Special, Vestigial, or Visionary? What Bank Regulation Tells Us about the Corporation - and Vice Versa

A remarkable yet seldom noted set of parallels exists between modern U.S. bank regulation, on the one hand, and what used to be garden-variety American corporate law, on the other hand. For example, just as bank charters are matters not of right but of conditional privilege even today, so were all corporate charters not long ago. Just as chartered banks are authorized to engage only in limited, enumerated activities even to- day, so were all corporations restricted not long ago. And just as banks are subject to strict capital regulation even today, so were all corporations not long ago. In this Symposium Article, we argue that these parallels are not merely curious accidents but a reflection of certain foundational dynamics embedded in, and constitutive of, the corporate form itself. Tracing the history of the incorporated American firm, we argue that the corporation is an inherently hybrid public–private entity — an institutionalized and conditional outsourcing to private parties of certain essentially public powers and functions. In effect, it is a form of public–private “franchise” arrangement in which the public is the franchisor and private parties collectively serve as the franchisees. We examine the reasons both for the gradual weakening of this original franchise arrangement as a matter of American corporate law and policy, and for its continuing presence as a matter of bank regulation. We suggest that the “special” salience of banks’ role as public franchisees helps to account for the resilience of the original corporate settlement in U.S. bank regulation. Finally, we consider the normative and practical implications of reviving the “forgotten” franchise view of the corporation more generally and, in the spirit of intellectual experiment, tentatively outline some possibilities for reintroducing public interest- driven conditions in state grants of corporate privilege

“Private” Means to “Public” Ends: Governments as Market Actors

Many people recognize that governments can play salutary roles in relation to markets by (a) “overseeing” market behavior from “above,” or (b) supplying foundational “rules of the game” from “below.” It is probably no accident that these widely recognized roles also sit comfortably with traditional conceptions of government and market, pursuant to which people tend categorically to distinguish between “public” and “private” spheres of activity. There is a third form of government action that receives less attention than forms (a) and (b), however, possibly owing in part to its straddling the traditional public/private divide. We call it the “government as market actor” form, whereby government instrumentalities pursue traditionally “public” ends through traditionally “private” means. Inattention to this pervasive form of government action might signal a theoretical blind spot attending the public/private distinction itself. At least as importantly, however, this inattention also denies us a practical opportunity: it prevents our more fully exploiting the government role in question. This Article, part of a larger project, aims to encourage fuller theoretical appreciation and wider practical use of the role we identify. It first offers a provisional taxonomy of recurrent forms that the government market actor role appears to take, affording a wealth of illustrative case studies in so doing. It then envisions additional good that governments might do, simply by extending their market acting roles to spheres in which they have yet to be fully utilized. The Article concludes by suggesting next steps in both theorizing and employing the government market actor role

Systemically Significant Prices

Some prices and indices in national or transnational markets take on particular market-wide importance, either because (a) they are associated with ubiquitous inputs to production, (b) they are associated with highly popular asset classes, (c) they tend by convention to be used as benchmarks in determining other prices, or (d) some combination of the above. Examples include prevailing wage and salary rates, certain energy and commodity prices, and such indices and borrowing rates as the Standard & Poor’s 500, the Federal Funds Rate, and the Libor and Euribor interbank lending rate benchmarks. We call such prices and indices \u27systemically important\u27 prices and indices, or \u27SIPIs\u27. Over the long term, these prices and indices tend toward certain statistical mean values that reflect determinants that can plausibly be characterized as \u27fundamentals,\u27 be these demographic, technological, or global-quantity-rooted in character. At times, however, SIPIs can move out of alignment with mean values and associated fundamentals owing to distortions stemming from missing information, recursive collective action problems (including \u27noise\u27 trading and \u27herd\u27 behavior), or even deliberately manipulative behavior on the part of influential or colluding market actors. We develop a general account of systemically important prices and indices as well as of the market vulnerabilities to which they can give rise, then develop a menu of regulatory strategies for addressing these vulnerabilities in manners that protect markets\u27 capacities to translate fundamental values into (more) accurate prices and indices when these are systemically important. Key to the effort is recognizing that what we propose is in some cases what regulators view themselves as committed to doing already in maintaining market integrity, and in other cases is what central banks do already in determining appropriate money rental (\u27interest\u27) rates and securing them through open market operations

Public Actors in Private Markets: Toward a Developmental Finance State

The recent financial crisis brought into sharp relief fundamental questions about the social function and purpose of the financial system, including its relation to the “real” economy. This Article argues that, to answer these questions, we must recapture a distinctively American view of the proper relations among state, financial market, and development. This programmatic vision—captured in what we call a “developmental finance state”—is based on three key propositions: (1) that economic and social development is not an “end-state” but a continuing national policy priority; (2) that the modalities of finance are the most potent means of fueling development; and (3) that the state, as the most potent financial actor, both must and often does pursue its developmental goals by acting endogenously—i.e., as a direct participant in private financial markets. In addition to articulating and elaborating the concept of the developmental finance state, this Article identifies and analyzes the principal modalities through which the modern American developmental finance state operates today. Finally, the Article proposes three broad strategic extensions of the existing modalities, with a view to enabling the emergence of a more ambitiously proactive and effective developmental finance state—and thus rediscovering a truly public-minded finance

Private Wealth and Public Goods: A Case for a National Investment Authority

Much American electoral and policy debate now centers on how best to reignite the nation’s economic dynamism and rebuild its competitive strength. Any such undertaking presents an extraordinary challenge, demanding a correspondingly extraordinary institutional response. This Article proposes precisely such a response. It designs and advocates a new public instrumentality--a National Investment Authority (“NIA”)--charged with the critical task of devising and implementing a comprehensive long-term development strategy for the United States. Patterned in part after the New Deal-era Reconstruction Finance Corporation, in part after modern sovereign wealth funds, and in part after private equity and venture capital firms, the NIA is an inherently hybrid, public-private entity that combines the unique strengths of public instrumentalities--their vast scale, lengthy investment horizons, and explicit backing by the public’s full faith and credit--with the micro-informational advantages of private market actors. By creatively adapting familiar tools of financial and legal engineering, the NIA overcomes obstacles that ordinarily impede or discourage private investment in critically necessary and even transformative public infrastructure goods. By channeling presently speculative private capital back into the real economy, moreover, the NIA plays an important role in enhancing the resilience and stability of the U.S. and global financial systems. The Article makes original contributions not only to contemporary policy debates over how to revive America’s productive prowess and bring its financial system back into the service of the real economy, but also to current theoretical understandings of “public goods,” “market failures,” and how to provide or address them. It offers an account of what it calls “collective goods”--a broader category than orthodox public goods--as solutions to collective action problems that pervade decentralized markets, hence as goods that can be supplied only through exercises of collective agency. Our NIA proposal operationalizes this theoretical insight by elaborating a specific institutional form that such collective agency can take

Private Wealth and Public Goods: A Case for a National Investment Authority

Much American electoral and policy debate now centers on how best to reignite the nation’s economic dynamism and rebuild its competitive strength. Any such undertaking presents an extraordinary challenge, demanding a correspondingly extraordinary institutional response. This Article proposes precisely such a response. It designs and advocates a new public instrumentality--a National Investment Authority (“NIA”)--charged with the critical task of devising and implementing a comprehensive long-term development strategy for the United States. Patterned in part after the New Deal-era Reconstruction Finance Corporation, in part after modern sovereign wealth funds, and in part after private equity and venture capital firms, the NIA is an inherently hybrid, public-private entity that combines the unique strengths of public instrumentalities--their vast scale, lengthy investment horizons, and explicit backing by the public’s full faith and credit--with the micro-informational advantages of private market actors. By creatively adapting familiar tools of financial and legal engineering, the NIA overcomes obstacles that ordinarily impede or discourage private investment in critically necessary and even transformative public infrastructure goods. By channeling presently speculative private capital back into the real economy, moreover, the NIA plays an important role in enhancing the resilience and stability of the U.S. and global financial systems. The Article makes original contributions not only to contemporary policy debates over how to revive America’s productive prowess and bring its financial system back into the service of the real economy, but also to current theoretical understandings of “public goods,” “market failures,” and how to provide or address them. It offers an account of what it calls “collective goods”--a broader category than orthodox public goods--as solutions to collective action problems that pervade decentralized markets, hence as goods that can be supplied only through exercises of collective agency. Our NIA proposal operationalizes this theoretical insight by elaborating a specific institutional form that such collective agency can take

Public Actors in Private Markets: Toward a Developmental Finance State

The recent financial crisis brought into sharp relief fundamental questions about the social function and purpose of the financial system, including its relation to the “real” economy. This Article argues that, to answer these questions, we must recapture a distinctively American view of the proper relations among state, financial market, and development. This programmatic vision – captured in what we call a “developmental finance state” – is based on three key propositions: (1) that economic and social development is not an “end-state” but a continuing national policy priority; (2) that the modalities of finance are the most potent means of fueling continuous development; and (3) that the state, as the most potent financial actor, both must and often does pursue its developmental goals by acting endogenously – i.e., as a direct participant in private financial markets. In addition to articulating and elaborating the concept of the developmental finance state, this Article identifies and analyzes the principal modalities through which the modern American developmental finance state operates today. Finally, the Article proposes three broad strategic extensions of the existing modalities, with a view to enabling the emergence of a more ambitiously proactive and effective developmental finance state – and thus rediscovering a truly public-minded finance

Special, Vestigial, or Visionary? What Bank Regulation Tells Us about the Corporation - and Vice Versa

A remarkable yet seldom noted set of parallels exists between modern U.S. bank regulation, on the one hand, and what used to be garden-variety American corporate law, on the other hand. For example, just as bank charters are matters not of right but of conditional privilege even today, so were all corporate charters not long ago. Just as chartered banks are authorized to engage only in limited, enumerated activities even to- day, so were all corporations restricted not long ago. And just as banks are subject to strict capital regulation even today, so were all corporations not long ago. In this Symposium Article, we argue that these parallels are not merely curious accidents but a reflection of certain foundational dynamics embedded in, and constitutive of, the corporate form itself. Tracing the history of the incorporated American firm, we argue that the corporation is an inherently hybrid public–private entity — an institutionalized and conditional outsourcing to private parties of certain essentially public powers and functions. In effect, it is a form of public–private “franchise” arrangement in which the public is the franchisor and private parties collectively serve as the franchisees. We examine the reasons both for the gradual weakening of this original franchise arrangement as a matter of American corporate law and policy, and for its continuing presence as a matter of bank regulation. We suggest that the “special” salience of banks’ role as public franchisees helps to account for the resilience of the original corporate settlement in U.S. bank regulation. Finally, we consider the normative and practical implications of reviving the “forgotten” franchise view of the corporation more generally and, in the spirit of intellectual experiment, tentatively outline some possibilities for reintroducing public interest- driven conditions in state grants of corporate privilege

“Private” Means to “Public” Ends: Governments as Market Actors

Many people recognize that governments can play salutary roles in relation to markets by (a) “overseeing” market behavior from “above,” or (b) supplying foundational “rules of the game” from “below.” It is probably no accident that these widely recognized roles also sit comfortably with traditional conceptions of government and market, pursuant to which people tend categorically to distinguish between “public” and “private” spheres of activity. There is a third form of government action that receives less attention than forms (a) and (b), however, possibly owing in part to its straddling the traditional public/private divide. We call it the “government as market actor” form, whereby government instrumentalities pursue traditionally “public” ends through traditionally “private” means. Inattention to this pervasive form of government action might signal a theoretical blind spot attending the public/private distinction itself. At least as importantly, however, this inattention also denies us a practical opportunity: it prevents our more fully exploiting the government role in question. This Article, part of a larger project, aims to encourage fuller theoretical appreciation and wider practical use of the role we identify. It first offers a provisional taxonomy of recurrent forms that the government market actor role appears to take, affording a wealth of illustrative case studies in so doing. It then envisions additional good that governments might do, simply by extending their market acting roles to spheres in which they have yet to be fully utilized. The Article concludes by suggesting next steps in both theorizing and employing the government market actor role

Special, Vestigial, or Visionary? What Banking Regulation Tells Us About the Corporation—and Vice Versa

A remarkable yet seldom noted set of parallels exists between modern U.S. bank regulation, on the one hand, and what used to be garden-variety American corporate law, on the other hand. For example, just as bank charters are matters not of right but of conditional privilege even today, so were all corporate charters not long ago. Just as chartered banks are authorized to engage only in limited, enumerated activities even today, so were all corporations restricted not long ago. And just as banks are subject to strict capital regulation even today, so were all corporations not long ago. In this Symposium Article, we argue that these parallels are not merely curious accidents but a reflection of certain foundational dynamics embedded in, and constitutive of, the corporate form itself. Tracing the history of the incorporated American firm, we argue that the corporation is an inherently hybrid public–private entity—an institutionalized and conditional outsourcing to private parties of certain essentially public powers and functions. In effect, it is a form of public–private “franchise” arrangement in which the public is the franchisor and private parties collectively serve as the franchisees. We examine the reasons both for the gradual weakening of this original franchise arrangement as a matter of American corporate law and policy, and for its continuing presence as a matter of bank regulation. We suggest that the “special” salience of banks’ role as public franchisees helps to account for the resilience of the original corporate settlement in U.S. bank regulation. Finally, we consider the normative and practical implications of reviving the “forgotten” franchise view of the corporation more generally and, in the spirit of intellectual experiment, tentatively outline some possibilities for reintroducing public interest-driven conditions in state grants of corporate privilege