Law & Economics: Toward Social Justice: Volume 24

We are delighted to publish the papers from the symposium on social justice sponsored by the Center on Corporations, Law & Society of the Seattle University Law School. These papers address an impressive array of business and social issues and provide a penetrating assessment of whether existing legal doctrines and approaches promote social justice. True to the theme of this series, the authors frequently utilize economic analysis, but they also point out where they think it does not apply or needs to incorporate new developments. The exceptional quality of this volume reflects the distinguished credentials of the authors, the extraordinary efforts of the Special Editor, Dana Gold, the former director of the Center, and the support of the Dean of Seattle University Law School, Kellye Testy.

In the Fall of 2006, the Center on Corporations, Law & Society (CCLS) at Seattle University School of Law, in collaboration with Professor Jack Kirkwood, co-editor of this Research in Law and Economics book series, hosted a symposium to explore the relationship between law and economics principles and the promotion of social justice. CCLS has a robust history facilitating scholarship about the role corporations and corporate law plays in promoting, as well as undermining, social, economic, and environmental justice, having organized numerous conferences with published proceedings on topics connecting corporate law and governance to health care,¹ first amendment protections,² business ethics,³ and diverse progressive social movements, including environmental activism, worker rights, racial justice, and electoral democracy.⁴ Given that corporations play such a dominant role in almost every aspect of society, and given that much of governing corporate law doctrine and theory derives from neoclassical law and economics, the theme of the symposium, Law and Economics: Toward Social Justice, was both natural and fundamental to CCLS's work. This book-volume is a collection of the papers accepted for presentation at the symposium and revised for publication.

S.I. Hayakawa said, “The map is not the territory.” Taking this as my theme, I explore the idea of economics as a cultural-interpretive map that can be usefully employed to navigate the legal landscape. As a map, economics facilitates our understanding of law in a market context. At the same time, the map is not the metaphorical territory that it represents, just as economics is not the market exchange process to which it refers. Therefore, we must be careful not to conflate our conception of the economic map with our understanding of the legal territory.

This chapter collects and categorizes the principal theoretical debates respecting corporate law in the United States. What emerges is not a synthetic whole but a dialectic framework. Corporate law's theoretical debates do not resolve; their arguments and conclusions are determined by metapolitical preferences and unverified notions about aligning productivity incentives. But despite the debates, the acknowledged premise that corporations exist to create wealth by producing goods and services at a profit directs all theories of corporate law to two objectives. First, corporate law encourages long-term investment and risk-taking by facilitating a delegation of decision-making authority from the providers of capital to the expert managers who deploy it. Second, corporate law facilitates investment in producing assets at the lowest possible cost of capital, securing the presence of liquid trading markets in corporate securities.

The essay points out a common thread that runs through law-and-economics business law scholarship. Working largely independently of each other, economically oriented scholars working in different areas have argued that the law should focus on the interests of a single constituency – shareholders in corporate law, creditors in bankruptcy law, and consumers in antitrust law. Economic analysts thus have rejected arguments advanced by “progressive” scholars working in each of these areas that the law should instead concern itself with the full range of constituencies affected by business activity. The law-and-economics single constituency claim rests in part on skepticism about judicial competence, but the underlying premise is an objection to the use of law for redistributive purposes. The primary value is efficiency, defined in terms of market-generated outcomes. It is argued here that this political commitment implies a strong tendency toward maintenance of the existing distribution of wealth, and that even more importantly, the single constituency claim may actually have redistributive implications. In each of these areas of business law, however, a regressive program favors owners of capital against those who are generally less well off, such as workers and small-business owners.

Rhetorically, the notion of choice has always been a powerful one in politics and law. This chapter is intended to offer a note of caution about its use. Despite its progressive hue of individual freedom, the rhetoric of choice increasingly tends to be a notion used to defend and uphold existing matrices of economic and social power. This is because the rhetoric of choice is an excellent way to support existing power relationships. The assertion that people acting within such power relationships are simply choosing their current situation undermines efforts to change those relationships. The powerful stay powerful; the weak stay weak. This is true in a number of areas, from discussions about school vouchers, to debates about tort reform, to the disagreements surrounding the regulation of pornography.

The dependence on choice rhetoric also exists in corporate law, where the school of thought currently dominant in corporate law doctrine holds that the corporation is best seen as a voluntary arrangement among all the various stakeholders of the corporation. The rhetoric of choice is thus a powerful tool to fight against any reform of current relationships within the corporation that would embolden and empower stakeholders traditionally left out of the corporate power structure. Those involved with the corporation, whether shareholders, employees, or communities, have chosen their position, and thus should not complain when they do not receive more than what they explicitly contracted to receive. In this way, the notion of choice is used to bolster a view of corporate law that protects those already within the corporate power structure and excludes important stakeholders from corporate decision making. The rhetoric of choice is used in the same way in corporate law discourse as it is used elsewhere by the right – to justify or bolster existing matrices of economic and social power.

Shareholder dividends are “rents”: they are paid out of a producer's surplus that, in a fully competitive market, would not exist. In any market system, no one has a right to rents. Why, then, do shareholders receive dividends? Most likely, share gains have been the result of the usefulness of the share-centered ideologies in justifying a tremendous shift of corporate wealth from employees to an alliance of top managers and shareholders. This alliance now shows signs of breaking down, as the managers learn they no longer need the ideological cover. Standard accounts conceal the struggle over corporate surplus and the weakness of shareholder claims to appropriate it. Recognizing that distribution of corporate surplus is a political struggle is the first step towards a less ideologically blindered discussion of how that struggle ought to be structured.

Corporate social responsibility describes the role that society expects of business organizations. Because it is difficult to see societal norms in one's own society, comparative law can help us increase the salience of those norms in our own community. Looking at how a set of business laws uniform across 16 West and Central African countries lives in one of the member states, Cameroon, we see that society expresses its norms not only when behavior tracks the positive law, but also, and very importantly, when it diverges from that law. After studying examples of divergence in the South, specifically in the African country Cameroon, the chapter turns to the North. Using the United States as the illustration, and focusing on the role of business entities, the chapter identifies ways of opening the discussion among all political constituents, even those outside the traditional business community.

Marriage is often compared to a “contract.” This analogy purports to proceed from a settled concept called “contract,” under which legitimate obligations derive from consent. The analogy creates confusion when applied in the legal context. In law, “contract” refers to a broad category of legal obligation. Many legal theorists believe “contractual” enforceability should be based solely on consent. But as a matter of positive legal doctrine, consent is neither necessary nor sufficient to establish enforceability. A contract's enforceability also depends on its relationship to public welfare.

Thus the “contract” analogy does not constitute a legal justification for an approach to marriage based solely on the consent of the parties. It merely expresses a normative preference for a consent-based approach. The chapter illustrates this point using examples of current marriage-related issues, such as covenant marriage, prenuptial agreements, and same-sex marriage.

This chapter incorporates gender consciousness into critiques of the rational actor model by revisiting Carol Gilligan's account of moral development. Economics itself, led by the insights from game theory, is reexamining trust, altruism, reciprocity, and empathy. Behavioral economics further explores the implications of a more robust conception of human motivation. We argue that the most likely source for a comprehensive theory will come from the integration of behavioral economics with behavioral biology, and that this project depends on the insights from evolutionary analysis, genetics, and neuroscience. Considering the biological basis of human behavior, however, and, realistically considering the role of trust, altruism, reciprocity, and empathy in market transactions requires a reexamination of the role of gender in the construction of human society.

First, we revisit Gilligan, and argue that her articulation of relational feminism faltered, in part, because she could not identify the source of the stereotypically feminine. Second, we consider the ways in which the limitations of the rational actor model meant that law and economics could also not resolve the relational concerns that Gilligan raised. Third, we discuss the rediscovery of gender that is emerging from the gendered results of game theory trials and the new research on the biological basis of gender differences. Finally, we conclude that incorporating the insights of this new research into law and the social sciences will require a new methodology. Instead of narrow-minded focus on the incentive effects in the marginal transaction, we argue that reconsideration of stereotypically masculine and feminine traits requires an emphasis on balance.

Racing to the top of the corporate hierarchy is difficult, no matter how qualified or capable the candidate. Producing more widgets than one's competitors is not enough. Negotiating the political landscape of the institution is also required. More specifically, individual corporate officers have to be appeased, powerful interest groups have to be co-opted and made allies, and competitors have to be undermined or eliminated. The more bureaucratic the organization and the more opaque the promotion process, the more important this institutional game to climbing the corporate ladder. This chapter identifies the kind of racial minorities or racial types who are likely to play this game well and, consequently, race to the top of the corporation. It then explains why these racial types might not have the racial commitment, or feel institutionally empowered, to lift other people of color as they climb the corporate ladder.

Why do so many African Americans get stuck near the bottom or at the middle of the corporate ladder? Why do so many continue to complain about discriminatory pay and promotion decisions many decades after the enactment of anti-discrimination laws? Law and economics commentators who have written about the issue of employment discrimination have failed to address the complexity of the problem of implicit bias and the effects of the frequently inaccurate heuristics used by some white workers when making judgments about their black colleagues. Economic theory without context is useless. But with context, law and economic analysis can help us understand and address specific problems like workplace discrimination that persist within corporate cultures because of an overestimation of the cost of anti-discrimination efforts and an underestimation of the gravity and likelihood of workplace discrimination.

In this chapter, I explore the economic and socioeconomic reality of African American low and mid-level corporate managers in order to capture a more complete picture of the costs of discrimination in the corporate workplace. I also explore the heuristic assumptions that are made about African American professionals and the effects those assumptions have on the black community. Finally, to understand the gravity of the harm to individuals, their families and the communities to which they belong, narratives about the economic and psychological harm caused by discrimination are essential. I offer the narratives of six middle managers and low-level professionals who faced discrimination in the corporate workplace to provide an important context about discrimination's real costs.