The (In)Discipline of Markets: Prophets and Profiteers

• Author: Allan C. Hutchinson
• Pages: 133-154

133



e (I)Dscipin  Maets:

  

dam, Adam, Adam mith

isten what  charge you with

idn’t you say

n class one day

at selshness was bound to pay?

f all the doctrines that was the Pith

asn’t it, wasn’t it, wasn’t it, Smith?

~ Stephen Leacock

I    of corporate governance, t heory seems to

receive relatively short shri. ere is a pervasive sense that the theo-

retical posturing of academics is something of an indulgence and that

their musings have only passing relevance to the tough-minded and

bottom-line sensibilities of corporate players. Yet, as is almost always

the case, the current practice of corporate governance is in thra ll to a

denite and partial set of theoretical underpinnings. Indeed, as the

now out-of-favour economist John Maynard Keynes noted, “practical

men, who believe themselves to be quite exempt from any intellectual

inuences, are usually the slaves of some defunct economist.” Perhaps

as disturbing is the fact that, when there is some acknowledgment of

PART TWO: TAKING S TOCK

134

the theoretical commitments that inform eorts at understanding

and improvement, the theories in play are viewed as being far from de-

funct and, rather, at the cutting-edge of the academic mill . However,

notwithstanding the self-serving claims of economists and their ab-

stract enablers, the most popular theoretical expla nations of corporate

governance in Canada are profoundly unrealistic and unconvincing.

ey present a ctionalized and partial world which distorts reality

and which hinders the possibilities for serious reform. e sheer size

and inuence of today’s corporations confounds condence that the

market can and does discipline the corporations’ economic operations

in the interests of the larger public good, and that economic eciency

is the most desirable standard by which to measure the wisdom of all

corporate transactions and behaviour.

e prevailing and dominant mode of academic theory in the

world of corporate governance is that of so-called law-and-economic

practitioners. Drawing on the inuential work of the Chicago School,

these theorists place great faith in the disciplining and legitimating

tendencies of the free market. ey treat the corporation as a nexus of

contracts and look to explain and organize its regulation in line with

the logic of freely negotiated agreements in a perfect market. While

there is some benet to such a heuristic, there is little credibility in

treating all matters of corporate governance in such an as-if man-

ner. e discrepancy between the hypothetical assumptions of such

theorizing and the real-world conditions of contemporary actuality

is so large as to render the reliance on these theories to be entirely

far-fetched and thoroughly mi sleading. Moreover, a s with most gra nd

theoretical constructs, its emphases and omissions benet some in-

terests at the expense of others. Although presented as a hard-headed

and real-world approach, law and economics ushers its converts into

a never-never land where simplistic and almost surreal premises gov-

ern and where its habitants are only frail and fungible cardboard cut-

outs of the varied cast of esh-and-blood persons. Market theory is

a charade that would be amusing if the consequences of its adoption

were not so tragic; it elides important questions of social fairness by

collapsing them into calculations of economic eciency. In short,