Political, Economic and Legal foundations of the Concept of Enterprise.

Contribution in Finance and Law: Twins in trouble Editor L. Cornelis, Intersentia,

In this blog I will work through the piece written by Mr. Gesquière who discusses, within the scope of the economic crisis, a new way off looking at the concept of the enterprise. I find this very important concept, not only because enterprises are such a big part of our society, but also because of the way the legal system deals with them.

Therefor I will briefly discuss the main theme of the chapters because it is essential to understanding his conclusion.

In his first chapter he discusses the macro-economical point of view of the capitalist-system. In this system four building blocks are to be considered: the search for profit, the accumulation of profits, private property and production aimed at the market. He adds the transformation of labour into a fictitious commodity to the building blocks of the capitalistic systems. He construes to his story that we should consider the position of the labourer vs the position of the entrepreneur. Where the entrepreneur is being able to be associated as the risk manager, who is being able to transfer the risk of the business to others (including the labourer), and the investor who will only invest in the production process in contrary to the labourer, who will only invest in immediate satisfaction. The author mentions Sloterdijk[i] who argues that the division shouldn’t be between capitalist and employees, but between debtors and creditors.

He briefly explains us the short history of the capitalistic system and the ‘accumulation cycles theory’[ii]. The core of the theory can be traced back to at end of the Middle Ages. From this point forward history has evolved through circular movements of crisis’s. Whereas in the Middle Ages there was a presence of a spiritual union (religion, economy and government was centralized by one body), from off the end of the Middle Ages we can observe a division of the government and the spiritual side off life (with the Concordat of Worms). Followed by the division of the drive of power (related to governmental structures) and the division of profit (related to the capitalistic system)[iii]. The author concludes with Bell who as stated that capitalism has outgrown itself due to lack of restraint.

Gesquière examines Arrighi’s analysis: MCM (money-capital-money). In this formula the initial stage of accumulation cycle starts with an investment created when money is turned into capital (transformation of input and output). Capital is the preferred tool when profit opportunity is for the taken. But when the risk becomes too high, the investor will transfer its capital back into money. (and therefor going from C-M). J. Hicks[iv] elaborates on this topic (with the financial market in mind): “capitalistic agencies tend to divert their future investments away from further expansion of their commerce in the material everyday world …. into immaterial investments in the higher world of finance.” We have observed this shift if we look at our own society and where we have ended up the derivatives in the financial sector.

Our society is confronted by a combination of an historical cycle (where there is a paradoxically a division and dependence between the capitalist and governmental system) and a capitalistic cycle as one whole. “The current economic and financial crisis may be considered as the closure of the financial expansion phase of the US cycle of capital accumulation, which may lead to a new global accumulation cycle dominated by Asian values.”

In his subsections: ‘the most recent consensus model’ and ‘the most recent consensus model under pressure, he points out that Fordism[v] (as an answer from the capitalists) and Keynesians (as a tool from the governmental body) have run its course. These two models have been placed under pressure due to new forms of labour, flexibility of large corporations towards their consumer, working cross-boarder etc.

Before discussing the author’s point of view on how the new model should look like, he ventures into Beck’s[vi] theory of ‘the unbinding of politics’. Beck stipulates the following: “On the one hand, traditional politics seems powerless to tackle the major problems of our times. On the other hand, the techno-economic subsystem has acquire a political dimension surpassing traditional political structures and decision-making mechanism. … One might say that the devil of the economy must sprinkle himself with the holy water of public morality and put on a halo of concern for society and nature.”

Before going into depth of 'the theory of firm', the author rightfully re-examines the economic model. He supports the idea that the economic system is part of the larger social system, part of the all-encompassing bio-system. Where there is a political obligation[vii] and where we have to restore the primacy of citizens. He also revisits the building blocks of the capitalist system; focus on profit, market economy and private property. In this chapter he discusses briefly the three pillars.

When moving onto the ‘new firm’, the author mentions different authors when discussing theories of firm. Though he seems to favour Marglin[viii], who explains that the capitalist enterprise has been created to make the capitalist indispensable, by enhancing the control of the boss over the workers. Gesquière also refers to Berle and Means[ix] who are for advocates for “an ethical control of enterprise to the benefit of the whole of society, since the shareholders as formal property owners of the firm were no longer in control.” There for Gesquière argues: “that a valid theory of the firm should consider the firm as an integral part of society aiming at wealth creation, as one may suppose that the creation of wealth shall continue to be one of the basic features of mankind.” The author uses Blair’s[x] definition of wealth creation.

When deliberating on the concept of ‘the firm’, he will use Mayer[xi] who defends the concept of ‘the trust firm’, based upon two sides features: i) a corporation as a commitment and ii) as a control device. The author says in his piece: “The right balance between commitment and control is necessary for the corporation to function in the best interest of society.” He then talks about property from the point of view that the corporation is the owner of the corporation’s assets, whereby shareholders have lost their ownership. Whereby now the property right should also include the interests of society.

The author is basically saying that because the ownership of the shares is formally with the corporation, these rights (and in addition to the concept of a trust firm as Mayer has defined), should include the interest of the whole of society, and thus linking it to corporate social responsibility. He adds to legal developments in Belgium, where they have chosen to reconsider the way we look at the concept of property. The Act of the Continuity of Companies of 31 January 2009 introduced the division between the corporation as a legal entity and the enterprise as the valuable contents of this entity and secondly an overhaul of the classical system of pledge rights, enabling all creditors to obtain a pledge upon the whole business of the debtor. He adds Macpherson’s idea[xii] “that property consists of a ‘right of revenue’. The right of revenue to workers, creditors and shareholders.”

He argues that the corner stone of such a synthesising system should consist of the property rights of the enterprise, developed along the lines of an interpretation of property as a social function. Hereby we are abandoning the focal point upon property right as an individual rights, this might lead to the re-introduction into legal system of the essence of the medieval concept of property. The author hopes “that the rights of one person may hold the exercise of another person’s right in check, with duties as integrally a part of the institution of property as individual rights.”

I found this piece very interesting. Confronted with a changing society through (or because off) the economic crisis, we are confronted with a new approach to the building blocks of our society in general. I commend that there is an emphasis on intertwining the capitalist and the social system.

I find it stimulating to see that we look at the enterprise as a property owned by the whole and not its individual members. In this way of thinking, the author mentions the Act of Continuity of Companies as an example where by the Belgium government is looking at property differently. We should think about how corporate law works and really apply it to its fundaments. And thus creating a legal system whereby the enterprise takes on its social responsibility in a brand sense.

Marie-Louise Reedijk

jan 2017

[i] P. SLOTERDIJK, Repenser l’impôt, Pour une éthique du don démocratique, Paris, Libella, 2012, p. 179.

[ii] G. ARRIGHI, The long twentieth Century, Money, Power and the Origins of our Times, London, Verso, 2010.

[iii] The author continues by stating: “one may link this division with the broader cultural phenomenon of the erosion of the unity of sense encompasses all of nature in the world view of the Middle Ages to the finally remaining sense-giving unit of the individual subject in modern times, standing naked in the senseless world and even the senseless universe.” His references fort his line of thinking are:

[iv] J. HICKS, A theory of economic history, Oxford, Oxford University Press, 2011.

[v] In the words of Gesquière: Fordism: The large corporation is perceived to be the cornerstone of the system and the engine of the system’s progress, whereby mass production is connected with mass consumption. Keynesian welfare state: the essence of this type of ‘state’ is the focus upon full employment of the members of its community, where by the community typically consists of citizens belonging to the confines of the nation state.

[vi] U. BECK, Risk Society, Towards, a New Modernity, London, Sage Publications, 1992, p. 183.

[vii] 1. Citizens seeing themselves as equal and 2. A cohesion of interest among those having a voice in influencing the governments.

[viii] S. MARGLIN, The dismal science: How thinking like an economist undermines community, Cambridge, Harvard University Press, 2008.

[ix] A. BERLE & G. MEANS, The modern corporation and Private Property, New York; Commerce Clearing House Inc., 1932.

[x] Wealth creation can generate wealth in three ways: it can provide products and services that are worth more to the customer than the customer pays for it, it can provide opportunities for workers to be more productive at their jobs and last it can provide a flow of profits to its investors that is greater than those investors could get by investing in alternative activities.

[xi] Mayer: the collaboration should feature the following aspects: 1. The corporation should uphold strong values, 2. It should allow a body of trustees to oversee the corporation’s own endorsement of these values, 3. It should apply mechanisms that work as an incentive to enhance shareholders long-term commitment.

[xii] C.B. MACPHERSON, The political Theory of Possessive Individualism, Hobbes to Locke, Oxford, Oxford University, 2011.

#enterprise #economiccrisis #Financieel #vennootschapsrecht #corporatelaw #wetcontinuïteitondernemingen #WCO