Posts Tagged ‘scofflaw’
“Humanity is actually much more cooperative and empathic than given credit for”*…
We looked earlier at the shrinking away of public companies in the U.S., both as a product of consolidation (of operations and of ownership) and of the (potentially dangerous) growth, in their stead, of private equity. University of Michigan professor Jerry Davis has a more optimistic take…
Public corporations have been dominant institutions in the American economy since the dawn of the 20th century. Whether due to their greater efficiency or power, listed corporations spread across nearly all industries. “Capitalism” in America was synonymous with “corporate capitalism,” and the number of exchange-listed companies grew with the size of the economy.
Yet since the late 1990s, the number of listed corporations has dropped by half in the US, underwritten by new technologies that lower the cost of assembling an enterprise. Meanwhile, neglected alternatives to the public corporation both old (e.g., mutuals, cooperatives) and new (e.g., open source, platform coops) have proven surprisingly durable. Given the manifest pathologies of shareholder capitalism, the combination of these two trends may suggest pathways out of our current dilemma…
[David explains how both consolidation among listed companies and the rise of private equity have contributed to this drop, but then raises a third, more general explanation…]
A more encompassing interpretation is that information and communication technologies (ICTs) have drastically changed the basic economic calculus of what an enterprise looks like and how it might be funded. In the US context, this has meant that companies prefer “buy” to “make,” as transaction cost enthusiasts might describe it. I coined the term Nikefication to describe the process of vertical dis-integration that reconfigured American industry during the 1990s and 2000s and the options it opens for alternative forms of enterprise, described in detail in previous books…
The vertical dis-integration of the American economy was driven by Wall Street and enabled by ICTs. Ironically, the result is that the capital requirements to create and scale a business can be much lower, reducing the rationale to go public in the first place. Indeed, IPO prospectuses routinely convey that the point of the IPO is not to raise capital, but to create a market for the company’s shares to enable VCs and employees to cash out – which is not the most persuasive pitch to potential buyers, and perhaps helps account for the disastrous post-IPO performance of most new listings.
The asset-lite model means fewer public companies, but it also suggests new possibilities for non-corporate forms that may be more human-scale and democratic. Nike’s profit-driven, asset- and employee-lite model is not the only option enabled by new technologies.
By “noncorporate” I mean forms of economic organization that are not owned by outside shareholders, although they may be legally organized as a corporation. These include mutuals (where consumers or members are also the owners); cooperatives (where workers, producers, or consumers are the owners); municipal enterprises (where citizens or governments own the enterprise); nonprofits; and open source projects. These forms are far more prevalent than one might expect, and in some cases they dominate their industry (e.g., property insurance, server software).
Noncorporate forms of enterprise have proven surprisingly resilient in the US. The Fortune 500 list for 2022 includes at least a dozen mutual insurance companies, including State Farm (#44), New York Life (#71), and Nationwide (#83). The single largest shareholder of over 350 of the 1000 largest American corporations is Vanguard—also a mutual. Land o’ Lakes (#213) is an agricultural cooperative owned by its producer-members, as are Ocean Spray and Blue Diamond. Ace Hardware is a retail cooperative in which local stores can be attuned to local needs and tastes yet gain the economies of scale of a large-scale brand. Jessica Gordon Nembhard’s brilliant book Collective Courage documents that cooperative forms thrived in African-American communities for generations – often overlooked by those who find data about the economy solely through online databases. And the US is home to nearly 5000 credit unions, which by law are not-for-profits, owned by their members.
Stanford Law professor Ron Gilson once quipped that if shareholders didn’t exist, they would have to be invented. That’s not quite true: plenty of American enterprises do quite well without shareholders. Indeed, civilization itself might be better without them. As I have written elsewhere, “nearly every major societal pathology in the West today – certainly in the USA – is caused or exacerbated by profit-oriented corporations,” including the opioid epidemic, the obesity crisis, the return of nicotine addiction among the young, democracy-undermining social media, and a climate catastrophe underwritten by the fossil fuel industry. Shareholder capitalism may be a suicide pact. Conversely, cooperatives are inherently democratic and accountable…
Institutional alternatives to public corporations are well-established in the US, and in some cases they lead their industry, such as mutuals in finance and insurance. But cooperatives have historically been thin on the ground here compared to Europe. According to the Democracy At Work Initiative, there were 612 worker cooperatives in 2021 –a 30% increase over 2019, but still a tiny number.
Perhaps the digital revolution has finally created the conditions for cooperatives to thrive. Research from the pre-digital era suggests that one of the factors limiting cooperatives is, for want of a better term, the transaction costs of democracy. A lot of workers’ time spent in meetings to engage in dialogue, debate, and polling is a price that corporate dictatorships don’t have to bear. But newer tools have dramatically reduced the transaction costs of democracy: the same smartphones that enable pervasive corporate surveillance also allow worker voice at scale on a continuous basis.
It is not just transaction costs that have declined: the required assets to start a business are also much cheaper now to own or rent. Capital equipment such as Computer Numerical Control tools, powered by software, gets better and cheaper much the same way other software-powered tools do. (Compare the price of a color laser printer in 1990 to one today.) This is also true of the software required to run an enterprise. It is possible to buy a knockoff version of the enterprise software underlying the Uber app for under $10,000 – and the Drivers Coop in New York is creating a version to “franchise” the locavore driver-owned coop alternative to Uber. The ICTs that dis-integrated the corporate economy have opened space for noncorporate alternatives that might be more democratic and human-scaled.
There are reasons for optimism here. Platform cooperatives merge the benefits of coops with accessible technology, and have been especially effective in industries in which the required new capital investment is low (home cleaning, home health aides, transit). Trebor Scholz’s new book Own This! provides details on the opportunities here. Municipally- or cooperative-owned fabrication facilities can enable enterprises with limited capital to launch and thrive. If the required investment to start a business is low, then the range of alternative institutions, including coops, is correspondingly larger.
The technologies exist to create low-cost alternatives to public corporations. Maybe we are not stuck with the legacy of 20th century corporate capitalism after all…
An optimistic (and aspirational) take on what might follow the economic reign of the public company: “Is This the End of Corporate Capitalism?” from @vanishingcorp via @iftf.
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As we ponder proprietorship, we might recall that, on this date in 1933 the hospitality industry got a boost as Congress ratified the 21st Amendment to the U.S. Constitution– repealing the 18th Amendment, which had prohibited the manufacture, transportation, and sale of alcohol. Prohibition had gone into effect in 1920 in an effort to reduce crime and improve public health, but it had backfired: despite massive public investment in enforcement, there was a sharp rise in organized crime (c.f.: bootleggers like Al Capone stepping in to supply black market booze) and the emergence of a “scofflaw” attitude on the part of a public that wanted its alcohol.
“Society gives legitimacy and society can take it away”*…
Yesterday’s post featured an argument that attention (which social, economic, and commercial discourse increasingly treat as a limited resource) is not in fact scarce at all, and indeed, that it is dehumanizing to think of it in that way.
Today’s offering nominates a different kind of scarcity as worthy of our thought…
Legitimacy is a pattern of higher-order acceptance. An outcome in some social context is legitimate if the people in that social context broadly accept and play their part in enacting that outcome, and each individual person does so because they expect everyone else to do the same.
Legitimacy is a phenomenon that arises naturally in coordination games. If you’re not in a coordination game, there’s no reason to act according to your expectation of how other people will act, and so legitimacy is not important. But as we have seen, coordination games are everywhere in society, and so legitimacy turns out to be quite important indeed. In almost any environment with coordination games that exists for long enough, there inevitably emerge some mechanisms that can choose which decision to take. These mechanisms are powered by an established culture that everyone pays attention to these mechanisms and (usually) does what they say. Each person reasons that because everyone else follows these mechanisms, if they do something different they will only create conflict and suffer, or at least be left in a lonely forked ecosystem all by themselves. If a mechanism successfully has the ability to make these choices, then that mechanism has legitimacy.
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There are many different ways in which legitimacy can come about. In general, legitimacy arises because the thing that gains legitimacy is psychologically appealing to most people. But of course, people’s psychological intuitions can be quite complex. It is impossible to make a full listing of theories of legitimacy, but we can start with a few:
Legitimacy by brute force: someone convinces everyone that they are powerful enough to impose their will and resisting them will be very hard. This drives most people to submit because each person expects that everyone elsewill be too scared to resist as well.
Legitimacy by continuity: if something was legitimate at time T, it is by default legitimate at time T+1.
Legitimacy by fairness: something can become legitimate because it satisfies an intuitive notion of fairness. See also: my post on credible neutrality, though note that this is not the only kind of fairness.
Legitimacy by process: if a process is legitimate, the outputs of that process gain legitimacy (eg. laws passed by democracies are sometimes described in this way).
Legitimacy by performance: if the outputs of a process lead to results that satisfy people, then that process can gain legitimacy (eg. successful dictatorships are sometimes described in this way).
Legitimacy by participation: if people participate in choosing an outcome, they are more likely to consider it legitimate. This is similar to fairness, but not quite: it rests on a psychological desire to be consistent with your previous actions.
Note that legitimacy is a descriptive concept; something can be legitimate even if you personally think that it is horrible. That said, if enough people think that an outcome is horrible, there is a higher chance that some event will happen in the future that will cause that legitimacy to go away, often at first gradually, then suddenly…
The co-founder of Etherium, Vitalik Butarin (@VitalikButerin) on why “The Most Important Scarce Resource is Legitimacy.” Whatever one’s feeling about cryptocurrency, it’s eminently worthy of reading in full… and of submitting to the same sort of questioning that L.M. Sarcasas mustered yesterday,
* Willis Harman
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As we channel John Locke, we might recall that it was on thus date in 1933 that the the Cullen–Harrison Act, legalizing the sale of beer (after 14 years of Prohibition), came into force. Americans celebrated by consuming 1.5 million barrels of beer that day.
The Cullen-Harrison Act was not the official end of prohibition in the U.S., but it did redefine an “intoxicating beverage” under the Volstead Act (which was created in 1919 to carry out the intent of the 18th Amendment– and was fully repealed later in 1933).
During Prohibition, while alcohol consumption fell initially, it pretty briskly returned to 60-70% of its pre-Volstead Act levels. Indeed, it was in 1923 that the invented word “scofflaw” was introduced to the American vocabulary. Created to mean “a lawless drinker of illegally made or illegally obtained liquor,” it gained wide usage through Prohibition, and survives to day, referring to those who ignore/break minor laws that are infrequently enforced… which is to say, laws that rely on legitimacy for their effectiveness.
“You are where your brain is but not where a front-page headline is”*…
Headlines in newspapers, teasers for TV new stories “at 11”– from it’s birth, the press has promoted its wares with précis that pique a peruser’s interest. The advent of online journalism has only amplified that phenomenon… and to amusing effect.
Jeva Lange illustrates in “A field guide to identifying what website that headline came from.”
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As we click on the bait, we might recall that it was on this date in 1920 that the 18th Amendment took effect, and the U.S. became dry. Under 100 years earlier, American’s had been drinking an average of (the equivalent of) 1.7 bottles of hard liquor per week– three times the average these days. A sin tax, levied at the end of the Civil War, moderated consumption a bit– but not enough to satisfy the coalition of women and evangelicals behind the passage and ratification of “The Noble Experiment”– the national ban on the sale, manufacture, and transportation of alcohol that was better known as “Prohibition”– was ratified. Prohibitionists had been after a ban for decades before the 18th Amendment went through. But until the institution of an income tax (in 1913), the federal government depended for the majority of its income on alcohol taxes… so was indisposed to let Prohibition happen.
By the time it was repealed in 1933, organized crime had become a major feature of American city life, and the American public had adopted the invented-for-the-occasion word “scofflaw.”
The Defender Of The 18th Amendment. From Klansmen: Guardians of Liberty published by the Pillar of Fire Church
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