A summary of David Ciepley’s “Beyond Public and Private: Toward a Political Theory of the Corporation”

I recently read David Ciepley’s “Beyond Public and Private: Toward a Political Theory of the Corporation”.  I recommend reading it yourself, but here’s my best attempt to summarize it in my own words.

Historically, we used to think of corporations as institutions that existed by the authorization of the state and for the public benefit – although the public often did not benefit in practice (*coughs* British East India Company).  In the 19th century, especially in the United States, we began to view corporations instead as part of the private sphere.  This has led to incoherent legal and political results.  Ciepley argues that, rather than viewing corporations as public or private, they ought to be considered as part of their own distinct sphere.

The first corporations were created in the image of constitutional republics, such as Dutch East India Company, whose governing board held a proportional balance of representatives from each of the Dutch provinces.  Several American States such as Massachusetts and Virginia were originally chartered as corporations.  Despite this history, there are some key distinctions.  While republics are “by, of, and for the governed”, those most subject to corporate action (workers, and secondarily customers and contractors) are not represented in its governance.

There are three main spheres of rights that make a corporation a corporation, and it’s important to note that these are all governance rights, not business rights.  After all, there are many corporations that are not businesses, and many businesses that are not corporations.  The three rights are: 1) the right to own property, make contracts, and sue and by sued, as a unitary entity, which Ciepley calls ‘contractual individuality’; 2) the right to centralized management of their property; and 3) the right to establish and enforce rules within their jurisdiction beyond the laws of the land.  Ciepley only talks about the first and third rights.

Right #1: Contractual Individuality

All corporations are granted contractual individuality by the government.  Business corporations additionally are granted by the government the right to use a joint-stock mechanism – that is, to sell shares.  The three key elements of contractual individuality are asset lock-in, entity shielding, and limited liability.

‘Asset lock-in’ refers to how investors in companies cannot directly withdraw their funds.  In a business partnership, a partner leaving the business withdraws their assets.  An investor in a corporation cannot withdraw their assets, only sell their shares to another investor.  This gives corporations an enviable stability, allowing them to specialize their assets and therefore increase their productivity.

‘Entity shielding’ means that the corporation’s assets are protected by creditors going after shareholders.  A creditor may take a shareholder’s shares, but cannot take assets from the company.  ‘Limited liability’, conversely, means that shareholders’ assets are protected by creditors going after the corporation.  Limited liability makes corporations attractive to small and/or passive investors.  Together entity shielding and limited liability are what make the trading of shares possible.  Share trading in turn is what makes investment attractive in the first place, because it allows investors to get their money back when they want – they do not have to wait until the company is dissolved.

Some people like to conceive of corporations as like fancy partnerships (a legal theory we’ll return to later) but this is incorrect.  Asset lock-in and limited liability can be approximated by partnerships, although with significant shortfalls (for instance, assets cannot be locked-in indefinitely and limited liability cannot protect against tort claims).  However partnerships cannot approximate entity shielding. To do so would require every shareholder to contract with every one of his creditors, from their bank to their plumber, against their laying claim to corporate assets.  This would be wildly impractical even if shareholders were willing to do it, but they would have an incentive not to, to allow the corporation’s credit to back up their own.

Contractual individuality means that corporations rely on the government for certain key privileges in way that other businesses do not – privileges which are foundational to their functioning and which allow them dominate the market through preferential accumulation and specialization of capital, as compared to private business.

Asset lock-in, entity shielding, and limited liability also mean that shareholders do not own a corporation.  So who owns a corporation?  No one: the corporation owns itself.  It is therefore neither publicly owned nor privately owned but corporately owned.

One of the central rationales of private property is that the owners bear the consequences of use or misuse of their property, and are therefore incentivized to use it well.  Because shareholders are alienated from corporate property, and in particular because limited liability means they bear fewer consequences, they are not well incentivized.

Neoliberal reforms which attempt to tie corporate management to shareholders have therefore only made things worse.  Shareholders more than anyone else are incentivized to take risks with a corporation.  Tying management to shareholders thus increases financial and legal risk-taking.  Shareholder also tend to be more interested in short-term gains than other associates of a corporation.  Over the last forty or so years, as these shareholder-focused reforms have been made, the average amount of time a stock is held has dropped from eight years to four months.

Right #3: Establishment and enforcement of rules

Management authority within an organization is widely assumed to derive from shareholders, who as “owners” of the corporation elect the board of directors.  But as Ciepley as shown, neither shareholders nor anyone else owns a company.  Where does management authority derive from, then?

It comes from the state, as specified in the corporate charter.  The corporate charter establishes the board of directors and then authorizes it to issue stock to shareholders – hardly the order of events you’d expect if the board’s authority derives from the shareholders.  Indeed, some corporations never issue stock at all, and some corporations issue nonvoting stock.  The current popular system of boards elected by shareholders is merely one possible way a charter can delegate control.

Ciepley refers to corporations as “franchise governments”: run on private initiative, but receiving their form and purpose from the state.  This is easy to see with municipal corporations (New York City is the largest municipal corporation in the US) but harder to see with business corporations, since we tend to view commerce as a private matter.  The increasing identification of corporations with business corporations, the increasing commercialization of the public sphere, and the elimination of the requirement that corporations be for the public benefit all go hand in hand.

(Ciepley doesn’t delve too deeply into the judicial history behind these trends but does cite a number of key court cases, starting with Dartmouth vs Woodward (1819) where the Supreme Court ruled that corporations were independent of the state and did not have to prove they were acting in the public interest.  According to Wikipedia, the eloquence of Daniel Webster’s oratory was thought to have been a deciding factor in the case.  Thanks, Daniel Webster.)

Implications of Ciepley’s theory of corporations

Ciepley argues for a return to the older view of corporations: that they are an artificial entity created by government, whose enjoyment of special legal rights requires them to act in the public benefit.

He also notes that during the mid-twentieth century, the Supreme Court began requiring that states and towns observe the core provisions of the Bill of Rights.  If municipal corporations are required to respect these rights, shouldn’t business corporations also be required?

Two alternative legal theories of corporations have dominated judicial arguments, the theory of “corporation as partnership” and the theory of “corporation as real person”.  The theory of “corporations as partnership” argues that corporations are voluntary associations of individuals and therefore the constitutional rights of the individuals extend to the corporation.  But a foundational element of the corporation is the alienation of shareholders from their property.  So why would their property rights apply?  And more generally, why should corporate partners enjoy rights such as limited liability that no other individual or group enjoys?

The theory of corporations as real person answers this question by claiming that corporations are a special, emergent entity distinct from the state.  But while some corporations may predate their current government, as do some medieval towns and as did Dartmouth College (the Dartmouth in Dartmouth vs Woodward), all corporations derive their status from the government, whereas real people have rights inalienable by their government.

Despite the flaws in these theories, they have been used to grant corporations a vast number of legal rights, for instance in Citizens United.  Lawyers for Citizens United argued both the “corporation as partnership” and “corporation as real person” perspective, even though the theories are contradictory.  If corporations are partnerships are reducible to their members, why should it get extra rights?  If corporations have emergent properties distinct from their members, why should it claim their constitutional rights?


There’s actually nothing worth summarizing in the conclusion, but I felt bad just stopping abruptly.

tl;dr: corporations are not private concerns, shareholders do not own them, we should go back to requiring corporations act in the public benefit, there’s no rights-based reason for shareholders to have any influence on the governance of a corporation, the rights granted to corporations based on these conceptually incoherent theories are bad for the economy, bad for society, and really rather unfair to actual private businesses, and someone should rewrite The Devil and Daniel Webster to be about Darmouth vs Woodward

Mind the Gap: Navigating Between Rules and Reality

Bureaucracy is stupid, David Graeber writes in The Utopia of Rules: On Technology, Stupidity, and the Secret Joys of Bureaucracy.  As the premise for a book, it’s more fertile than it sounds.

At their bare bones, bureaucracies are systems of impersonal rules.  This is my definition, not Graeber’s – he never specifies what he means when he uses the term, although he does trace its history, detailing all the things it could mean.  He also seems to believe that all bureaucracies (whatever they are) are dysfunctional.  While he admits that impersonal rules systems can be appealing, and even that they may be the best option when, for instance, coordinating organ donation, he spends most of his time elaborating bureaucratic “stupidities”.

Below, I will repurpose his critiques as descriptions of unhealthy systems, which can give us guidance for how to construct healthy ones.

(Unhealthy) bureaucracies blame all failures on individuals

Every system is imperfect.  There’s always a gap between rules and reality.  An unhealthy bureaucracy blames this gap on reality:

Bureaucracies public and private appear – for whatever historical reasons – to be organized in such a way as to guarantee that a significant proportion of actors will not be able to perform their tasks as expected.  It’s in this sense that I’ve said one can fairly say that bureaucracies are utopian forms of organization.  After all, is this now what we always say of utopians: that they have a naive faith in the perfectibility of human nature and refuse to deal with humans as they actually are?  Which is, are we not also told, what leads them to set impossible standards and then blame the individuals for not living up to them?  But in fact all bureaucracies do this, insofar as they set demands they insist are reasonable, and then, on discovering that they are not reasonable (since a significant number of people will always be unable to perform as expected), conclude that the problem is not with the demands themselves but with the individual inadequacy of each particular human being who fails to live up to them.”  (p. 48-49)

Failures may be caused by the individual, or they may be caused by the bureaucracy itself, or by the complex interaction of both.  They may be unanticipated consequences or they may be known bugs.  (Voltaire famously said that it was better two guilty men go free than one innocent man suffer.  The presence of guilty but free men in a society governed by Voltaire’s rules would be a ‘known bug’.)

A healthy bureaucracy is capable of dealing with these failures accordingly: by acknowledging problems with their own rules systems, fixing those they can fix, apologizing for known deficiencies, and sanctioning individuals when it is truly necessary.

(Unhealthy) bureaucracies rely on the threat of personal force

Violence is central to Graeber’s conception of bureaucracy:

The bureaucratization of daily life means the imposition of impersonal rules and regulations; impersonal rules and regulations, in turn, can only operate if they are backed up by the threat of force.  And, indeed, in this most recent phase of total bureaucratization, we’ve seen security cameras, police scooters, issuers of temporary ID cards, and men and women in a variety of uniforms acting in either public or private capacities, trained in tactics of menacing, intimidating, and ultimately deploying physical violence, appear just about anywhere – even in places such as playgrounds, primary schools, college campuses, hospitals, libraries, parks, or beach resorts, where fifty years ago their presence would have been considered scandalous, or simply weird.”  (p. 32-33)

A system which always blames the individual for failing to obey its rules will not last very long if it depends on the voluntary cooperation of individuals.  If, on the other hand, it can respond to disagreement with violence, it has no need to avoid disagreement via self-reflection or compromise.

I agree with Graeber that violence underlies most bureaucracies, but I think he’d agree with me that bureaucracies can be more or less violent, and that the more violent they are, the less functional they are.  He cites a study of 19th century South Africa that shows as much: “Comparative analysis suggests that there is a direct relation however between the level of violence employed in a bureaucratic system, and the level of absurdity and ignorance it is seen to produce.”  (p. 65)

A healthy bureaucracy therefore almost never resorts to violence, even if the exclusive use of force is where it draws its foundational legitimacy from, as is the case of the state.  This includes not just acts of violence but both explicit and implicit threats of violence because, as Graeber rightly notes, the tendency to overlook implicit violence allows it to spread in ways that explicit violence can’t:

It is curious how rarely citizens in industrial democracies actually think about [structural violence], or how instinctively we try to discount its importance.  That is what makes it possible, for example, for graduate students to be able to spend days in the stacks of university libraries poring over Foucault-inspired theoretical tracts about the declining importance of coercion as a factor in modern life without ever reflecting on the fact that, had they insisted on their right to enter the stacks without showing a properly stamped and validated ID, armed men would have been summoned to physically remove them, using whatever force might be required.  It’s almost as if the more we allow aspects of our everyday existence to fall under the purview of bureaucratic regulations, the more everyone concerned colludes to downplay the fact (perfectly obvious to those actually running the system) that all of it ultimately depends on the threat of physical harm.”  (p. 58)

(Unhealthy) bureaucracies create a culture of complicity

Graeber writes:

In theory [bureaucracies] are meritocracies. In fact everyone knows the system is compromised in a thousand different ways. Many of the staff are in fact there just because they are someone’s cousin, and everybody knows it. The first criterion of loyalty to the organization becomes complicity. Career advancement is not based on merit, and not even based necessarily on being someone’s cousin; above all, it’s based on a willingness to play along with the fiction that career advancement is based on merit, even though everyone knows this not to be true.  Or with the fiction that rules and regulations apply to everyone equally, when, in fact, they are often deployed as a means for entirely arbitrary personal power.”  (p. 27)

A dysfunctional bureaucracy blames all failures on individuals and responds to them with threats or use of force.  It also creates a culture of complicity within the system such that even internal change is stymied.

This culture of complicity is not inevitable.  A bureaucracy which recognizes its own inherent imperfections, and which sees its primary goal as identifying and addressing those imperfections, will not tend to reward those who claim no imperfections exist.  But this is a difficult culture to develop, and so few bureaucracies have it.

These three critiques revolve around a central flaw: the inability of unhealthy bureaucracies to self-correct.  To get at this from another angle, I want to discuss another concept from Graeber’s book: interpretive labor.

Interpretation and Imagination

Graeber borrows from feminist theory and critical race studies the term “interpretive labor”, which he defines at first as “trying to decipher others’ motives and perceptions” (p. 67).  Because violence often obviates the need for interpretive labor – you don’t need to understand someone’s perceptions if you can just threaten or hurt them – systems of structural violence tend to produce structural inequalities of interpretive labor as well:

Jim Cooper, a former LAPD officer turned sociologist has observed that the overwhelming majority of those who end up getting beaten or otherwise brutalized by police turn out to be innocent of any crime. “Cops don’t beat up burglars,” he writes. The reason, he explained, is simple: the one thing most guaranteed to provoke a violent reaction from police is a challenge to their right to, as he puts it, “define the situation.” That is, to say “no, this isn’t a possible crime situation, this is a citizen-who-pays-your-salary-walking-his-dog situation, so shove off,”  let  alone  the invariably disastrous, “wait, why are you handcuffing that guy? He didn’t do anything!” It’s “talking back” above all that inspires beat-downs, and that means challenging whatever administrative rubric (an orderly or a disorderly crowd? A properly or improperly registered vehicle?) has been applied by the officer’s discretionary judgment. The police truncheon is precisely the point where the state’s bureaucratic imperative for imposing simple administrative schema and its monopoly on coercive force come together. It only makes sense then that bureaucratic violence should consist first and foremost of attacks on those who insist on alternative schemas or interpretations.”  (p. 80)

Graeber goes on to discuss imagination, using the terms “interpretive labor”, “imaginative labor”, “interpretation” and “imagination” interchangeably.

I would prefer to define imagination and interpretation as two distinct concepts.  Imagination is the act of creating what-ifs: alternative ways of living, alternative ways of relating, alternative rules systems.  Interpretation is the act of matching up someone else’s what-ifs to your reality.  In some ways, these concepts are not just distinct but opposite: interpretation fills the gaps that imagination leaves.  And, in systems of structural violence, the labor is performed by different groups of people.  The powerful imagine, while the powerless are forced to interpret.

Graeber’s conflation of interpretation and imagination make it difficult for him to critique Marx’s use of the same terms:

One can already see the tension in Marx. There is a strange paradox in his approach to revolution. As I’ve noted, Marx insists that what makes us human is that rather than relying on unconscious instinct like spiders and bees, we first raise structures in our imagination, and then try to bring those visions into being. […] Yet  when Marx speaks of  social creativity, his key example—the only kind of social creativity he ever talks about actually—is always revolution, and when he does that, he suddenly changes gears completely. In fact he reverses himself. The revolutionary should never proceed like the architect; he should never begin by drawing up a plan for an ideal society, then think about how to bring it into being. That would be utopianism. And for utopianism, Marx had nothing but withering contempt. Instead, revolution is the actual immanent practice of the proletariat, which will ultimately bear fruit in ways that we cannot possibly imagine from our current vantage point.

Why the discrepancy? The most generous explanation, I would suggest, is that Marx did understand, at least on some intuitive level, that the imagination worked differently in the domain of material production than it did in social relations; but also, that he lacked an adequate theory as to why. Perhaps, writing in the mid-nineteenth century, long before the rise of feminism, he simply lacked the intellectual tools.  Given the considerations already outlined in this essay, I think we can confirm that this is indeed the case. To put it in Marx’s own terms: in both domains one can speak of alienation. But in each, alienation works in profoundly different ways.

To recall the argument so far: structural inequalities always create what I’ve called “lopsided structures of imagination,” that is, divisions between one class of people who end up doing most of the imaginative labor, and others who do not. However, the sphere of factory production that Marx concerned himself with is rather unusual in this respect. It is one of the few contexts where it is the dominant class who end up doing more imaginative labor, not less.”  (p. 93-94)

I’ve never read Marx, so I won’t assert what he “really” meant.  But I think distinguishing between imagination and interpretation makes for a clearer argument than the one Graeber provides.

By my definitions, the dominant class performs more imaginative labor, while those who are subservient perform more interpretive labor.  That is, the dominant design the system – whether that’s a social system, or a material tool – and everyone else is forced, under threat of violence, to perform the interpretive labor that will allow them to exist within the system.

Note that neither imaginative labor nor interpretive labor are bad things.  Both are required for any community to function and to grow.  What’s ‘bad’ is that the labor is performed unequally, the inequities sustained under threat of violence.

These definitions justify Marx’s disdain for utopianism.  Utopianism is imagination without connection to reality.  A utopian performs imaginative labor without bothering with interpretation – they leave that hard work to someone else, often people less powerful than themselves.  When Marx via Graeber calls revolution “the actual immanent practice of the proletariat” (p. 93) he is tying imagination to reality through interpretation, and demanding that the proletariat, already skilled in interpretation, have the right to imagination as well.

Another way for bureaucracies to grow unhealthy, then, is to separate out the labor of imagination and the labor of interpretation.  When the interpreters who bridge the gaps between system and reality are prevented from imagining changes in the system, we cut off any chance for the system to self-correct.  The system grows sick.  The bureaucracy grows stupid.

Final Thoughts

This post is not a review so much as some musings directly provoked by the book.  I do recommend it, even though it’s difficult at times to grasp what Graeber’s really asserting.  He wanders through a lot of interesting content that I didn’t have time to cover here, ending with a sociological critique of Batman.  If nothing else, it’s a fun read.