Don't really have time right now to write (and I'm sure no one has the time to read) a lengthy criticism. A few points, though:
One. He assumes that employees can contractually avoid exploitation of "quasi rents" through job mobility.
Point: Job mobility ain't so great lately, in case you haven't noticed, and, if everyone turns into independent contractors, like he wants, where will our healthcare benefits to come from? Ever try to make a budget when you don't know where/how much next week's paycheck is going to be?Two. He assumes that employees can protect themselves through negotiation and collective action better than shareholders.
Point: Last I checked, only 7% of America was unionized. Meanwhile, more and more investors are the institutional kind or the wall-street proprietary-trading kind. You know any day traders? So why, exactly, are shareholders less able to protect themselves from managerial misconduct through collective action?Three. The double-standard on the "take it or leave it" contract. Banbridge thinks the "market" will correct any bad terms in an employee's "take it or leave it" contract. Therefore, this should not serve as an excuse that the employment contract isn't sufficient to protect employee interests.
Point: But he doesn't apply the same thinking to the "take it or leave it" shareholder contract, where shareholders have to live with residual risk. Instead, we've got to have the govenrment step in and babysit directors by imposing fiduciary duties. Why won't the "market" correct their like it corrects workers?Four. Shareholders and stakeholders alike can constrain corporate behavior by "constraining their inputs." In English, this means that management won't treat them so badly they'd quit or invest elsewhere.
Point: Workers can't "constrain their input" in as much as, well, they have to make a living to feed themselves. So the "constraint on input" pressure from workers isn't as strong. They can't choose not to input. And lately, the choices of where you get to put that input are pretty restrained! Ever wonder why a woman would refuse to leave a job when her boss is a sexually harassing pervert? Because she likes it there? Bottom line: the cost to workers of withholding their input from corporations is much greater than the cost to investors.Five. "Many nonshareholder constituencies have substantial power to protect themselves through the political process. Public choice theory teaches that well-defined interest groups are able to benefit themselves at the expense of larger, loosely defined groups by extracting legal rules from lawmakers that appear to be general welfare laws but in fact redound mainly to the interest group’s advantage."
Point: Because investors aren't a "well-defined interest group" that is "able to benefit [itself] at the expense of the larger, loosely defined groups." Right. Imagine Fidelity telling the world it hasn't got any well-defined interest group, or the wherewithal to fund one.Six. "Collective bargaining obviously does not protect nonunionized workers, but they receive comparable protections from both legal and market forces. Various market mechanisms have evolved to protect employee investments in firm specific human capital, such as ports of entry, seniority systems, and promotion ladders. As private sector unions have declined, moreover, the federal government has intervened to provide through general welfare legislation many of the same protections for which unions might have bargained. The Family & Medical Leave Act grants unpaid leave for medical and other family problems. The Occupational Safety & Health Administration (OSHA) mandates safe working conditions. Plant closing laws require notice of layoffs. Civil rights laws protect against discrimination of various sorts. And so on."
Point. "And so on" ? Unless I've been living on mars for the past 30 years, seems like worker protections are going down the drain when it comes to social welfare programs and benefits.
Overall, Prof. Bainbridge wants us to protect stakeholders through "external" regulation. Let's let corporations do whatever they like (so long as they're taking care of share price) and let the broader public eat the costs by providing social welfare benefits -- without benefitting from much of the corporate profits.
Of course, the business community fights any proposal to impose such "external" regulation tooth and nail. Meanwhile, the same pesky "collective action" problem bedevilling shareholders in exercising their corporate franchise bedevils the rest of us when it comes to getting Congress off its ass. Corporate America, on the other hand, doesn't have such a collective action problem. And less and less, likewise, do investors.
The result? Industry has the most political power. And the only responsibility that it pays attention to, thanks to our corporate laws, is the one that forces them to inflate share prices -- to the point that it hurts everyone else. Think layoffs, outsourcing, opening offices overseas, downsizing, etc.
Meanwhile, no good reason manifests itself as to why directors can't have fiduciary duties to everyone, not just shareholders. Sure, their interests may collide; this is why we rely on directors' "business judgment."
The bottom line: Shareholders shouldn't get more protections under corporate law than do any of the other corporate constituencies. Any failure to realize this indicates that you've had your head up your ass since the advent of supply side economics.
