Memo on Binary Economics to Attorneys for Women and People of Color Re: What Else Can Public Corporations Do for Your Clients?

One important duty of lawyers is to assist clients in identifying and securing their essential rights, responsibilities, and opportunities. One important purpose of legal education is to enable lawyers to assist clients and society in identifying and securing essential rights, responsibilities, and opportunities. This Article describes one opportunity (based on an approach to economics called "binary economics" first proposed by Louis Kelso), rarely advanced by counsel, that may offer women and people of color, public corporations, and their shareholders benefits far greater than expectations based on the mainstream economic theories (classical, neoclassical, and Keynesian) usually employed to evaluate economic policy and opportunities. Although the binary approach is most frequently advanced as an economic theory (because economics is the subject that it most significantly modifies), binary theory is grounded in private property principles of (1) universal participation, (2) voluntary exchange, and (3) limitation which have deep roots in the work of John Locke and the Anglo-American common law. The opportunity is to secure for growing numbers, and eventually all women and people of color, the right to acquire capital with the earnings of capital. This right is presently enjoyed by all well-capitalized people, which includes some women and people of color, but only a minority of them. According to binary economics, because present demand for capital is dependent on demand for consumer goods and services in a future period, a voluntary pattern of steadily broadening capital ownership promises more production-based consumer demand in future years and therefore more demand for capital and the labor to create it in earlier years. To acquire capital with the earnings of capital, well-capitalized people use (1) the pre-tax earnings of capital, (2) collateral, (3) credit, (4) insurance and markets to diversify and reduce risk, and (5) a monetary policy intended to protect private property. These techniques that work profitably for well-capitalized people can also work profitably for all people. Moreover, in an economy operating at less than full capacity, if capital can competitively pay for its acquisition costs out of its future earnings primarily for existing owners, it can do so even more profitably if all people are included in the capital acquisition process. Broadening the right to acquire capital with the earnings of capital is beneficial to women and people of color because it will enhance their earning power and autonomy by supplementing their labor income and/or welfare benefits increasingly with their earnings from capital. Broadening the right to acquire capital with the earnings of capital will also benefit public corporations and their shareholders because it will provide a stable, growing, broadening, production-based consumer demand that will enable public corporations to employ their existing productive capacity more fully and profitably and to invest more profitability to achieve greater growth. The binary approach combines the salient principles of: (1) the Homestead Acts, enacted to broaden land ownership, (2) the employee stock ownership plan ("ESOP") technique of corporate finance, which uses tax exempt trusts, as fiduciaries for employees, to acquire shares of employer stock with non-recourse credit, (3) capital credit insurance, such as that profitably provided by the Federal Housing Administration, and (4) a return of the Federal Reserve to its original Congressional mandate under Federal Reserve Act Section 13 to broaden access to capital credit by discounting of eligible productive private credit. A binary economy offers an entirely voluntary means that enables major prime credit-worthy corporations to meet any portion of their capital requirements while simultaneously empowering their employees, customers, neighbors and others to acquire shares in participating corporations with non-recourse credit, and pay for those shares with the earnings of the capital acquired. The acquired shares would be "full-dividend shares" that would distribute their full return (net of reserves for depreciation, research, and development to maintain the competitive productive capacity of the capital) first to repay the cost of capital acquisition and then to provide capital income to supplement wages and welfare benefits. Beyond advancing the little-understood opportunity of public corporations to operate much more profitably for their shareholders by expanding their ownership via the right to acquire capital with the earnings of capital, this article maintains that in their advocacy, counsel for women and people of color are duty-bound to draw attention to the issue of the unutilized productive capacity (UPC) of public corporations (which is rarely mentioned in the discourse and advocacy related corporate fiduciary duties and corporate social responsibility). Adopting a "holistic" understanding of UPC (one that includes not only "static" measurements based on existing corporate assets and the existing work force, but also includes the unutilized capacity to create even more productive capacity), the article maintains that the existence of UPC (1) means that public corporations could be operating much more profitably for their shareholders, (2) means that public corporations could provide more basic necessities, such as food, clothing, shelter, transportation, and healthcare, and simple comforts and conveniences (that many women and people of color lack) by way of greener and more socially responsible processes and practices, (3) is not adequately addressed by the existing mainstream economic theories, (4) offers the prospect of enriching poor and working people without redistribution, and (5) if included by counsel in their advocacy for women and people of color, will improve the prospects for advancing the neglected interests their clients. The article asserts that binary economics provides a powerful analysis of the existence and cause of unutilized productive capacity, and a uniquely beneficial remedy for profitably employing unutilized productive capacity that will enable public corporations voluntarily to (1) enhance their profitability, (2) improve the markets for their products, (3) reduce their tax burden, (4) broaden their share ownership, and (5) economically empower women, people of color, and others without the need for redistribution by extending the right to acquire to acquire capital with the earnings of capital to growing numbers of people. Noting that binary economics has been ably advanced by Professor Anthony Cook as a means of achieving Black reparations without redistribution, this article concludes that (1) that binary economics offers a important instance of interest-convergence, as described by Professor Derrick Bell, for public corporations, many shareholders, women, people of color, and poor and working people generally, and (2) under the rules of professional responsibility, in important contexts, counsel who have undertaken to represent the economic interests of women and people of color should not exclude from their representation the advocacy of the right to acquire capital with the earnings of capital without their clients' informed consent.