This paper formed part of the Green Institute Report ‘Rebalancing Rights: Communities, Corporatations and Nature’.
Property rights are a social construction, embodied in law and enforced by the coercive power of the state, represented by police, courts and prisons. This fact is so obvious that it ought to go without saying, but it is routinely denied by many on the right of politics and some on the left.
Nothing illustrates the spurious nature of claims about natural property rights more clearly than the set of rights central to modern business enterprise, centred on the concepts of bankruptcy and limited liability. These rights are not natural in any sense, although two centuries of experience has made them seem so to many. They were created following fierce political debate over the course of the 18th and 19th centuries.
Over the course of the 20th century, the rights of corporations have been expanded and the status of the corporation as a ‘legal person’ has come to be taken for granted by many. Among the most notable expansions of corporate rights are the Investor State Dispute Settlement procedures routinely included in international agreements on trade and investment, and the expansion of ‘intellectual property’ rights such as patents and copyrights.
In the United States, the Supreme Court ruled in the Citizens United case that corporations are entitled to the same rights of free speech as those guaranteed to all Americans under the First Amendment to the Constitution. The result was to remove most limits on corporate funding of political campaigns, and further enhance the political power of corporations.
With expanded rights and power have come increases in profits. The wage share of national income has fallen. Most of the growth in US income over recent decades has gone to those in the top 1% of the income distribution, dominated by business owners, senior managers and the finance professionals who help them protect their wealth. As Piketty (2014) shows, the same tendencies are present in other countries, though not to the same degree.
The rise of corporate personhood and corporate power more generally, has been in marked tension with the increased regulation of pollution and environmental damage which began in earnest with the UK Clean Air Act of 1956, a response to the catastrophic Great Smog of 1952. Increasingly stringent laws have been implement to prohibit or control the release of pollutants into air and water, the destruction of wildlife habitats and loss of natural amenity.
The effectiveness of these laws has regularly been challenged by the protean nature of the corporation. Corporations can easily shift their operations from one jurisdiction to another with looser environmental restrictions. They can sub-contract smaller firms to undertake polluting or exploitative activities, and thereby avoid responsibility for those activities. If the costs of cleaning up the results of pollution become too great, they can declare bankruptcy, discharge their debts and re-emerge in a new form.
One way to mitigate the tension between regulatory policies would be to grant property rights, and the associated legal standing, to nature. Like corporations, nature is not a natural person and would need to be represented by advocates. These advocates could defend nature’s property rights under tort law, act as creditors in the event of a corporate liquidation, and act to ensure that governments enforced regulations properly.
The central theme of this chapter is that property rights are a social construction, and that creating property rights for nature is a potential approach to constraining the misuse of corporate property rights. The chapter is organised as follows. Section 1 is a critique of the claim that property rights exist naturally, independent of the states that define and enforce them. Section 2 describes the creation of special property rights for business, including bankruptcy law and the limited liability corporation. Section 3 outlines approaches to the creation of property rights for nature, and the potential benefits.
Property rights and natural law
There have been many attempts to ground property rights, particularly rights in land, in so-called ‘natural law’, independent of government. The most famous is that of the English philosopher John Locke, who took the view that ownership of land was originally acquired by “mixing one’s labour with the land”; that is, by cultivation.
Locke’s doctrine was self-serving, to put it mildly. Locke’s personal wealth derived largely from investments in England’s American colonies, including the slave trade. The viability of these investments depended, in the end, on the capacity of the colonists to dispossess the indigenous inhabitants who were mostly hunters and gatherers rather than farmers. By making agricultural labor the crucial factor in the original acquisition, Locke could justify the expropriation that made colonisation feasible, while still presenting a case for natural rights in property, independent of the state.
In a series of articles in Jacobin (Quiggin 2015a, 2015b, 2016) I’ve made the case that the failure of Locke’s argument goes beyond the personal hypocrisy it involved. The credibility of any Lockean theory defending established property rights as natural rather than state-created depends on the existence of a frontier, beyond which lies boundless usable land. This in turn requires the erasure (mentally and usually in brutal reality) of the people already living beyond the frontier and drawing their sustenance from the land in question. The idea that boundless land beyond the frontier is open for exploitation supports a spurious origin story in which existing property rights were naturally acquired in the same way, rather than being created and enforced by state power.
The Lockean myth of property as the product of natural law raises the obvious question: where does nature fit into this natural law? The answer is that land beyond the frontier is ‘waste’ land, of no value until is appropriated and exploited. As Allred (2018) observes, the unexploited land of America before European settlement
serves Locke as a crucial site of waste, both in the eighteenth-century technical sense of unclaimed or untilled land and in the metaphorical sense of a spillover valve that the system he envisions can’t do without.
Allred argues that Locke’s thinking about America represents a crucial point of departure for the Anthropocene era.
Property and self-ownership
Locke and his followers attempt to derive property rights over land and goods from the notion of ‘self-ownership’, that is, the claim that we own bodies and minds and therefore own whatever we produce. This is nothing more than a linguistic confusion. Our relationship to our bodies and thoughts, to our friends and family, and even to the objects we use in our daily life, is fundamentally distinct from the property rights we may or may not derive from, and have enforced by, states.
That’s true even though the same grammatical structures (genitives and clitics) are used for both. This is most obvious from the fact that most (if not all) actually existing property rights in the world today can be traced back to systems which encompassed some form of slavery.
Systems of property that do recognise self-ownership must necessarily allow some form of slavery. Ownership implies alienability, so that freemen can sell themselves and (potentially) their families into slavery, peonage or indentured servitude.
This brings us to the idea, shared by Marx and Calhoun (among many others) that wage employment is inherently a form of slavery. This erroneous conclusion reflects the fact that self-ownership is the wrong starting point for thinking about these issues.
Most employment relationships involve some degree of exploitation of the worker by virtue of fact that employers are mostly richer and more powerful than workers. A change in the formal relationship doesn’t change the facts and is often associated with intensified exploitation. An example is the conversion of workers into nominally independent contractors, often used in Australia as a method of union-busting.
To sum up, the whole idea of basing a theory of social justice on self-ownership, or any kind of natural right to property derived from self-ownership, is inherently self-contradictory. State-created and enforced property rights, including the associated taxation systems, are social institutions which may or may not contribute to socially just outcomes, but have no moral standing in themselves.
Corporations and bankruptcy
Without legal structures designed specifically to protect businesses from the risks of failure, profits would be far less secure, and the difficulty of establishing and running a business much greater. Corporate profits are not a natural outcome of a market society; they are the product of specific structures of property rights introduced to promote corporate enterprise.
Until well into the 19th century, the costs of business failure were substantial and personal. There was no such thing as bankruptcy: a business failure meant being sent to debtors’ prison, where debtors could be held until they had worked off their debt through labor, or had secured outside funds to pay the balance.
These same rules applied in Britain’s American colonies and continued to prevail in the United States until the middle of the 19th century. The introduction of personal bankruptcy laws put an end to debtors’ prison, greatly reducing the risks of running a business.
An even more radical curtailment of creditors’ rights was introduced with the limited liability corporation. No matter how large the debts of such a corporation, individual shareholders were only liable to the extent of their shares. The insolvency of a corporation might ruin its creditors, but investors with a diversified portfolio were safe from substantial loss.
After the brief and disastrous experiment in the early years of the 18th century (the South Sea Bubble), corporations were viewed with grave suspicion until well into the 19th century. In general, limited liability companies were not permitted in Britain or most other countries. The partners in a business were jointly liable for all its debts. Exceptions were made only for specially authorised quasi-governmental ventures like the East India Company, which focused on foreign trade.
The prevailing view was summed up by the aphorism ‘Did you ever expect a corporation to have a conscience, when it has no soul to be damned, and no body to be kicked’. Adam Smith (1776) was also critical of corporations, saying
The directors of such [joint-stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private co-partnery frequently watch over their own…. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company.
The introduction of bankruptcy and limited liability faced vigorous resistance from advocates of the free market. David Moss (2002), in When All Else Fails, his brilliant history of government as the ultimate risk manager, describes how the advocates of unlimited personal responsibility for debt were overwhelmed by the needs of business in an industrial economy. The introduction of bankruptcy and limited liability laws took much of the risk out of starting and operating a business. Theoretically inclined propertarians have continued to debate the legitimacy of bankruptcy and limited liability laws, without reaching a conclusion.
This debate over whether bankruptcy and corporation laws are consistent with freedom of contract is really beside the point. The distribution of income and wealth is radically changed both by the existence of these institutions and by the details of their design. In particular, the massive accumulations of personal wealth made possible by capital gains from share ownership would simply not exist. Perhaps there would be comparable accumulations of wealth derived in some other way, but the owners of that wealth would be different people.
A crucial policy question, therefore, is whether current laws and policies relating to corporate bankruptcy and limited liability have promoted the growth of inequality and contributed to the weak and crisis-ridden economy that has characterised the 20th century. The combination of these factors has produced absolute stagnation or decline in living standards for much of the US population and relative decline for all but the top few percent.
There can be little doubt that this is the case. As recently as the 1970s, a corporate bankruptcy was the last resort for insolvent companies, typically leading to the liquidation of the company in question. As well as being a financial disaster, bankruptcy was a source of shame for all those involved. For this reason, nearly all major companies sought to maintain an investment-grade credit rating, indicating a judgement by ratings agencies that bankruptcy was, at most, a fairly remote possibility.
Since that time, bankruptcy has become a routine financial operation, used to avoid inconvenient liabilities like pension obligations to workers and the costs of cleaning up mine sites, among many others. The crucial innovation was ‘Chapter 11’, introduced in the Bankruptcy Reform Act of 1978.
The intended effect of Chapter 11 was that companies could reorganise themselves while going through bankruptcy, and re-emerge as going concerns. The (presumably) unintended effect was that corporate managers ceased to be scared of bankruptcy. This was reflected in the spectacular growth of the market for ‘junk bonds’ (more politely called ‘high-yield’); that is, securities with a high rate of interest reflecting a substantial probability of default. Once the preserve of fly-by-night operations, junk bonds became a standard source of finance even for companies in the S&P 500.
At the same time, legislative changes and the growth of global capital markets greatly enhanced the benefits of corporate structures, while eliminating many of the associated costs and limitations. At the bottom end of the scale, the ‘close corporation’ with only a handful of shareholders, became the standard method of organising a small business. This process was aided by a long-series of pro-corporate legislative changes and court decisions. At the top end, the rise of global financial markets from the 1970s onwards allowed the creation of corporate structures of vast complexity, headquartered in tax havens and organised to resist scrutiny of any kind.
At the behest of these corporations, governments have negotiated agreements supposedly designed to ensure that corporate profits are not taxed twice in different jurisdictions. In reality, using a combination of complex corporate structures and governments eager to facilitate tax avoidance in return for a small slice of the proceeds (notably including those of Ireland and Luxembourg), the effect has been to ensure that most global corporate profits are not taxed even once in the countries where they are earned.
Redressing the balance
What can be done to redress the balance that has been tipped so blatantly in favor of corporations? The obvious starting point is transparency. Havens of corporate secrecy, from Caribbean islands to US states like Delaware must be made to reveal the true ownership of corporations, in the same way that tax havens like Switzerland, used mostly by wealthy individuals, have been forced to disclose the ownership of previously secret accounts.
The use of complex corporate structures to avoid tax is a much more difficult problem to tackle. Some measures are being taken to attack what is called “Base Erosion and Profit Shifting”, but past experience suggests that slow-moving processes of this kind will at best keep pace with the development of new forms of avoidance and evasion. It’s necessary to re-examine the whole structure of global taxation agreements. Instead of focusing on the need to avoid taxing corporate profits twice, the central objective should be to ensure that they are taxed at least once, in the place where they are actually generated.
More generally, though, the idea that corporations are a natural part of the economic order, with all the human rights of individuals, and none of the obligations, needs to be challenged. Limited liability corporations are creations of public policy, useful to the extent that they promote the efficient use of capital but dangerous to the extent that they facilitate gross inequalities of income and opportunity.
Corporate personhood and branding
The climate of thought in which corporations can be thought of as persons is, in part, the product of exercises in branding. In their original form, discussed in Chandler’s (1990) magisterial history of the rise of the corporation, brands served as commitments to quality, drawing on the existing reputation of the producer. A food product branded with the name of a reputable supplier could reasonably be counted on not to be tainted or otherwise unsatisfactory. In the absence of significant consumer protection legislation, the same assumption could not be made about unbranded goods.
Over time, however, the relationship has been reversed. Whereas once the brand derived its credibility from the corporation that used it, corporations now spend vast amounts to build up brands, in the hope that their own credibility will be enhanced thereby.
As Naomi Klein (2000) has observed, branding has its vulnerabilities. Having spent heavily to associate positive images with a brand such as Nike or Starbucks, corporations can be held to account if they are shown to behave badly, by exploiting workers or damaging the environment.
However, such accountability has its limits because corporations can reorganise themselves in ways that natural persons cannot. Rather than underpaying workers, for example, a corporation can contract out low-paid work through a chain of intermediaries that is difficult, if not impossible, to follow.
Where the corporate brand cannot be salvaged, the protean nature of the corporation comes to the rescue once again. Natural persons are stuck, to a large extent, with the name they are born with, or acquire by marriage. By contrast, a corporation with a bad name can simply change it. The Phillip Morris corporation, discredited both by the deadly nature of its products and the criminal tactics it used to defend them, has recently adopted the new name Altria (doubtless tested extensively on focus groups who may have liked the vague association with words like altruism).
Property rights and Nature
If property rights are social constructions, what implications can we draw in relation to rights for nature. On the one hand, we can rule out essentialist objections, along the lines that the concept of property rights cannot encompass rights for nature.
There are, of course, practical issues that must be resolved. Neither nature in general, nor particular species and ecosystems have the kind of agency required to exercise and defend property rights. Rather these property rights must be exercised by humans, bound by obligations to act in line with the interests of nature, and these interests must also be defined by humans. There is nothing particularly unusual here. Our current system assigns property rights to infants, who are in exactly the same position.
The same is true of property rights assigned to more-or-less abstract collectivities such as BHP or ‘the people of Australia’. While the people represented by these collectivities may have a role in choosing their representatives, they must rely most of the time on the fiduciary and constitutional responsibilities that bind these representatives.
On the other hand, having rejected the idea of ‘natural’ property rights for people, we must reject this idea for nature also. Whether or not people (individually or collectively) have moral obligations to nature, these obligations do not translate directly into property rights.
Rather, any assessment of property rights for nature must ultimately be pragmatic. Would the creation of property rights for nature serve to promote the achievement of fairer and more sustainable outcomes (bearing in mind that these terms will themselves be contested)? Alternatively, would these goals be better served by an expansion of the current system in which the protection of the natural environment is part of the responsibility of governments, operated primarily through legislative and regulatory constraints on environmentally damaging activities?
The case of bankruptcy law provides an instance where there would appear to be at least a prima facie case for assigning property rights to nature. There have been numerous instances where mining companies have done substantial environmental damage before declaring bankruptcy and passing the responsibility for any cleanup on to the public in general. In a few cases, such as that of Linc Energy, the damage has been such as to lead to criminal charges.
However, the protections of corporate and bankruptcy law mean that, even in cases like this, the costs fall on the public rather than on the directors and shareholders of the company. Linc was fined $4.5 million and the cleanup costs estimated at $72 million (Smee 2018). The CEO and main shareholder, Peter Bond, dismissed the fine as meaningless and stated that the company would not have to pay anything (McKenna 2018). As always under limited liability, Bond’s own liabilities were confined to the value of his shareholding, which was lost when the company went bankrupt.
An explicit assignment of property rights to nature might have changed this. If environmental damage were regarded as constituting an unpaid debt to nature, it might be possible to force a company like Linc into insolvency well before it ran out of cash. Moreover, the offence of trading while insolvent is more clearly established as a basis for prosecution than are the laws under which Linc and its directors are currently being pursued.
Similar problems have arisen in the United States, where mining companies have been permitted to engage in ‘self-bonding’ to cover the costs of reclaiming abandoned mine sites. That is, rather than posting a bond, the companies were allowed to promise to pay the costs of reclamation out of their own assets. As more and more companies (particularly coal miners) have gone bankrupt, governments have been left to pick up the bill. In West Virginia, more than 60% of the future cleanup bill is associated with bankrupt companies.
The problem is made worse by the inadequate level at which bonds are set. In Kentucky, for example, forfeited bonds covered only half the estimated cost of reclamation.
The practice of self-bonding has come under increasing attack. In Wyoming, which has the largest open-cut mines in the United States, proposals are being put forward to limit self-bonding to firms with a strong credit rating and significant remaining production. In practice, very few coal companies are likely to meet the criteria.
This shift is welcome. However, the outcome is a long way from that which would arise if nature had explicit property rights. In that case, the normal outcome would be that mine owners were required to pay compensation for damage to natural assets as that damage occurred, or even in advance, as is typically the case when mining activities impinge on the value of privately owned land and other assets.
Conclusion
Neoliberalism and the corporation go hand in hand. The ideology of neoliberalism makes social constructions like corporations and the associated financial assets seem like natural and permanent realities. In reality, the terms on which corporations operate should be determined by whether they are socially useful, and not by any notion of natural rights. One possible response to the excessive growth of corporate rights is the creation of countervailing rights for nature.
References
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Kentucky Office Of Surface Mining Reclamation And Enforcement (2017), ‘Annual Evaluation Report’ reported by Climate Home News, http://www.climatechangenews.com/2018/03/15/us-coal-mines-clean-up-bonds-database/.
Klein, N. (2000) No Logo : Taking Aim At the Brand Bullies, Picador, New York.
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