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Transforming the Political Economy

Resilience Drainage and the Role of Private Law


Hila Keren (@hilakeren) is Associate Dean of Research & Paul E. Treusch Professor of Law at Southwestern Law School in Los Angeles, California.

This post is part of a symposium on vulnerability theory and LPERead the rest of the symposium here.

We all live in a market society, but the laws that apply to market activities have long catered to the interests of seasoned market actors. Who, then, is to watch out for us lay market users? And how can it be done? Both the law and political economy approach and vulnerability theory have recently oriented themselves towards answering these questions. The former is centered on the market, seeking to reveal and challenge the political roots and results of the legal ordering of the economy. The latter does not exclusively focus on the economy, and yet, its general principles can offer valuable answers to the above “who” and “how” questions. To the “who” question, the vulnerability theory emphatically replies: the state. Emphasizing that vulnerability is a universal and inescapable part of being human, the theory assigns the state the responsibility to respond to this feature of our conditon. Accordingly, the theory establishes resilience—the various resources necessary to cope with vulnerability—as its key concept, demanding that the state utilize its powers to maximize people’s resilience. Next, concerning the “how” question, the theory offers the following formula: the state owes an ongoing duty to allocate sources of resilience to its members and monitor levels of resilience across society to ensure thriving.

In what follows, I argue that in order to achieve the goal of an equitable allocation of resilience, the state must account for the currently overlooked resources it confers on businesses via its private laws. To illustrate this assertion, I discuss two leading principles of private law: contract enforceability and corporate separateness, and explain how they operate to enhance businesses’ resilience. I further claim that the state ought to monitor how the beneficiaries of these principles—who by and large are seasoned market actors—use their superior resilience. Particularly, I argue that the state should prevent those with advantageous bargaining power from using their potency to deplete the resilience of other market users. I call this harmful behavior “resilience drainage” and demonstrate its operation by analyzing two ubiquitous market behaviors that drain resilience by creating adverse emotional effects. In the first example, businesses use contract enforceability to generate powerlessness in their counterparties. In the second, companies manipulate the idea of corporate separateness to inflict humiliation on others.

Arbitration Clauses, Powerlessness, and Contract Law

Businesses have regularly and increasingly used the right to make and enforce contracts to achieve immunity from legal liability. They have used their superior bargaining power, an army of lawyers, and their control of the drafting of standard contracts to impose on their countless counterparties—employees, suppliers, customers, all of us—so-called “mandatory arbitration clauses.” In reality, however, those clauses are less about preferring arbitration and more about silencing. The clauses are designed to take away market users’ ability to band together and use collective proceedings in judicial and arbitral forums. Given the prohibitive cost of legal services, the practical upshot of such business behavior is that most people can no longer seek redress whenever their injury relates to contractual relationships. Is this an appropriate use of contracts? According to the conservative majority of the Supreme Court, which has continuously extended the reach of the Federal Arbitration Act, the answer is affirmative. In what has been dubbed the “arbitration revolution,” the Court has legitimized and further incentivized using contracts to divide and conquer market users.

The consequences are harsh and, in line with law and political economy thinking, reach far beyond the economic domain. Outcomes include decreased access to justice, under-enforcement of federal laws that rely on private litigation, and a severe threat to equality and the rule of law. As I have recently argued, this inventory must also include salient emotional damage: the emergence of a deep sense of powerlessness. Deprived of the important coping mechanism of coming together in times of trouble, market users have experienced isolation and helplessness, or, in the words of one of them: “us ‘little people’ seem to have no recourse!!!” Crucially, this infliction of powerlessness is intentional; businesses use contracts to cultivate market users’ feeling that there is very little they can do in response to being wronged.

Naturally, the question is what can we do about this damaging effect. Here, vulnerability theory inspires raising a new demand for legal reform. The theory’s focus on resilience and how it is allocated across society helps to recognize that the state has already conferred greater resilience on businesses. By authorizing and enforcing standard contracts, even though such contracts rely on at least frail if not fabricated consent, the state has awarded the drafting businesses significant market control. Therefore, when businesses use such contractual powers not to shape their transactions but to put themselves above the law, their resilience becomes excessive. Worse, they accumulate disproportionate levels of resilience by disempowering others, making them lose the social and mental benefits of solidarity. 

Applying vulnerability theory’s principle of fair resilience allocation would call on the state to prevent such resilience-draining behavior by renewing market users’ access to collective proceedings. Significantly, by uncovering how contracts engender this distorted division of resilience, the theory points us at a concrete way to restore balance. Because contract enforcement is a state-provided service, courts should utilize existing contractual defenses to secure just allocation of resilience. Concretely, they ought to use the unconscionability doctrine to deny enforcement of clauses that drain the resilience of millions to create undue resilience for the few.

Market Discrimination, Humiliation, and Corporate Law

Some market actors—business owners, landlords, employers, and the like—strongly disfavor specific types of market users and wish to preclude them from their transactional world. A recent chilling example is the refusal of certain businesses, such as photography companies, to contract with LGBTQ parties for religious reasons. Other examples include market exclusions of people with disabilities (Uber), Asian-American guests (Airbnb), African-American shoppers (Bloomingdale’s), and more. Although such incidents lie at the heart of the market and deny full participation in it, conventional law frames them as extraneous to the economic world. Accordingly, the issue is delegated to public law, namely to nondiscrimination statutes that often fail to protect the mistreated market users. While part of the failure results from countless statutory shortcomings, much of it originates from a structural problem. Nondiscrimination norms are perceived as governmental intrusions into the private market, thereby framing state action as an exception to the general rule of freedom and dictating narrow interpretation and the imposition of heavy burdens on those seeking redress.

The law and political economy approach rejects the above framing and generally recommends treating private law as a study in public power in which questions of race and inequality are fundamental. Vulnerability theory adds invaluable normative guidance to this call. As in the arbitration context, the key is analyzing the problem in terms of resilience allocation. Such a move has several advantages. First, it is inclusive and enables caring for everyone who suffers resilience drainage. Such inclusiveness relieves us from the limits of identity-based protections, including burdensome classifications and the risk of pitting marginalized groups against each other. Second, the emphasis on resilience allocation justifies the novel focus on the market as a locus essential to social justice, urging us to acknowledge how the market controls salient means of coping with crises. Third, accounting for sources of resilience encourages paying close attention to the often-ignored social impact of private law and the considerable privileges and powers it awards to some market actors.

Last and most consequential, resilience examination ties together seemingly isolated episodes of market exclusions and better explains the harm they cause. Beyond any economic damage, the injury comes, as I have recently illuminated, from the dynamics of humiliation. For example, explicit and visible rejections of same-sex couples by some religious business owners are designed to mark their relationships as inadequate, a direct attack on their sense of belonging to human society. Such market boycott inflicts humiliation—a particularly intense and long-lasting emotion associated with depression and even suicide. Because emotional resources are vital to coping with life’s challenges, humiliation, like powerlessness, severely drains resilience.

Resilience analysis thus leads us to search for an alternative legal response within private law. For instance, in their recent efforts to secure judicial permission to exclude LGBTQ parties, conservative advocacy groups urged courts to ignore the principle of corporate separateness selectively. Contra this principle, they have insisted that owners’ personal religious beliefs should be attributed to their companies while holding to the privilege of limited liability that flows from the principle. Although some courts allowed such incoherent use of the veil that separates corporations and their human owners, vulnerability theory inspires a different approach. Market actors that enjoy limited liability should not be allowed to peek from behind the veil armed with a sword to attack other market users they find objectionable. Instead, the state should insist that corporate separateness demands incorporated businesses to serve all and avoid humiliating acts, regardless of the personal views of their owners. In this way, the state would prevent resilience drainage through the leading principle of its corporate law.


To anyone currently interested in undoing the neoliberal damage to our social fabric, the law and political economy project offers energizing solidarity. To that, vulnerability theory adds essential and concrete tools for resistance. What happens if the market can’t stay in the market? It is the role of law, including private law, to suppress market-based resilience drainage.