Gary Chartier: Whether there’s also on top of that an unwillingness to face some of these problems because of our own economic interests. Look, I think we always have to be aware of those kinds of possibilities. And I teach at a university and undoubtedly some money that the university possesses it possesses because some corporation donated it. I find myself sometimes willing to roll my eyes at criticisms by the state that’s left, let’s say, of Charles Koch. Is that because I get a tiny grant from the Koch Foundation to run lectures? Maybe. I think we should be aware of that kind of thing. But I think there are all sorts of Libertarians who don’t have much, if anything, to do with corporate money, and even those who do, in one way or another, receive corporate grants or benefit from corporate largesse are not, I think, as a general matter, just unprincipled shills. Of course, you might expect me to say that.

37:11 Gary Chartier: I think it’s more this broader cultural thing that really starts after the war, and I think does include both the Cold War right-Libertarian alliance, and certainly the influence of Rand with her vision of corporate titans as heroic, and probably the way in which that influenced the self-understandings of a number of people.

37:38 Anthony Comegna: A special thanks to Professor Gary Chartier for joining me on the show today to talk about Libertarianism’s corporation problem. It may be too much to ask that you all come away from this a bunch of rabid anti-corporate Locofocos. But I hope that it has at least provoked a new and fresh set of serious questions in your minds. The Locofocos were among the first generations who actually had to deal with the corporation problem, as it was taking shape. They played a serious role in determining how corporations would look for the next two centuries. But today we stand in our own swirling era of constant reform. We cannot afford to make the same mistakes they did.

38:31 Anthony Comegna: Liberty Chronicles is a project of libertarianism.org. It’s produced by Tess Terrible. If you’ve enjoyed this episode of Liberty Chronicles, please rate, review and subscribe to us on iTunes. For more information on Liberty Chronicles, visit libertarianism.org.