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International Municipalism: Cities as Laboratories for Democracy

As Political Parties Continue to Gorge in Delicious Big Corporate Donors' Money, Local Government Looking How to Find Actual Solutions with Citizen Democracy.

A new international municipalist movement is on the rise – from small victories to global alternatives
In a world stuck between neoliberal crisis and authoritarianism, a reinvigorated municipalist movement is proving a powerful tool to build emancipatory alternatives from the ground up.

From 9 – 11 of June, mayors, local councillors and activists from over 40 countries will meet in Barcelona for the international municipalist summit ‘Fearless Cities’. The event will bring together, for the first time, a network of municipalist platforms that has been expanding around the world, to relatively little fanfare, over recent years.

The municipalist movement is made up of an ecosystem of organizations working within and beyond electoral politics at local level. It’s a movement defined as much by how it does politics as by its goals, and it is this insistence on the need to do things differently that gives municipalism its unique strength in the current context.

Municipalism works at the local scale. In an age of xenophobic discourses that exclude people based on national or ethnic criteria, municipalism constructs alternative forms of collective identity and citizenship based on residence and participation. Municipalism is pragmatic and goal-based: in a neoliberal system that tells us ‘there is no alternative’, municipalism proves that things can be done differently through small, but concrete, victories, like remuncipalizing basic services or providing local ID schemes for undocumented immigrants. Municipalism allows us to reclaim individual and collective autonomy; in response to citizen demands for real democracy, municipalism opens up forms of participation that go beyond voting once every few years.

The global municipalist map today

The municipalist movement has already made significant inroads in some areas of the world. Perhaps the most profound contemporary expressions of municipalism are found in the Kurdish movements in the Middle East. Against the most inhospitable background of conflict and repression, the Kurds are building feminist, assembly-based models of stateless democracy, most notably in the self-governing region of Rojava in Northern Syria.

Municipalism is also flourishing in Southern Europe. In Spain, citizen platforms govern most major cities, including Barcelona and Madrid. These platforms followed in the footsteps of the municipalist Popular Unity Candidacies (CUP), which gained significant representation in the 2007 and 2011 local elections in Catalonia.

Spain’s ‘cities of change’ are reversing austerity measures, remunicipalizing basic services and integrating an explicitly feminist perspective into public policy. As a network, these city halls are also playing a significant role in challenging central government policy on issues like migration and housing. In Italy, Cambiamo Messina dal Basso was an early example of what is known as “neo-municipalismo”, taking office in the Sicilian city in 2013. In Naples, a municipalist coalition has developed innovative ways of democratizing the urban commons and stood up to the central government over urban development plans under the leadership of Mayor Luigi Demagistris. Citizen platforms have seats on city councils in Bologna and Pisa, while in other cities, like Padova or Verona, platforms are running for office in the local elections on June 11.

Elsewhere, municipalism is being explored as a strategy for the future in response to the failures and limits of national politics. In France, for example, activists from the Nuit Debout movement that occupied city squares in 2016 are considering replicating the municipalist path taken by some of their indignados counterparts in Spain at the 2020 local elections. The citizen-left-green alliance, RCGE that governs in Grenoble with mayor Eric Piolle, and Autrement pour Saillans in the small town of Saillans could serve as potential sources of inspiration closer to home. In the wake of a presidential election that presented a choice between a neoliberal and a far-right candidate, the time is ripe in France to prove that there are alternatives at local level.

Similarly, in the USA, the victory of Trump has provoked reflection among supporters of Bernie Sanders about the potential of towns and cities as sites of resistance and transformation. Sanders himself has said that the next step for his movement is to organize locally and stand candidates for local office. The Working Families Party, which endorsed Sanders in 2016, is actively working to harness the energy of his movement in local and state primary races. In the US, as in France, there are isolated cases of municipalist platforms – Richmond for All in California, and the People’s Assembly in Jackson, Mississippi – that could serve as models for a broader movement.

In Hong Kong, the city council has become a key site of conflict between the pro-democracy movement and the Chinese government: elected councillors from the Demosisto and Youngspiration parties face repression and state prosecution for their role in pro-democracy protests inside and outside the council chamber.

In Poland, another country governed by the authoritarian right, a municipalist movement has been brewing for a number of years. 2011 saw the founding of the Congress of Urban Movements, bringing together diverse organizations working at local level. A number of citizen platforms from the congress stood in the local elections in 2014, picking up seats in six city councils and on district councils in Warsaw, and winning the mayoralty in Gorzow Wielkopolski. Municipal elections in 2018 should see this movement make further advances, in alliance with local branches of the national party, Razem.

In Latin America, too, municipal movements are providing glimmers of hope against a backdrop of national stagnation or crisis. In 2016, Áurea Carolina de Freitas of citizen platform Cidade que Queremos won more votes than any other candidate for city council in Belo Horizonte, Brazil, while Jorge Sharpe, a former student activist supported by a citizen platform, won the mayoralty of Chile’s second city, Valparaíso. In Rosario, Argentina, Ciudad Futura has spent over ten years creating non-state institutions outside city hall and just over two using its three councilors to push for change from within it.

A new political space?

Up until now, international connections between these movements have been mostly limited to bilateral exchanges on organizing tactics or policy debates. But the possibility of articulating a new political space among these diverse experiences is tantalising. The response to the invitation from Barcelona en Comú to Fearless Cities – to which over 600 participants from more than 180 towns and cities have registered – suggests that there is already the latent awareness of a common municipalist identity, and appetite to deepen global collaboration.

This matters, because the consolidation and expansion of municipalism globally could determine the ability of any individual platform to meet its goals over the long-term. After all, one of the greatest limits of municipalism is the difficulty it faces in responding to forces and interests that cross borders: transnational speculation in urban land and housing markets, the threat posed by multinationals to local economic and environmental sustainability, displacement and forced migration. Only a strong, networked response will be capable of providing a counterweight to central government and corporate power in these areas.

It will be up to municipalist movements themselves to define a blueprint for an internationalism for the twenty-first century. An internationalism that moves beyond formal bureaucratic structures and harnesses the ways of working that define municipalism itself: concrete and goal-based, feminist and collaborative, radical yet pragmatic. Only in this way, through infinite acts of bravery, through faith in the cumulative effects of a thousand small victories, can we build a global alternative to a world in crisis.

A new international municipalist movement is on the rise – from small victories to global alternatives

It’s Time for Cities to Take the Lead in the Struggle Against Climate Change

Now that the US has abdicated its role in the fight against climate catastrophe, cities must join together to save the planet.

The science of human survival is political science. Survival depends on sustainability and resilience, and the means to sustainability and resilience are political. It is for survival (security) that naturally free human beings enter into a social contract and bind themselves to obey the sovereign governing bodies they establish.

Centuries ago, when the idea of a social contract was established in the West, the sovereign governing bodies able to secure life and liberty were conceived as nation-states. But as the world has become more global and interdependent, sovereign nations and their international networks have grown less effective, sometimes even dysfunctional. Survival—a sustainable world—depends more and more on citizens acting locally in the name of global goods, of which climate change and decarbonization are prime examples. Sustainability today entails glocality, action that is simultaneously local and global. Municipal policies must be crafted with an eye on their impact not over months or even years but over generations, as well as among communities and peoples across the interdependent planet.

Of the many threats to a sustainable world, none is more dramatic and perilous than human-induced climate change and its consequences, which include global warming, sea-level rise, and extreme weather. The collective impact of these consequences is putting civilization at risk—indeed, perhaps putting life on earth at risk. For even though as Lynn Margulis liked to say, “Gaia is a tough bitch,” whether the planet is tough enough to deal with our species’ hubris is yet to be seen.

I propose in this volume to address climate change by focusing on municipal approaches to renewable energy and a non-carbon economy, to decarbonization in a metropolitan setting. Cities can do decarbonization, and when they act interdependently, they can do it on a scale relevant to global warming.

The agency and actions needed are urban and local rather than national. Cities are home to more than half of the human population and more than three-quarters of the population of developed nations. They generate 80 percent of global GDP as well as 80 percent of greenhouse gas emissions. They also suffer the lion’s share of the economic damage from extreme weather events and sea-level rise. Along with agriculture, they consume much of the planet’s water, and the metropolitan regions they define house the factories and plants that run on carbon energy and account for a preponderance of carbon emissions. Private-sector automobiles and trucks are massively polluting, and public transit systems, unless they are upgraded and electrified, make things worse. The density and lack of green space in cities make them an environmental problem from the get go. Yet density also gives them a smaller collective carbon footprint per capita than suburbs or rural regions.

Cities are the problem. But cities, as both the prime sources and prime victims of climate change, can also be agents of remediation: politics at the municipal level may prove the equal of climate change at the global level. We can take the solution into our own hands. Whether we will is the question of the hour, and of the millennium.

We certainly are not likely to succeed if we depend on aging nations, which have already proved their deep incapacity to address global problems. Their dysfunction runs deep, and democracy appears to be in retreat, not only in the obvious places like Russia but also in Brazil, where an entire government was impeached in 2016 just before the Olympics; in the Philippines, where a demagogic mayor has become president; in Hungary, Poland, and Belarus, where populist and antidemocratic governments have been democratically chosen; and in the United States, where partisan gridlock has paralyzed governance, while a divisive and angry presidential election in 2016 left many American citizens disturbed and fearful for the democratic process itself. The crisis in national governance is a crisis in sovereignty, in the capacity of the nation-state to make good on the terms of the social contract on which their founding legitimacy turns.

Ideally, good-willed national states and international governing bodies would acknowledge their growing sovereign inadequacies and welcome, rather than condemn, urban efforts to solve global problems whose remedy has eluded them. In practice, that has not always been the case.

In federal states with a vertical separation of powers, such as India, Germany, Brazil, Canada, and the United States, local governments more readily accept power sharing. Although the classical theory of sovereignty leads unitary governments with hierarchical power structures to be chary of local autonomy, even strong top-down administrations sometimes tolerate a certain municipal outspokenness. Nonetheless, they hold strongly to the view that cities must finally be regarded as administrative subsidiaries of the state. In France, England, and China, for example, cities enjoy little jurisdictional autonomy. Deprived of both resources and jurisdictional competence, they are unable to walk an independent path.

This stern view of the subsidiarity of cities has softened recently as a result of an emerging recognition that cities do get things done and that the devolution of authority can benefit national as well as local government. The relationship between city and state cannot, however, be left for nation-states alone to define. As the representatives of citizens, who are in turn the ultimate source of sovereignty, municipalities understand that their claim to jurisdiction rests not only on their capacity to act effectively but on their right to do so when higher jurisdictions fail to discharge the responsibilities of sovereignty….

In the spirit of rights, if cities are impeded from defending their communities’ sustainability, they must take to their own streets and fight for what is theirs. Mayors must manifest the rights of cities, fight for those rights, and if necessary go to court or jail for them. The way ahead is likely to be smoother than this implies, and the relationship between cities and national governments likely to be complementary rather than antagonistic. But the jurisdiction and resources cities require in order to make good on their responsibilities are not a gift handed down at the discretion of states—they are a right that cities must claim.

To many observers, the claims made by local governments in the name of universal rights will sound peculiar, even nonsensical. But there has been an ironic shift in the valence of national and local governing bodies with respect to universal rights. Where once nations advocated for civic, social, and economic rights while supposedly parochial states and cities opposed them, more often nowadays it is cities that promote universal claims concerning gender rights, gay marriage, higher wages, and environmental sustainability—cosmopolitanism in its true meaning—while states grow small-minded, mean, and parochial.

The salient division today throughout the world is between the party of urbanity, embodying values such as creativity, imagination, pluralism, entrepreneurship, liberty, and social justice; and the party of parochialism, whether it is parochialism of the land (La France profonde or the Tea Party), parochialism of ethnic and religious tribes, or even the parochialism of nation-states trapped inside fading national borders.

This division can lead us to despair about national politics when a climate-denying purveyor of fear and hate like Donald Trump wins the presidency, or when xenophobic majorities run rampant in Austria, Hungary, Poland, and even the Philippines. Yet on the other side of the division are inspiring urban stories in which Londoners elect the son of a Pakistan-born bus driver (Sadiq Khan) by a huge majority as their mayor; Rotterdam residents choose a Moroccan-born Muslim (Ahmed Aboutaleb) as their Bürgermeister not many years after angry fellow citizens were calling for the blood of Muslims; a mixed-race Englishman (Marvin Rees) becomes mayor of Bristol, once a leading port city in Britain’s eighteenth-century slave trade; and meanwhile, a capital of the American South elects a brilliant African-American (Kasim Reed) to city hall while Newark, New Jersey, sends a former African-American mayor to the US Senate (Cory Booker) and elects a successor, Ras J. Baraka, who is the son of the great playwright Amiri Baraka (Leroi Jones).

In each case, it is a city that manifests the inclusive spirit of citizenship while nations wallow in insular nationality and competitive ethnicity. Now imagine citizens mobilizing their cities around a cosmopolitan party that is serious about implementing the Sustainable Development Goals, in whose name nations raise their voices but otherwise do little. Richard Schragger has it right: in order “to come to terms with the exercise of urban democratic power . . . a political movement is what is required.”

An urban political movement is not a pipe dream: in the 2016 municipal elections in Beirut, nearly 40 percent of the population abandoned tribal voting and factional parties like Hezbollah, the Sunni Future Movement, and various Christian warlord groups to vote for Beirut Madinati, or “Beirut, My City.” Madinati grew from the bottom up as a result of anger over a garbage strike and an earlier “You Stink!” campaign (garbage is one of the things citizens actually care about). A winner-take-all system denied the new Madinati movement representation in city government, but given that it almost toppled the old government even as it “refused help from any veteran politicians, and ran a slate of candidates evenly divided between men and women, Muslims and Christians,” as reported in the New York Times, it was a powerful symbolic victory for the cosmopolitan ideal incarnated as practical political struggle.

Cities and their citizens, in short, have rights, and these rights allow them to claim jurisdiction in addressing climate change. Their ability to succeed where states are struggling will depend on more than exploiting the vacuum left by the sovereign default. It will require that they put flesh on the bones of right, and muscle behind their technical know-how. It will be about politics, not science—democratic politics.

It’s Time for Cities to Take the Lead in the Struggle Against Climate Change

The Corporate Contradictions of Neoliberalism

In The Cultural Contradictions of Capitalism—a canonical work of economic sociology in the 1970s and ’80s—Daniel Bell argued that the productive and consumptive sides of capitalism had fallen into contradiction. Capitalism continued to rely on the Protestant ethic of sobriety and delayed gratification in the sphere of production, yet, contradictorily, had come to rely on modernist hedonism and credit purchasing in the sphere of consumption. Modern capitalism needed people to be sober by day and swingers by night. What is more, the displacement of the Protestant ethic by hedonism, Bell argued, was primarily the work of capitalism itself. Its mass production urbanized the population and created an economy of abundance, the continuation of which relied on ever increasing demand, stimulated through marketing and the extension of credit. This pulled the middle class away from small town, Protestant values. In other words, capitalism was undermining the conditions of its own existence. The economy’s contradictory need for both prudence and prodigality from its participants was “the deepest challenge to the society.”

I first read and taught Bell as a graduate student in the 1990s. Already by then the urgency of Bell’s thesis had receded. Capitalism had weathered this putative internal contradiction for a generation, with no signs of implosion. The perceived threat to American capitalism at the time came instead from the outside, from Japan. Japan’s integrated industrial policy, “quality circles,” and knack for translating American technological advances into desirable consumer products had created an economic juggernaut that seemed to be rolling right over American industry. It seemed emblematic when President George H. W. Bush led a pugnacious trade delegation to Japan in 1992 only to fall ill and, at a state dinner, cast the craw and faint into the lap of the Japanese prime minister.

Japan’s economic miracle, moreover, could itself be read as putting Bell’s thesis in question. At that time, the routine of the Japanese salaryman was to work very long and grave hours at the office followed by almost daily late-night drinking parties and the occasional group outing to the hot spring baths, the night girls, or the geisha: sober by day, swinger by night. This behavior was not seen as contradictory. Nor did it have to be. The compartmentalization of value spheres and conduct is commonplace in most human societies; the demand for consistency is the real anomaly. The case could thus be made that Bell’s sense of foreboding was but an artifact of the American tendency to misconstrue as a human norm the peculiarly Puritan aspiration for consistency of personality across all spheres, rationalizing all life according to one supreme value. Setting aside that assumption, it seemed to me not so much that American capitalism was becoming self-contradictory as that it was becoming more “Japanese,” with the undergraduate ethos of “work hard play hard” as its training ground.

Whatever the shortcomings of Bell’s specific thesis, however, one should not dismiss the more general possibility Bell raises of a system-threatening contradiction between a cultural system and an economic system. In particular, there can be a contradiction between a society’s economic ideology, or cultural system of economic legitimation, and its economic reality. I argue that we are experiencing this in an acute way under neoliberalism—a contradiction between the market ideology neoliberalism espouses and the corporate reality it fosters.

Any system exhibiting a contradiction between its legitimation system and its reality is set up for sudden delegitimation. But in the case of neoliberalism, the contradiction does more. Neoliberalism was born in reaction against totalitarian statism, and matured at the University of Chicago into a program of state-reduction that was directed not just against the totalitarian state and the socialist state but also (and especially) against the New Deal regulatory and welfare state. Neoliberalism sought to privatize public services, deregulate private services, and shrink social spending.1 It is thus unusual among ideologies in that it does not seek to rationalize the status quo. It is a self-consciously reactionary ideology that seeks to roll back the status quo and institutionalize (or, on its own understanding, re-institutionalize) the “natural” principles of the market. In other words, it is transformative. But the contradiction between its individualist ideals and our corporate reality means that the effort to institutionalize it, oblivious to this contradiction, has induced deep dysfunction in our corporate system, producing weakened growth, intense inequality, and coercion. This makes neoliberalism’s position all the more precarious. And when the ideological support of a system collapses—as appears to be happening with neoliberalism—then either the system will collapse, or new levels of coercion and manipulation will be deployed to maintain it. This appears to be the juncture at which we have arrived.

The Corporation as a Franchised Government

For the contradiction between neoliberalism and the corporation to be clear, it is necessary to say a few words about the nature of the business corporation.

The business corporation, like any corporation, is a little government. Its deepest roots run back to the municipality of Rome, the first corporation in law, which was at the same time the civitas, or Roman state. More proximately, the business corporation was modeled on the incorporated medieval town, and it carries forward its central legal features.

(1) As is true of the town, a corporate firm’s assets are not owned by natural persons, but by an abstract legal entity—the “artificial person” of the corporation, which assumes the legal position of sole proprietor. This fact should immediately explode the most insidious myth about the business corporation, that it is owned by its stockholders. The whole point of the legal form is to transfer ownership of the business assets to this legal entity, which in principle “never dies.” This prevents investors from pulling these assets out and liquidating the firm, and it allows all economic liabilities generated by the firm to be shifted from natural persons to this entity. Since the legal entity owns the assets of the business corporation, the stockholders obviously do not.

In the case of a university or other incorporated nonprofit, it is obvious that the assets are owned by a legal entity, since there are no stockholders to whom one could ascribe ownership. The business corporation, however, is commonly read through the lens of the partnership (due in good measure to the efforts of the neoliberals, as we will see), as if the stockholders were a species of partner and thus co-owners of the firm. Yet this is precisely what they are not, lacking the ownership rights, the liabilities, and the responsibilities of partners.

The misconception that stockholders are owners akin to partners in a partnership seems to stem from two things. First, stockholders have purchased stock, which is imagined to be tantamount to acquiring part ownership. But stock is just a financial instrument—a special form of good that a corporation is privileged to sell. And purchasing a good sold by a firm—whether stocks, blocks, or socks—does not give one ownership rights in the firm. In the United States, as in most countries, stockholders, whether acting individually or jointly, cannot use, lend out, exclude others from, collateralize, sell, or alienate corporate assets. In other words, stock ownership does not convey any rights of ownership over the firm or its assets. And this has been true from the beginning (despite legal ideology sometimes to the contrary). Stockholders have no legal claim whatsoever on these assets except at bankruptcy, when they are last in line as heirs, not first in line as owners. Nor do stockholders have a legal right to profits or dividends. Dividends are issued at the discretion of the board—as Apple demonstrated quarter after quarter to its long-suffering stockholders.

The second source of the confusion is that stockholders appear to have ultimate control of the firm, and ultimate control is a right of owners. This view, however, rests on a double misconception. First, while ownership implies control rights, control rights do not necessarily imply ownership. If they did, the boards of charitable foundations would be the owners, as would the bishops and elders of churches, the principals of schools, the mayors of towns, and the presidents and parliaments of countries. As this should make clear, control can derive from jurisdictional authority no less than from ownership. Therefore, one cannot infer shareholder ownership from whatever control rights shareholders might have. Second, stockholders do not in fact have any control rights, whether proximate or ultimate, over the firm—at least not in the United States nor in most other countries. In the business corporation, as in the university, the ultimate right to control the property and to create, fill, and prescribe the duties of all positions lies with the board, as is expressly stated in the corporate charter or general incorporation statute. (Holders of a majority of the stock must consent to a firm’s liquidation or its merger with another firm, because this involves the death of the firm. But they have no right to initiate or force these actions.)

It is true that the holders of common stock (although not the holders of preferred stock or other nonvoting shares) get to elect all members of the board other than the members of the first board. And this appears to give them ultimate control. If they are well organized, it will indeed likely give them de facto control. But this is not a legally enforceable control right. Imagine that all the common stock is held by a single stockholder, who therefore can place on the board whomever she will. If this board nonetheless subsequently decides to defy her, all she can do is wait for the next board election and replace it—just as the citizens of a town must wait for the next election to replace their city council or mayor (assuming no criminal activity). She cannot overrule the board, nor remove the offending board members, nor sue them (all things she could do if she were the owner and they her legal agent). All control rights lie with the board (just as all control rights lie with a sovereign parliament, not with the citizenry that elects it).

It might yet be thought that, although the right of election does not convey genuine control rights, it is itself evidence of ownership. But this is not correct either—as if the cardinals who elect the pope “own” the papacy, or the citizens who elect the mayor or president “own” the town or the state and its assets. True owners don’t get a vote, but a veto, which is why the governance rule for general partnerships (whose members are true owners of the firm’s assets) is unanimity on all major questions affecting the firm. The right of shareholders to participate in board elections is a charter right, not a property right.

In light of this, it is correct to argue, as did Adolf Berle and Gardner Means in their 1932 tour de force The Modern Corporation and Private Property, that the modern corporation exhibits a “separation of ownership and control.” But Berle and Means were wrong to suggest that this separation occurred gradually, as shareholders became more numerous and geographically dispersed. Rather, the separation is inherent to the corporate form. Ownership is with the entity; control is with the board, which acts on behalf of the entity. What Berle and Means meant to underscore is that all but the largest shareholders have lost meaningful participation in the election of the board, and thus have lost their influence over it, leaving hired managers a free hand. But properly put, this is not a separation of ownership and control (which obtains regardless of the shareholders’ level of participation), but a separation of shareholder and de facto control, or more precisely, a separation of shareholder and “influence” through election. Control of a corporation is simply not a function of who “owns” it, any more than control of a town is. (If it were, control would rest with the legal entity; but an abstract entity cannot act and a fortiori cannot control.) Rather, control rights are established by the charter.

As noted above, the point of having assets owned by a legal entity is to prevent assets from being pulled out by investors, forcing partial or complete liquidation of the firm. That is the Achilles heel of the general partnership as a business form. In contrast, with a corporation, assets are locked in permanently and can be specialized to the production process, allowing for increased scale and productivity. Historically, this is the main advantage of the corporate form for business. Marx was thus right to hold that bourgeois property would become a fetter on the productive powers of capital, to be burst asunder and replaced with socialized property. But it has been socialized primarily at the level of the corporation, not at the level of the state. Corporate property is a form of socialized property.

(2) The next legal feature that the business corporation carried over from the town is that, like the officers of a town, the managers and investors of a business corporation are exempt from liability for corporate debts, and in practice almost always escape liability for corporate harms, or torts. This is a second advantage of the corporate form for business. Debts and damages are paid by the corporate entity, not by natural persons. Here, however, an important distinction must be noted between the corporate town and the corporate firm. The officers of the town are elected by those over whom they rule and upon whom they act. Therefore, if they cause harm, it is at their own political risk, regardless of their protection from normal economic and legal risk. The officers of the corporate firm, in contrast, neither rule over nor act upon those who elect them, but rather rule over disenfranchised employees and act on numerous third parties. This relieves those who control corporate firms of most of their personal incentive to avoid causing harm when it is otherwise profitable.

(3) If neither the shareholders nor the managers own the assets of the corporate firm, whence derives management’s authority? Like a town, every corporation receives from the state a jurisdiction within which its officers legislate and rule. A university’s board of trustees, for example, legislates and rules over the property and personnel of the university—an authority it receives from the state, via the corporate charter. Similarly, in a business corporation, the board of directors legislates and rules over the property and personnel of the firm, even though the directors may not own any of it. This authority of the board, too, is delegated to it by the state, via a charter. It does not come from the shareholders (who, although they select the occupants of the seats on the board going forward, do not create the board’s structure, procedures, powers, or duties). Indeed, the board is created and begins to operate the business before shares are even issued. The board creates the shareholders; shareholders do not create the board. And prior to that, the state creates the board, and endows it with its authority. This does not make the board and the firm it controls an agent of the state. Rather, it is the state’s franchisee. To spell this out: the corporate firm gets its “personhood” (its right to own and contract as a separate legal entity), its liability regime, its governance structure, and its governing authority from the state, but it hires its own personnel and secures its own financing. This is a franchising relationship, and for this reason, I refer to corporations as “franchise governments.”2

The Neoliberal Corporation

The above exposition of corporations as governing authorities franchised by the civil government is, with slight modification, the classic view of corporations, as expounded, for example, in Blackstone’s Commentaries on the Laws of England. “None but the king can make a corporation,” which the king does either directly or through delegation to others such as the legislature. The authority the corporation wields, Blackstone continues, is a “franchise” of the king, analogous in this respect to the authority that the feudal vassal wields, also delegated from the king. Like lordships, corporations are part of the overall system of government established by the king.3 And this is part of the reason that classical liberals, including Adam Smith, were so suspicious of corporations and wished to circumscribe them.4 They recognized that they were not part of the free market, but represented state interventions in the market.

This is, of course, not the view of corporations espoused by neoliberals. The problem that the corporation posed for neoliberals, when neoliberalism first emerged as a self-conscious ideological movement at the end of World War II, is that one could hardly put over a free market agenda if one’s leading business actors were seen as state-created entities. So neoliberals had to retheorize the corporation as a creation of private contract (or at least something that could in principle be created by private contract). Accordingly, stockholders—rechristened “shareholders”—were theorized as owners who hire a board to act on their behalf. (Again, remember how wrong this is; shareholders are not owners of corporate assets, and the board gets its authority before they even exist.) In other words, neoliberals cast the corporation as a glorified partnership, to be operated in the interest of its imagined owners and principals, the stockholders.

This account superficially squares the corporation with market principles of private property and contract. But the social cost has been high. The institutionalization of this account in recent decades has transformed both the boardroom and the workplace, producing what I call the “neoliberal corporation.” And this is responsible for many of the economic inequities and dislocations that plague us today.

First it transformed the boardroom. Starting in the 1980s, under the influence of the Chicago school of “law and economics”—one of the founding strongholds of neoliberal thought—both law and norms changed to reorient corporations towards maximizing “shareholder value.” This was done partly by empowering stockholders in the boardroom—although unfortunately at a time when the character of the typical stockholder was changing, from an individual long-term investor to an institutional investor (a pension fund, mutual fund, hedge fund, or private equity fund) working under quarterly profit imperatives. Executives who didn’t look out for this new (and impatient) Number One were liable to find themselves replaced.

Even more effectively, this reorientation was done by bribing executives with compensation packages heavily skewed towards stock and stock options. A generation ago, stock compensation was an insignificant part of CEO pay. Today, in Fortune 500 companies, it constitutes over 80 percent of a CEO’s pay.5 In the tinted view of human psychology typical of Chicago School neoliberalism, it is assumed that CEOs will strive narrowly to maximize their personal income, not the welfare of the firm. Therefore, the Chicago neoliberal reasons, structure their pay so that, in maximizing it, they simultaneously maximize (short-term) stockholder returns.

Two effective means of quickly juicing a stock price are to increase dividend payments and to buy back stock. As William Lazonick details, stock buybacks—that is, corporate repurchases of its previous stock issues, which decrease the supply of outstanding stock, and thus increase its price—have become so popular with executives that buybacks now consume on average over 50 percent of the profits of S&P 500 firms. In some years, the buybacks of some firms have topped 100 percent of corporate profits.6 That is, the companies spent more on repurchasing their stock than they earned for the year, which is done by cutting into their reserves, taking on debt, or selling off assets. Increasing dividend payments, even when profits are not rising, similarly robs the future to pay off the present. This is what I call “vampire management,” sucking out the accumulated life force of the company to feed current stockholders. Others have likened it to cannibalism—of stockholders eating the corporate body. What it means, in Bell’s terms, is that the hedonism and immediate gratification of the rentier has gained control over the arena of production.

The societal consequences have been overwhelmingly negative. On the one hand, it means that the revenues of the firm have been massively reallocated, with much of what used to be shared with workers now disgorged to shareholders and executives. Wages stagnated even when productivity continued to climb. This is at the root of our growing economic inequality. But it also affects the rate of economic growth itself. Production is still an arena wherein focus on the long term—that is, delayed gratification—works best. But the refocus on short-term share price means that research and development get cut, reinvestment in plant expansion gets cut, and worker training gets cut, because their payoffs are not immediate. The result is slower growth. What is more, the pressure against worker training encourages, as an alternative, the de-skilling of the production process, which in turn facilitates the offshoring of jobs, further suppressing domestic wages.

In short, when the short-term focus of the hedonist gains control of the arena of production, all lose out in the long term, but the worker loses out disproportionately, in both long term and short term. There is no longer a “cultural contradiction” between production and consumption, as both are now ruled by an ethos of immediate gratification. It turns out we were better off when there was a contradiction.

Second, neoliberal retheorization of the corporation has transformed the workplace. As part of this retheorization, neoliberals adopted a newfangled principal-agent theory indebted to game theory, according to which principal and agent always act opportunistically towards one another. In the neoliberal view, shareholders are assumed to be the principals (rather than the corporate entity and its authorized purpose), and the employees—whether top managers or line employees—are assumed to be their agents, who will shirk if left to their own vices. Fortunately for top managers, boards primarily use the carrot of stock and stock options to align the managers’ interests with the shareholders (although this is arguably the most expensive way to motivate managers). But there aren’t enough carrots to go around. So line workers get the stick—that is, an increasingly coercive workplace with electronic monitoring, shaming, and so forth. This of course decreases their actual commitment to their employer and, in a self-fulfilling prophecy, can turn them into actual shirkers.

In sum, the rise of the neoliberal corporation creates a slow-growth, high-inequality, high-coercion economy.

Neoliberalism and the New Scarcity

What neoliberalism has done to the realm of production must also be placed in the context of what neoliberalism has done to the realm of consumption. This can be summarized by saying that neoliberalism reimposes the logic of scarcity on the economy of abundance. It does so in several ways.

First, as just explained, are the distributive effects of neoliberalism. Workers are deprived of their productivity gains, with almost all of it conferred upon the executives and the rentiers. So their purchasing power remains stagnant even as wealth explodes all around them. This is both a material and psychological reimposition of scarcity.

Second are the privatization effects of neoliberalism. Neoliberalism shrinks the sphere of public services and “privatizes”—or rather, corporatizes—the provision of the public services that remain. In most instances, corporate provision has proven to be more expensive than public provision, since the rentier investor needs his cut. Think of privately operated toll roads, or Chicago’s privately operated parking. And it shifts the cost of service from the wealthy taxpayer to the general public of users, which pays cost plus profit. Relatedly, college has gotten so expensive, as its own managerial costs have exploded while state legislatures have cut public funding, that parents’ expectation of a “return on investment” becomes understandable. Students feel forced into the moneymaking occupations, rather than artistic or care occupations, because of student debt, and because essential goods increasingly must be purchased, including education for the students’ own anticipated children. The tightening of personal bankruptcy laws increases this pressure. There is limited public provision of the basics to liberate one for risk-taking, including entrepreneurial risk-taking, and fewer second chances if one gets in financial trouble. So even the youth become extremely risk averse. With fewer going into the helping professions and creative professions, there is less help for those in need, and an impoverishment of the culture.

Third are the monopoly effects of neoliberalism. One of the first targets of the Chicago neoliberals, both on the law faculty and the economics faculty, was the country’s antitrust regime. Breaking up monopolies was just one more unnecessary government intervention in the market. Given enough time, the market would itself undermine monopolies, as new entrants brought disruptive technologies to bear. Their recommended rollback of antitrust enforcement was finally institutionalized under President Reagan.

Unfortunately, neoliberal argumentation on this point was always tendentious. Firms naturally pursue “pricing power,” and when industry concentration can occur through acquisition even more easily than through organic growth, it is foolhardy to imagine that new entrants will keep markets competitive. They can simply be bought out. Indeed, in a corporate economy, this can be done even against the will of the target company’s management. And sure enough, monopoly has returned to the United States with a vengeance, as Barry Lynn and Philip Longman of New America have argued. Commodity food producers are hit especially hard. Their productive inputs—seeds and sprays, for example—are in the hands of a few suppliers. Meanwhile, their productive outputs—chicken, beef, pork, corn, soy, dairy, and so on—often have only one local buyer. A few enormous processors operate as monopsonists with respect to the food producers, and monopolists with respect to the consumer, lowering incomes on the one end, and raising prices on the other. Monopoly pricing pervades other consumer markets as well—cable television and Internet service, eyewear, beer, breakfast cereal, pet food, department stores and office supply stores, and so on—where monopoly is often concealed behind a veneer of brand diversity. Standing at the end of supply chains riddled with unchecked monopolies, the consumer finds the reach of her dollar considerably foreshortened. Lynn and Longman also argue persuasively that monopoly has suppressed innovation and job creation. Monopoly is thus a double burden, producing fewer good incomes in an economy of overpriced goods.

Fourth are the globalization effects of neoliberalism. For those who control corporations, the new mobility of corporate capital has been a race to the top, as national jurisdictions compete to offer ever more favorable terms of operation for those who control. For everyone else, that means a race to the bottom, as corporate tax rates are cut along with environmental regulations, health and safety regulations, and worker wages. The decline in tax receipts means a decline of funding for what still remains in the public sphere, even as the other declines mean these funds are more needed. It may be the case that there are productive efficiencies to be gained through the mobility of capital—although as we’ve seen, if this comes at the expense of long-term investments in productivity, this may not be true on balance. But even supposing there are, the costs and benefits of these productivity gains are being distributed most unequally.

In this new neoliberal world, the economic drive elicited by the siren song of hedonism is replaced by the spur of deprivation, as wages fail to keep up with the cost of living.7 American households have the highest credit card debt load in the world (over $ 6,000 on average, but over $ 16,000 on average among those that have credit card debt), which is perhaps not surprising given that over half of Americans live paycheck to paycheck, with an estimated 62 percent lacking liquid funds sufficient to cover a $ 1,000 emergency expenditure.8 Debt that was racked up to live large becomes debt racked up to stay afloat. It is all the same to the creditor rentier. The economic ideal of the financier, banker, and rentier in general is that all purchases, whether of private individuals or governments, be made on credit, so that all income streams are channeled to themselves, the debt holders, to pay interest and principal. Why the debts are being contracted is immaterial.

In sum, the neoliberal effort to square the corporation with free market principles of private property, contract, and self-interest has had the consequence of increasing inequality, coercion, and mediocrity in the corporation. And since the neoliberal push for “privatization” really means corporatization, these maladies of the neoliberal corporation are pushed ever further into American life. The American worker and consumer is then undermined further by the exodus of capital abroad and the return of monopoly at home. Neoliberalism has thus created a world that is almost the inverse of the world Bell was diagnosing. The short-term orientation of the hedonist has been imposed on the production process, while the logic of scarcity has been reimposed upon the working class and middle class in the sphere of consumption, even as productivity continues to rise, but is siphoned off by plutocrats. It is an economy of abundance for the few, but of scarcity and coercion for the many.

There is no virtue today in poverty and abstinence. Work, as Bell notes, is no longer proof of salvation, nor an end in itself as a “calling,” but a means to consumption and social status. Stagnant or declining wages, especially when set next to the exploding wealth of those at the top, is therefore only experienced as great frustration. And so one gets the kind of elections we have been seeing around the world.

The Contradictions of Neoliberalism

Because modern economies are corporate, not atomistic, there is a yawning chasm between the legitimating ideals of neoliberalism and the reality it creates. And this chasm is even wider than first appears if the true nature of the business corporation is kept in view. For example:

(1) Neoliberalism idealizes an individualistic, private property economy. But the economy it actually promotes is a socialized, corporate property economy, where property is controlled by, but unowned by, natural persons, with all the problems of moral hazard that this raises.

(2) Neoliberalism idealizes a free market economy, with minimal state intervention, beyond protecting property and contract. Yet the economy it promotes is dominated by state-created legal entities. State intervention makes the corporation.

(3) Neoliberalism holds that the state is a sphere of coercion, while the market is a sphere of freedom. But in most contexts, the state only makes general laws that must be followed as one pursues one’s own ends. In contrast, the corporation, for which most people must now work, issues direct commands to its ends, and under neoliberalism it has only become more coercive in seeing that these commands are carried out.

(4) Neoliberalism promises to increase economic growth. But corporations reconstructed on neoliberal lines retard growth, in favor of redirecting revenues to those who control and finance.

(5) Neoliberalism advocates an ethic of individual responsibility. If you fail in the market, you should accept the consequences, and not expect the wealth generated by others to be redistributed to you. But thanks to the principle of limited liability, the corporate form spares those who control the corporation from the legal or direct economic consequences of their actions. The corporation is institutionalized irresponsibility. In the neoliberal economy, individual responsibility is imposed on the weak (with a downsized social safety net, tightened personal bankruptcy laws, etc.); freedom from responsibility is enjoyed by the strong—those who invest, and those who control.

It is hard to exaggerate how far neoliberal ideology is contradicted by our economic reality. The contradiction ultimately stems from the failure of neoliberals to understand the corporate form, and thus a failure to understand the corporate economy. Indeed, it means a failure to understand the modern world as a whole, which is fundamentally corporate in its construction. Its corporatization began in medieval Europe in the wake of the recovery of the Roman law of corporations. The corporate form first transformed the semi-subordinate bodies of the Church (its monasteries, cathedral chapters, confraternities, chantries), and eventually the Church as a whole, all modeled as corporations. It then transformed civil society (its towns, universities, and guilds). And then it transformed the state (inspiring the positing of an abstract and sovereign juridical person, the “state,” distinct from the ruler).

Briefly, it looked like that would be the end of the line for the corporate form. Rhetoric, and to an extent, reality, suggested that the corporate form would be swept away, with corporate rights replaced by the rights of man. In the Age of Enlightenment, corporate bodies came under attack as remnants of the ancien régime—examples of legal privilege obnoxious to the demand for equality under the law. At the Constitutional Convention, America’s founders, fearing the rise of monopoly and a monied aristocracy, refused to grant the power of incorporation to the federal government.9 The French Constitution of 1791 went so far as to dissolve all corporations for being “injurious to liberty and equality of rights.” But, in America, federal incorporation was later held to be an implied power, and, in France, the corporate ban would prove to be short-lived.

The problem with neoliberalism is that it construes the idealized, individualist world of eighteenth-century rhetoric as a good approximation of twenty-first-century reality. But in the nineteenth-century United States especially, a new corporate age was birthed as the corporate form made its final and most potent conquest, transforming the business firm and economy. In our “social imaginary,” to use a coinage of Charles Taylor, the United States is the individualist society sans pareil—the most modern of modern societies because it is the most thorough in its realization of the individualist impulses of the Renaissance and the radical Reformation. Yet, in reality, it is now the most corporate of societies, teeming with franchised governments large and small: towns, state governments, and the federal government (franchised by “the People”), but also and especially our myriad for-profit and non-profit corporations (business firms, churches, foundations, and other “non-governmental,” yet actually quite governmental, associations).

Our ability to come to grips with our current predicament requires as its first step a fundamental reworking of our picture of modern society. Ours is not the world of Adam Smith and John Stuart Mill. It is a world in which the means of production and the means of rule are owned by juridical entities, not natural persons. A world wherein control is exercised by officeholders, not owners; wherein the officeholders—of corporate government no less than of civil government—dodge direct economic and legal responsibility for the consequences of their control; and wherein the officeholders are therefore supposed to be guided by a fiduciary duty to the organization’s authorized purposes, not by individual self-interest. This is the world we inhabit, and it is a world that falls into dysfunction and exploitation when neoliberal categories and prescriptions are imposed upon it.

The Corporate Contradictions of Neoliberalism

Source: ONTD_Political

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