This post is part of a symposium on Katharina Pistor’s The Law of Capitalism and How to Transform It. Read the rest of the posts here.
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In Katharina Pistor’s penetrating diagnosis, the law that constitutes capitalism spreads like a virus. Incubating within the hospitable confines of private law, abstract rights to property and contract replicate and infect the natural and intangible world, transforming it into expected future cash flows, present values, and the power, backed by the franchised force of the state, to govern others. Public law interventions, meanwhile, only temporarily treat the symptoms of this capitalist contagion. Through litigation, lobbying, and legal arbitrage, the treatment-resistant code of capital unwinds regulatory palliatives and colonizes the terrain of collective decision-making. The only plausible cure, argues Pistor, is an antiviral that can excise the disease from the body politic: a new code of non-positive private law, a “just private law code” (JPL), that makes a substantive moral commitment to equal human dignity.
If this is indeed the remedy, we must devise a treatment regimen, figure out how to administer it, and deal with any harmful side-effects. Pistor, clear-eyed about the extraordinary difficulty of these tasks, makes useful gestures towards possible paths forward. In this post, I hope to advance this project by identifying a few obstacles that must be overcome, if we hope to transform the private law to make more just.
Democratic Legitimacy
According to Pistor’s argument, a new JPL code “should be grounded in substantive principles of justice that are broadly supported in society.” In order to attain the requisite public endorsement, these principles must necessarily remain fairly abstract. Further, the principles “must give proper consideration to the actual characteristics of the parties and the real circumstances in which they conclude their private transactions.” The implication is that the administrative or judicial institution responsible for interpreting and applying the JPL will enjoy a significant amount of lawmaking discretion. However, as recent debates over the democratic credentials of administrative decision-making have made clear, the legitimacy of this process is far from obvious.
It is, moreover, tough to imagine implementing JPL through a form that is not administrative. It is therefore tough to imagine avoiding recourse to the same public authorities that Pistor, for good reason, seeks to avoid. As Blake Emerson explains, a litigation-centric system cannot adequately address collective harms. As Pistor suggests, adopting inclusive class action procedures and increasing access to legal representation can go some ways to leveling the playing field. And changes to legal doctrine can render litigation proactive rather than retroactive. But not every litigant may have the public good in mind, and not every litigant will have the necessary information to identify and rectify that harm satisfactorily.
Consider a community that sues to prevent the building of a data center based on its expected environmental and property harms. This community might be perfectly happy with an outcome that includes a promise that the data center be built elsewhere. To avoid this robbing-peter-to-pay-paul logic, we might lay upon plaintiffs a duty to attend to the interests of the public generally, even if it is not party to the lawsuit. At this point, though, plaintiffs are effectively playacting as public regulators with public duties. Except they don’t face the menu of statutory and judicial accountability mechanisms that regulators must endure. And they don’t enjoy access to the menu of information that regulators can collect and assess.
The Allure of Procedure
Another potential challenge is that those tasked with the interpretation and application of JPL may shy away from making politically contestable decisions to preserve their own legitimacy. They may be tempted to tie their discretion to an ostensibly neutral decision-making rule, just as the Supreme Court is tempted to enlist interpretive canons like originalism and textualism when it wrestles with the contested meaning of Constitutional rights.
This is precisely what the Delaware business courts do when they interpret and apply the vague, but morally substantive, fiduciary duties of loyalty and care—duties that Pistor suggests might be conscripted in service of her anti-capitalist treatment regimen. Rather than legislate corporate ethics from the bench, Chancellors reach to procedure. In lieu of assessing the rightness of a board decision, they ask how the decision was made: was the decision vetted with appropriate due diligence from the necessary experts? Did fiduciaries solicit the requisite approvals from the relevant stakeholders in the right kind of way?
To be sure, the outsourcing of normative judgments to procedure contains the seeds of democratic legitimacy. Why not allow the people affected by a board’s choices to decide for themselves what a duty of loyalty means in practice? In reality, however, relying on procedure to flesh out the meaning of loyalty occludes the influence of powerful and self-interested corporate constituents and, arguably, opened the door to shareholder primacy. Even more alarmingly, procedure is vulnerable to illiberal pathologies. When shareholders are happy to sacrifice their governance rights to, and acclaim their support for, self-proclaimed “technokings”—technokings who may carry antidemocratic and radically conservative agendas—judges may find themselves unable to do anything about it. If the duty of loyalty is outsourced to shareholder voting, the shareholders decide. Like a state constitutionally bound to respect citizens’ private liberties, Delaware judges are caught in a trap that “deprives [them] of the capacity to act autonomously.”
Trapped as it was, it is perhaps not surprising that Delaware did not put up much of a fight when capital came to encode its fiduciary law. Over the past few decades, the scope of equity has receded as the scope of contract has expanded. As Pistor notes, many organized forms of business can waive fiduciary duties as a matter of “self-ordering.” Shareholders force boards to do their bidding by executing shareholder agreements, not by demanding that they fulfill their moral duties. Corporate founders cement their right to arbitrary rule by issuing dual class shares (and, occasionally, controlling minority shareholders’ media environment through strategic mergers). This “contractification” of corporate law leaves only the bare vestiges of equity for reformers to work with as they confront the wealthiest, most powerful capitalists in the world. It also demonstrates that even desultory commitments to a more substantively just private law are not immune from infection.
What Law Cannot See
As grim as these problems are, they are good problems to have. It means we have identified when and where the injection of JPL might do us some good. Unfortunately, in many other cases, we may find ourselves operating in the dark. To take just one example, Pistor notes that powerful actors wield their contract rights to force their disputes into arbitration. She rightfully acknowledges that arbitration denies ordinary citizens their day in court and, therefore, deprives them of the nominal protections afforded by formal contract law. It also helps capital create its own bespoke legal order.
Yet arbitration carries yet one more danger that Pistor does not elaborate upon. Namely, it denies the public an indispensable resource: the information provided by open judicial proceedings. As private equity colonizes more and more of our public infrastructure, it increasingly deploys arbitration to compel the state to enforce its interests. One of the most transformative changes to our economy has been accomplished behind our backs.
This withdrawal of capital from judicial review has been accompanied by the withdrawal of capital from regulated public markets. Beginning in the 1990s with the passage of the National Securities Markets Improvement Act, fewer and fewer corporations have been required to register and disclose reliable information about their affairs to the public. Corporations can raise hundreds of millions (and indeed billions) of dollars, and insiders can achieve their liquidity events, without ever having to make an initial public offering. Under the stewardship of SEC Chair Paul Atkins, the growing illegibility of equity markets has only accelerated as private capital attempts to dip further into our retirement savings and, ironically, retail markets. Even credit markets have gone dark as private equity enters the lending business – to the tune of an estimated $1.5 trillion.
What the public loses in these cases is not merely investor protection and monetary sovereignty. It also misses out on any robust understanding of where all this money is going, how it is spent, and how these firms operate. As demonstrated by the public backlash against data centers, whatever residual information might otherwise be publicly available is quickly concealed through the use of non-disclosure agreements. Perhaps one reason we cannot collectively decide whether the AI boom is a bubble based on irrational exuberance, an accelerationist plot to recreate the human condition, or a rational investment in productive innovation is because we know so little about what, exactly, is going on. This epoch-defining industry is underwritten entirely by opaque private markets.
Meanwhile, we have not even touched on the vast amounts of wealth hidden from the public eye via the creative use of private trusts and overseas bank accounts. Nor have we addressed the slow death of independent local and national news outlets. What the law cannot see, it cannot regulate or protect. Capital enjoys all the sovereignty that accrues in the interstices of law; everyone else is homo sacer. It appears, therefore, that any JPL treatment regimen would require the state to provide a little palliative care, in the form of securities regulation, before it can work its magic.
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In sum, JPL is a remedy that will require a massive team of doctors and researchers, equipped with humility, creativity, and doggedness, to administer. The treatment regimen they undertake may take decades. Recruiting an army of committed experts and commanding it to transform the entire global economy, of course, carries its own potential side effects: antidemocratic technocracy and, perhaps, ideological vanguardism. But to be clear, treating capitalism’s private law virus is a worthwhile undertaking. No matter how one defines capitalism, and no matter one’s preferred theory of economic, political, and social change, emancipation will surely require rewriting capitalism’s RNA.
