Introduction
The modern business corporation cannot be understood without tracing its origins to mediaeval and chartered corporations from which it emerged – and to which, under intellectual monopoly capitalism, it is, in certain respects, returning. Corporations, which originated as institutional forms in the Middle Ages, were later adapted by nation-states for a wide range of purposes. Over time, they evolved into formally autonomous enterprises oriented toward profit maximisation and typically understood as actors operating within competitive markets. Yet rising economic concentration and monopolisation have fundamentally undermined this view. Some economists now speak of a new form of techno-feudalism, in which hierarchical relations akin to those between feudal lords and vassals re-emerge.
The following section The legal pluralism of the feudal society examines the mediaeval system of legal pluralism, in which multiple corporate bodies exercised lawmaking authority. In the late Middle Ages, this autonomy was extended to universities and other institutions devoted to learning and research, laying the foundations for open science and competitive markets. At the same time, many mediaeval corporations were embedded in rigid hierarchies resembling feudal relations between lords, vassals, and serfs.
Section Central State Law and Decentralised Market Economics analyses how the rise of the modern nation-state challenged legal pluralism. State ideology was built on the centralisation of lawmaking and the organisation of economic life through decentralised markets. This separation was formalised in the two ‘pure’ disciplines of law and economics, which replaced mediaeval legal pluralism but also produced an implicit and fragile synthesis unable to account for the institutional diversity of capitalism.
Understanding the modern corporation therefore requires a framework that goes beyond both pure law and pure economics. Section Exiting Nirvanas: explaining capitalist corporations reviews the contributions of lawyers and economists who developed such a perspective. Their work reveals the business corporation as a hybrid institution that decentralises public authority while centralising market transactions. More than a vehicle for joint ownership, the corporation is an autonomous legal person with shared liabilities and centralised power, enabling it to govern its internal affairs in a quasi-judicial manner and reviving a form of legal pluralism.
Unlike mediaeval corporations, however, modern business corporations lack intrinsic missions. Their managers are expected to act solely in the interest of shareholders, and corporations themselves can be freely bought, sold, or dissolved. They are thus ‘semi-persons’: entities that can both own and be owned. This creates a distinctive motivation problem, examined in the section The business corporation’s motivation problem.
Nation-states have sought to embed corporations within competitive markets and democratic political systems. Section Democracy and the dual nature of business corporations compares the divergent strategies of the United States and Europe: the former aimed to disperse the power of capital and labour, while the latter sought to concentrate both. Both approaches were ultimately destabilised by the rise of intellectual monopoly capitalism.
Section Intellectual Monopoly Capitalism: a feudal regression? shows how the growing monopolisation of knowledge has transformed inter-firm relations. The open science and open markets that emerged in the late Middle Ages are increasingly giving way to closed science and closed markets. Core corporations now outsource production to dependent firms, which are often trapped in low-skill, low-innovation equilibria without intellectual property. These asymmetric relationships resemble feudal dependencies, in which subordinate firms and workers are exploited both by their immediate employers and by dominant corporations. Like the chartered companies of the colonial era, today’s intellectual monopolies do not merely dominate markets: they also exercise political power and privately structure the markets in which they operate.
The legal pluralism of the feudal society
In the European Middle Ages, several corporations co-existed. Legal pluralism prevailed, and the theories of that age tried to understand the limits of the power of each legal entity. The contributions of Middle Age scholars encompassed what later became distinct disciplines.Footnote 1 Their innovative approachFootnote 2 emerged from the unique circumstances of the Late Middle Ages, characterised by a multitude of legal entities. These entities fiercely guarded their jurisdictions and often engaged in battles to expand their realms. Yet, amid this struggle, they acknowledged the existence and legitimacy of other jurisdictions. Legal pluralism characterised a complex legal order where multiple legal systems coexisted and competed: church versus crown, crown versus town, town versus lord, and lord versus merchant. Resolving these conflicts required intricate compromises. Independent bodies were crucial in arbitrating disputes, determining jurisdiction, applying relevant laws, and reconciling differences among diverse legal systems. However, existing academies were constrained by singular ideological approaches, while intellectuals in feudal courts depended on their lords for support. Consequently, neither academies nor feudal courts could effectively settle intellectual disputes and offer reasonable compromises across competing jurisdictions. Universities – emerging institutions of the late Middle Ages – filled this critical intellectual and institutional gap.
Like monastic orders, towns, and guilds, universities required corporate status to secure independence. These institutions expanded their activities to fields such as medicine and other disciplines.Footnote 3 Legal pluralism did more than promote freedom and legal sophistication; it was instrumental in establishing universities and catalysing Western scientific inquiry. The Western institutions of Open Science trace their origins to this foundation. The ’why’ questions posed by science allowed for the linkage, generalisation, and enhanced understanding of many of the ’how’ questions raised by technological practitioners (Mokyr, Reference Mokyr2002). Scientific enlightenment facilitated technological enlightenment and, over a few centuries, laid the knowledge foundation for the Industrial Revolution. This mediaeval legacy of open science, which favoured the blossoming of competitive markets, is precisely what intellectual monopoly capitalism, as argued in the conclusion, is progressively dismantling.
Despite its doctrinal rigidity, the Catholic Church – particularly through its monastic orders – played a significant role in the dissemination of knowledge. The Church maintained a selection system that, although not entirely immune to familial influence, placed substantial emphasis on an individual’s knowledge and interpretation of sacred texts. Ecclesiastical authority was not primarily transmitted through hereditary means: the Pope appointed cardinals, who, in turn, elected the next pope – a procedure that remains in effect today. More broadly, feudal society was defined by rigid hierarchical structures in which social roles – such as those of feudal lords, vassals, serfs, and, to some extent, priests – were largely inherited. Both vertical and horizontal cultural diversity tended to constrain social mobility, while persistent social immobility, in turn, reinforced cultural heterogeneity (Gellner, Reference Gellner1983; Pagano, Reference Pagano2003).
Central state law and decentralised market economics
The decline of feudal society and the rise of centralised nation-states marked the end of the fragmented institutions of the Middle Ages. Emerging states consolidated power by centralising lawmaking and imposing uniform rules and cultures, paving the way for a mobile market society (Gellner, Reference Gellner1983). The rigid, inherited divisions between lords, vassals, and serfs were dismantled, and individuals were now expected to pursue opportunities and rewards within competitive markets. As legal pluralism gave way, two distinct disciplines emerged: law and economics. The former upheld the state’s monopoly over lawmaking, while the latter emphasised the dynamics of the market’s ‘invisible hand’.
According to Austin,Footnote 4 a leading advocate of the powers of the national state, laws were only commands of the authorities, and they had little to share with ethics. The role of the legal scholar was only to analyse the laws as they were posited by the state. After Austin, legal positivism underwent a long process of refinement and led to a clear separation between law and morality. Economics went through a similar process that made it autonomous from moral principles.
The separation of law and economics from ethics created a profound divide between the two disciplines. Legal theorist Hans Kelsen and economist Léon Walras played a crucial role in establishing this divide. They advocated for the ‘purity’ of their fields – that is, their independence from moral judgments and external influences. Yet, despite these walls of purity, both disciplines ultimately shared a common ideology: human societies would be organised by the state and the market, and no other institution was deemed necessary.
Similarly to Austin, Kelsen (1848: 390) also declared that ‘…. the Pure Theory of Law insists upon a clear separation of the concept of law from that of justice…’. However, according to Kelsen, the law is not simply a command, and legal studies have a well-defined purpose in establishing the validity of the different rules that must constitute a consistent whole to offer a guide for human behaviour. This activity of (in)validation of rules needs only some transcendental grundnorm (founding norm) according to which the consistency and the validity of the other rules can be judged. The validity of the rules, and not their real-life enforcement or their morality, is the content of pure law. Pure law is such because it has been purged of any moral (or real-life) impurity. Given a grundnorm, it is a self-contained complete system within which all questions can be answered.
From Smith onwards, political economy followed a similar path of separation from ethics. This separation was clearly expressed by the concept of Pareto efficiency, according to which economic evaluations could be made independently of moral judgments. Pareto’s contribution was grounded in the work of Leon Walras, who was his predecessor at the University of Lausanne. Walras’ theory is rather complex because he believed in separating economics from other disciplines, while simultaneously supporting the principles of natural law and their moral implications. Walras drew a sharp distinction between ethics and economics. Well before Kelsen’s Pure Theory of Law, Walras’ Pure Economics emphasised the purity of a field of research – that is, its independence from other subjects of inquiry. Pure economics had nothing to do with the moral principles required by distributive justice.Footnote 5
The separation of both disciplines from ethics coincided with the emergence of pure law and pure economics. Pure law focused on the validity of laws and the internal consistency of legal systems, presumed to originate from a single authority or fundamental grundnorm. Pure economics concentrated on the internal consistency and ‘efficiency’ of decentralised decisions made by maximising individuals. Each discipline inhabited its own Nirvana, with practitioners valuing the internal consistency of their respective domains above all else. However, hidden relations reveal pure law and pure economics as fundamentally interdependent constructions. Pure economics inherently relies on well-defined and complete rights that are exchanged and enforced by a third party. Consequently, economic Nirvana necessitates a legal Nirvana. Conversely, pure law assumes that the legal order can be completed and rendered consistent through a single framework of basic norms, disregarding limitations arising from bounded rationality, cognitive incapacity, collective action failures, or resource scarcity. In essence, legal Nirvana requires an economic Nirvana.
An implicit ideological alliance emerges between pure law and pure economics, both endorsing the notion that society is structured through complete markets and a fully centralised legal order. These interdependent systems are presumed to function at zero opportunity costs, predicated on the assumption that no viable institutional alternatives exist. The completely centralised legal system is presumed to generate well-defined property rights at negligible costs, thereby facilitating the emergence of frictionless, comprehensive markets that ostensibly require no costly legal infrastructure.
Institutions such as corporations become incomprehensible within this world of pure law and pure economics.Footnote 6 Analysing these entities requires abandoning the two interdependent Nirvanas that constrained legal and economic thought. In these idealised realms, the role of multiple corporations cannot be explained, as a state of costless perfection is assumed to be achievable through completely decentralised markets and a wholly centralised legal order. No conceptual space remains for alternative institutional forms. From this perspective, the abandonment of the scholastic tradition that examined overlapping institutions can hardly be regarded as an unequivocal scientific advancement in legal and economic theory. Capitalism did not eliminate corporations; on the contrary, many new and significant corporations emerged as key business entities. Their growing importance was difficult to reconcile with the purist frameworks of law and economics.
Exiting nirvana: explaining capitalist corporations
Like monasteries, guilds, feudal lords, universities, and other institutions, under capitalism, firms – and, in particular, business corporations – can own resources, make contracts in their own names, and engage in internal resource planning, replacing the market mechanism.
This observation contrasts with the idea that state lawmaking and market mechanisms could monopolise the organisation of the economy. Ronald Coase (Reference Coase1937) in economics and Lon Fuller in law each achieved a groundbreaking deconstruction of their respective ‘Nirvanas’,Footnote 7 providing a framework for analysing entities like business corporations.
Pure economics envisioned a world in which market transactions, guided by a frictionless ‘invisible hand’, could efficiently coordinate all human activities. However, assuming zero transaction costs creates a fundamental dilemma: institutions that involve costs become unjustifiable, while costless alternatives make institutional choice irrelevant. Firms, regulatory bodies, and other forms of governance can only be understood within a framework that acknowledges that no institution – including the market – is without cost. Coase’s crucial insight was that all institutions incur transaction costs and that standard notions of market efficiency rely on ignoring these costs (Coase, Reference Coase1960; Pagano and Vatiero, Reference Pagano and Vatiero2015).
Many costs within a market system are due to the costly use of legal institutions, such as defining property rights, enforcement, litigation, and adjudication. Fuller (Reference Fuller1963, Reference Fuller1969, Reference Fuller, Feinberg and Gross1990) directly addressed centralised public order costs, advocating legal pluralism as a cost-reduction strategy. He rejected law as a static construct, defining it in the late mediaeval tradition as a dynamic endeavour to subject human behaviour to rules.Footnote 8 Fuller illuminated law’s inherent trade-offs: balancing rule adaptability with stability and navigating the tension between specificity and generality. Complex societies could reduce lawmaking costs by decentralising rule-creation across institutions like unions, churches, universities, and firms. These entities could impose behavioural rules more efficiently than centralised systems lacking nuanced contextual understanding (Pistor and Xu, Reference Pistor and Xu2004).
Fuller’s descent from legal Nirvana parallels Coase’s from economic Nirvana. The corporation embodies both market transaction centralisation and public order decentralisation. Calabresi and Williamson extended Coase and Fuller’s insights.
According to Calabresi,Footnote 9 property rules and contract law operate effectively in environments with low transaction costs. However, at higher transaction cost levels, there is a shift from property rules to liability rules. For example, in accident scenarios, the only way to reduce transaction costs is to redress damages after they occur. This situation undergoes a fundamental change. Before an accident, potential culprits and victims may interact competitively; afterward, they find themselves in a bilateral monopoly, able to bargain only with each other. As a result, deals can only be negotiated under court supervision, which enforces liability rules. Williamson (Reference Williamson1985) focused on a related fundamental transformation (Pagano, Reference Pagano and Pacces2010). He observed that specific investments – those with reduced returns outside a particular relationship – can alter market conditions from ex ante competition to bilateral monopoly. In such cases, it may be practical to internalise the transaction within a single firm and resolve disputes internally.
Both scholars explore fundamental transformations, revealing monopoly and competition as interconnected stages. Calabresi emphasises negotiations after ‘disinvestment’ in specific accidents, while Williamson examines changes resulting from asset-specific investments. Each highlights the critical need for ex-post verifiability. Calabresi addresses this within public order, and Williamson highlights resolution through private organisational structures like corporations.
When co-specific (dis)investments occur frequently and ex ante contractual terms remain incomplete, dispute resolution shifts from public judges to private judges who invest in understanding specific relational dynamics. In sporadic interactions, independent agents and centralised public courts suffice. However, long-term cooperative projects with significant specific investments require a more nuanced approach: fostering cooperation, understanding complex human interactions, and enabling both ex-ante and ex-post dispute resolution by insiders. In this context, institutions like business corporations – once marginalised in Walrasian and Kelsenian frameworks – gain importance in economic and legal scholarship. The business corporation embodies a decentralisation of public order and a centralisation of market transactions. Its key characteristic extends beyond common ownership of non-human assets. Instead, the corporation is an autonomous legal entity with shared liabilities and centralised authority, enabling a quasi-judicial function. Far from being a mere veil obscuring economic relations, law is essential in defining the firm’s boundaries (Gindis, Reference Gindis2020; Hodgson, Reference Hodgson2015a) and understanding its nature (Deakin et al., Reference Deakin, Hodgson, Huang and Pistor2017). Since a legal person cannot contract with or sue itself, the state must exercise forbearance toward the corporation’s internal dispute resolution mechanisms, respecting its private ordering within defined limits (Iwai, Reference Iwai2014).Footnote 10 Moreover, external courts traditionally refrain from second-guessing managerial decisions so long as they are made in good faith and within the boundaries of fiduciary duties. In practice, this grants corporate managers wide discretion and effectively shields their decisions from judicial review.
The canonical example of GM’s takeover of Fisher Body illustrates how external corporate liabilities can be linked to the extent of its quasi-judicial powers. This contrasts with a significant portion of the literature, which attributes the existence and growth of firms to the common ownership of machinery and plants aimed at avoiding hold-up problems.Footnote 11 Alfred Sloan’s (Reference Sloan1963) memoirs present this alternative perspective. Sloan argues that the primary advantage of a corporation lies in its ability to internalise a judicial function to address inseparable external liabilities.
According to Sloan, this judicial function originated during General Motors’ formative years – predating the widely studied Fisher Body acquisition – and was notably shaped by disputes surrounding Kettering’s unsuccessful air-cooled engine innovation. These conflicts between the research and production departments highlighted the challenges of assigning responsibilities within the top management hierarchy. In response, Sloan implemented a company-wide reorganisation that distinguished top management from divisional oversight. This restructuring granted top management a distinct ‘judicial’ function, enabling it to resolve disputes among different divisions (Pagano, Reference Pagano2000; Williamson, Reference Williamson1991).Footnote 12
Even after the air-cooled engine problems, Fisher Body had remained an independent company, having transitioned from the horse carriages to the car bodies industry. Unlike today’s practice of a single manufacturer producing both the body and engine of cars, these businesses were separated similarly to the way carriage production was distinct from horse raising. Mergers in the automobile industry were driven by the ‘fundamental transformations’ identified by Calabresi and Williamson. The transition from open-body to closed-body cars, which increased vehicle weight and raised the centre of gravity, required a specifically designed engine to ensure stability. This co-specific design could not be clearly defined in advance through contracts, leading to potential issues and disputes that had to be resolved ex-post. Liabilities could not be distinctly divided between engine and body car builders, necessitating a shift from decentralised markets with a centralised judiciary to centralised transactions governed by the decentralised private judiciary of the corporation.
A unified, independent legal entity assumed responsibility for issues such as car stability, facilitating the resolution of disputes across an expanding number of departments. This shift was not required in the shipbuilding and airplane industries. Due to the ample spaces within ships and on airplane wings, engines did not need to be specifically designed. As a result, separate external liabilities and internal powers could be allocated to distinct legal entities.
The business corporation’s motivation problem
Capitalism, like feudalism, relies on corporations as private legal orders, but unlike feudal bodies with religious missions, modern firms are assumed to be driven by individual incentives. Neoclassical theory therefore worries about agency problems when managers replace owners. Yet humans are strongly inclined to act for non-human entities – gods, nations, or organisations – often with extreme self-sacrifice. Evolutionary and cultural selection favour such group loyalties, sometimes producing violence and atrocities. Different civilisations institutionalised these tendencies: Confucian bureaucracy,Footnote 13 Christian churches, and later nation-states created ideologically grounded, meritocratic systems that command loyalty beyond individual interests.
If the power of all individuals, including that of the present ruler, is constrained by the rule of law, then the national state must also be an independent person. It must transcend the particular person acting on its behalf. The State must be a corporation, an independent corpus, whose potential immortality guarantees the continuity of the laws, allowing individuals to interact under certain rules.
Initially, the authority vested in business corporations originated from national states, which sought to remain the sole source of legitimate legal personhood. Legal personhood could be extended to chartered corporations that met specific criteria and demonstrated a commitment to the nation. This arrangement established a clear separation between corporate assets and those of individual shareholders, whose liability for corporate debts was limited to their investments. Corporate officials acted on behalf of the corporation, rather than in a personal capacity.
Chartered corporations, such as the East India Company or the Hudson Bay Company, arose from the necessity to decentralise the directives of national states. In remote corners of the world. Corporations evolved into autonomous legal entities empowered not only to possess assets and enter contracts but also to maintain order and engage in warfare.Footnote 14
The chartered corporations demonstrated the evident advantages that firms could derive from having an independent legal personality. The limited liability of the shareholders allowed unprecedented funding possibilities. The corporation, endowed with its assets and potential immortality, could make lasting contracts with other entities and handle litigation among individuals subject to its private order. Corporations became increasingly popular also in the United States as a means of delegating the management of public utilities to private agents. This trend culminated in the 1889 decision by the State of New Jersey to legalise holding companies – corporations that could own other corporations. By being the first state to permit such structures, New Jersey attracted large conglomerates that were illegal under the laws of other states, most notably Rockefeller’s Standard Oil, which had been prohibited under Ohio law. This marked a turning point in US corporate law, accelerating the concentration of corporate power and the emergence of the large business corporation as the dominant vehicle for profit maximisation.
Before the emergence of the business corporation, institutions held distinct identities rooted in specific missions – whether defending territory, propagating faith, or advancing education. However, the evolution of the business corporation took a different path, presenting itself to some economists as a complex hybrid combining market mechanisms with elements of state bureaucracy.Footnote 15 Many economists, including Demsetz and Lehn (Reference Demsetz and Lehn1985), acknowledge the corporation’s role in reducing market transaction costs. Simultaneously, they perceive the business corporation as a distorted outcome within the market. It’s seen as losing the potent individual incentives of the market, with managers’ motivations often misaligned with shareholders’ objectives. Proposed solutions often centre around incentivising managers through measures like stock options, aiming to realign their interests with the corporation’s ‘owners’. However, these attempts at realignment can introduce new, sometimes more severe, issues. Shareholders’ interests, due to limited liability, can clash with those of other stakeholders, such as the corporation’s creditors and employees (Mayer, Reference Mayer2013).
Posner (Reference Posner2010) introduces an alternative viewpoint challenging the conventional stance of economists, who typically regard the individual firm within competitive markets as the primary benchmark. Instead, he advocates for considering public bodies, such as nation-states, as the standard against which the legal personhood of the business corporation should be assessed. In contrast to these public bodies, the business corporation boasts several advantages. The business corporation, while sharing a legal personhood akin to other public entities, stands out due to its dynamic nature, surpassing organisations constrained by territorial boundaries (such as national states and their institutions), specific missions (like universities), or reliance on particular beliefs (as seen in churches). Unlike these entities, the business corporation operates without territorial confines, isn’t restricted to a singular mission, and doesn’t require allegiance to specific beliefs. This flexibility grants it a broader spectrum of opportunities. However, Posner highlights that despite the advantages, the business corporation also harbours notable disadvantages compared to these other organisations. Territory, mission, and faith don’t merely restrict personalities; they play a crucial role in defining identities. This aspect is particularly vital for non-human entities, enabling humans acting on their behalf to establish a sense of identification with them. While individuals might be willing to make sacrifices to defend territory, mission, or faith, they are less likely to make heroic sacrifices solely for the success of a business strategy.Footnote 16
Democracy and the dual nature of business corporations
Participants in business corporations often lack both strong market incentives and intrinsic motivations. Unlike feudal institutions or nation-states, corporate hierarchies are grounded neither in shared missions nor in democratic legitimacy. Feudal bodies were typically guided by religious or ethical purposes, while modern states derive authority from democratic principles. Corporations, by contrast, are organised to maximise shareholder value. Yet shareholders bear limited responsibility for corporate actions, delegate control to managers, and grant employees little voice within the firm.
This creates a distinctive incentive problem rooted in the corporation’s dual nature. A corporation is an autonomous legal person that can own and transact assets, yet – unlike other legal persons and more like an object – it can itself be owned and traded (Iwai, Reference Iwai1999).
This person–thing duality gives rise to two distinct perspectives. As a legal person, the corporation is an artificial entity that centralises decision-making, bears independent liability, and shields investors from personal obligations. It operates as a unified authority, with its own internal system for allocating rewards and sanctions. As a market object, by contrast, the corporation appears as a nexus of contracts through which individuals pool resources to manage assets more efficiently, giving the impression of a spontaneously formed economic entity.
The creation of a corporation establishes two separate legal relationships. The first concerns the corporation’s ownership and control of its assets; the second concerns shareholders’ rights vis-à-vis the corporation.
In the first relationship, the corporation holds full property rights over its non-human assets, including the surplus generated by their joint use. No one – not even shareholders – may appropriate these assets without corporate authorisation.
In the second, shareholders own only their shares. This does not make them owners or members of the corporation itself. Unlike mediaeval corporations, which were associations of persons (universitas personarum), the modern corporation is an association of assets (universitas rerum).Footnote 17 Limiting shareholders’ liability necessarily requires limiting the powers normally associated with private ownership. These constraints prevent shareholders from exercising control disproportionate to their exposure to risk, thereby protecting other corporate stakeholders (Stout, Reference Stout2005). Maintaining this balance between restricted liability and constrained power is essential to fairness and stability in the corporate system.Footnote 18
Over time, two significant institutional frameworks have emerged to mitigate the risk of corporations being reduced to mere objects subject solely to shareholder whims, thereby making them more compatible with democratic principles. One framework was developed in the United States, while the other took shape in Europe (Belloc and Pagano, Reference Belloc and Pagano2013; Landini and Pagano, Reference Landini and Pagano2020; Millhaupt and Pistor, Reference Milhaupt and Pistor2008; Pagano, Reference Pagano2012). These distinct historical trajectories reflect the political conflicts that have shaped American and European corporate governance.
Before the Second Industrial Revolution, the United States had confronted the old European aristocracy and Southern slave-owning farmers through two significant conflicts. The expansion of large firms unfolded within a strong democratic framework. Early antitrust authorities scrutinised substantial block holdings with suspicion, resulting in the enactment of the 1890 Sherman Act and the 1914 Clayton Act. Later, F.D. Roosevelt further addressed blockholders’ dominance by dismantling corporate pyramids through strategic fiscal policies.
This ‘exceptional’ early dispersion of capitalist interests diminished the necessity for strong unions and social democratic parties, fostering a dispersed equilibrium. This equilibrium promoted investment in managerial skills while offering minimal incentives for owners – who diversified their investments – to focus on enhancing their firm’s control capabilities. The lack of family control and extensive managerial hierarchies further facilitated corporate growth. Ownership dispersion and management independence enabled corporations to make commitments beyond shareholder interests, transforming them from mere assets to entities capable of considering broader stakeholder perspectives.
With Switzerland’s possible exception (Belloc and Pagano Reference Belloc and Pagano2013; Vatiero, Reference Vatiero2017), European countries followed a different path during the Second Industrial Revolution. Aristocratic privileges persisted, and no democratic authority could limit capitalist dynasties’ power. A social-democratic reaction emerged, leading to a concentrated equilibrium. This model provided strong incentives for owners and heirs to invest in firm management,Footnote 19 while employment protection created conditions for firm-specific worker investments. Unions gained significant corporate influence. In Europe, the business corporation’s ‘personality’ was preserved through family dynasty identification and union countervailing powers. The German codetermination system exemplifies this approach.
Alternative ‘anti-degenerative medicine’ included state and regional share ownership. In Italy, China, Singapore, and other countries, major corporations are state-controlled. Constrained by market competition and embedded in national institutions, the business corporation offered a framework making capitalism more inclusive. During the three decades after World War II – the ‘golden age of capitalism’ – corporations functioned often as legal entities with shared internal rules and corporate culture, allowing some workers to identify with them.
In their influential book The Modern Corporation and Private Property, Berle and Means (Reference Berle and Means1933) argued that managerial hierarchies operated largely independently of shareholder control. Corporations were governed by sophisticated rules that centralised private market transactions while internalising functions once handled by the state, such as rule-making and dispute resolution. Although corporations were both legal persons and market objects, the emphasis was on their legal personhood, with many serving as repositories of human capabilities and unique corporate cultures.
Until the 1990s, capitalism featured diverse corporate models that shared a key inclusive characteristic: corporations employed large workforces within hierarchical structures marked by pay inequality and union conflicts, yet many employees were able to share in organisational productivity gains – a feature that changed dramatically in subsequent decades.
Intellectual monopoly capitalism: a feudal regression?
This moderately inclusive model dramatically transformed with the emergence of intellectual monopoly capitalism. Rooted in institutional changes during the 1980s and 1990s – originating in the United States before spreading globally – this new paradigm enabled production decentralisation to satellite firms, systematically excluding workers from productivity benefits.
A profound asset transformation accompanied this shift. The proportion of tangible assets among the top 500 non-financial corporations plummeted from over three-quarters to less than a quarter. Legislative milestones such as the 1980 Bayh-Dole Act and the 1994 TRIPs Agreement – negotiated under pressure from multinational corporations (Rodrik Reference Rodrik2018; Sell Reference Sell2003) – facilitated unprecedented intellectual property privatisation.Footnote 20 Corporations were still an association of assets (universitas rerum). However, the nature of these assets had profoundly changed. This legal framework enabled corporations to generate financial claims across an expanding range of intangible assets, fundamentally restructuring corporate value creation and distribution mechanisms.Footnote 21
Intellectual monopoly capitalism deepens socio-economic divides (Pagano, Reference Pagano2014). Some firms enter a virtuous circle of intellectual property and capabilities, while others remain trapped in a vicious cycle: lacking property rights limits technological development, and weak technological capabilities prevent rights acquisition. Beyond these initial mechanisms, established intellectual monopolies with extensive property networks can exploit innovations from smaller firms, rendering them profitable only within controlled knowledge domains. These large entities not only outsource production to low-wage providers but also delegate innovation segments to external actors (Rikap, Reference Rikap2021).Footnote 22
Intellectual monopoly capital differs from the standard forms of market monopolisation analysed by Baran and Sweezy (Reference Baran and Sweezy1966).Footnote 23 Instead, it is more closely connected to the monopolisation of working knowledge and the labour-capital relations explored by Braverman (Reference Braverman1974). Harry Braverman argued that, following the scientific management approach introduced by Frederick Taylor (Reference Taylor1911), managers appropriated knowledge of the labour process and reorganised it into narrow, repetitive tasks, thereby deskilling workers’ jobs. This allowed management to monopolise knowledge, increasing their control over and exploitation of labour. Intellectual monopolisation advanced this process further. Knowledge itself became a legal monopoly, and all knowledge produced by workers within the corporation was claimed as corporate property. Intellectual monopoly – later reframed as intellectual property – emerged as the most important asset of large corporations. Intellectual monopolisation transformed firms’ internal hierarchies into asymmetric market relations. Leading corporations evolved into financially driven intellectual monopolies with reduced workforces, displacing employees to peripheral suppliers and intensifying wage disparities between core firms and their subsidiaries.Footnote 24
The financialisation of the economy has evolved alongside the rise of intellectual monopolisation. This process has not only led to the creation of vast amounts of fictitious yet highly lucrative capital assets that are indirectly tradable on financial markets but has also supported the development of a distinct financial system. On one hand, intellectual property rights (IPRs) and other intangible assets make for poor collateral, thereby limiting traditional bank lending (Pagano, Reference Pagano, Avgouleas and Donald2019b) in favour of equity-based financing. On the other hand, the monopolistic rents derived from these assets offer relatively stable investment returns – especially when investment vehicles are structured to dynamically adjust to fluctuations in corporate valuations.
This dynamic has been strategically exploited by a small number of major asset management firms – such as BlackRock, Vanguard, and State Street – that control the administration of enormous volumes of financial assets (Volpi, Reference Volpi2024). While the complementarity between knowledge monopolisation and financialisation is evident in established firms, the interconnection between financial valorisation (i.e., the value of a company’s shares) and real valorisation (achieved by creating new intangible assets) also occurs at a very early stage. This is particularly true when venture capital funds a start-up and seeks to balance the expected value of the company’s shares with the new intangible assets created through the monopolisation of knowledge (Kampmann, Reference Kampmann2024).
The concentration of financial power has increased pressure on short-term profits and the market valuation of firms. Because passive finance automatically increases demand for shares when their value rises, this amplifies rewards for managers whose compensation is tied to shares and stock options. As a result, corporate structures have evolved to rely heavily on proprietary knowledge and to cut labour costs by outsourcing large parts of the value chain to peripheral firms.
Financialisation is not merely a byproduct of knowledge privatisation – it also reinforces it. As economies become increasingly finance-driven, firms are incentivised to commodify intellectual capital (Pagano, Reference Pagano, Avgouleas and Donald2019b). Unlike public or individual knowledge, monopolised knowledge can be converted into financial assets, making it tradable on markets. The dominance of privately held knowledge enables cheaper financing, closely linking financialisation and knowledge commodification.
Financialisation, which has co-evolved with intellectual monopolisation, has altered the balance between financial and labour income. A certain group of individuals is now characterised by a similar ratio of labour and financial income – a circumstance that Berman and Milanovic (Reference Berman and Milanovic2024) have termed Homoplutia.Footnote 25 This results from two distinct effects of financialisation.
The first effect concerns the expansion of relatively safe assets,Footnote 26 made possible by the monopolisation of the economy. As a result, an increasing number of employees invest substantial amounts in financial assets.
The second effect stems from the increasing pressure to maximise profits, leading to managers being rewarded not only with high salaries but also with stocks or stock options. Consequently, they often accumulate wealth through a combination of labour income and equity ownership. In particular, the founders of successful new monopolies typically retain substantial minority stakes – often with dual- or multiple-voting rights – while simultaneously earning high executive salaries (Trento, Reference Trento2026).
Intellectual monopolisation and financialisation caused a degeneration of corporate personality. In Anglo-American corporations, financial pressures drove managers to treat companies as mere assets, prioritising shareholder value over stakeholder commitments. European family dynasties faced similar challenges, tempted to sell assets to raiders. Weakened unions and declining social democratic parties further reduced resistance to these opportunistic strategies. State-owned enterprises, especially amid widespread privatisation, confronted analogous pressures.
The evolution from national to global monopolies, rebranded as intellectual property rights, has created a profound imbalance. Historically, intellectual monopolies granted by national states differed from tangible property rights. States sought to balance patent incentives for innovative investments against potential drawbacks: high prices, blocked innovative investments, and the threat of patent trolls designed to impede competitive innovation.
Global intellectual property rights enforcement, touted as essential for international trade, revealed a critical paradox. While national authorities could expropriate tangible property, such as houses, for public purposes, they lacked similar power over patents – even when these patents obstructed public health or hindered vital innovations.Footnote 27 Globalised monopolies were assimilated into standard property, and curtailing their power faced great difficulty even in exceptional circumstances such as the recent pandemic.
Corporate monopolistic power concentration drives global economic stagnation. Reinforcing monopolies produces two contrasting effects: immediate innovative investment incentives triggered by anticipated future monopoly profits, and subsequent negative consequences from increased risks of future innovations being constrained by established monopoly rights. Investment trends over three decades validate this forecast: an initial surge followed by crisis after the 1994 TRIPs agreement. A marked global investment increase occurred for roughly five years, subsequently giving way to continuous decline. This downward trajectory persisted through the early 2000s, ultimately converging with the 2008 financial crisis and global economic downturn (Pagano and Rossi, Reference Pagano and Rossi2009).
Intellectual Property Rights (IPRs) create restricted investment opportunities and heightened inequality, which is particularly devastating for less developed countries. Collaboration between corporations and governments has transformed IPRs into global mechanisms resembling tariffs – but with broader reach. While traditional tariffs limit goods imports, IPRs now restrict production across firms and nations, reshaping the international division of labour by preventing countries from specialising in domains where they lack IPR ownership (Belloc and Pagano, Reference Belloc and Pagano2012). Nations and corporations that control extensive intellectual property portfolios gain powerful economic advantages, giving rise to a new form of colonisation. Unlike earlier empires, which owned physical infrastructure, today’s monopolies control the infrastructures of knowledge.
The relationship between core nations and intellectual monopolies is complex. Their decentralised, monopolistic operations have fuelled populist backlash, yet national security concerns mandate a special relationship. These firms often become exclusive providers of quasi-secret patents recognised for priority but concealed until deemed strategically necessary (Pagano, Reference Pagano2023). The convergence of military and commercial rivalries intensifies the risks inherent in intellectual monopoly capitalism. An increasingly perilous landscape emerges where military and commercial competition become deeply interconnected. Artificial intelligence (AI) represents the most powerful dual-use technology to date, epitomising these risks and demanding a more sophisticated approach to disarmament (Kissinger et al., Reference Kissinger, Schmidt and Huttenlocher2022).
While automation in earlier eras often resulted in the elimination of jobs, the machines themselves did not develop in skill or intelligence; they simply replaced human labour with mechanical efficiency. These technologies displaced workers but did not actively learn from them. In the Digital Era, however, the relationship between humans and machines has shifted in a profound way with the rise of AI. What distinguishes this moment is the capacity of AI systems to learn and improve continuously. Small, seemingly insignificant human interactions accumulate into vast datasets that enable AI to outperform humans in an increasing number of specialised domains. Central to this transformation is the emergence of self-modifying AI algorithms: systems capable of processing data from countless sources and autonomously adjusting their own rules. Unlike earlier technologies, which remained static until manually reprogrammed, AI-driven algorithms evolve continuously, fine-tuning themselves in ways that push the boundaries of human oversight (Mulligan and Godsiff, Reference Mulligan and Godsiff2023: 10).
The rapid expansion of machine learning and artificial intelligence reinforces Braverman’s analysis of worker de-skilling and the monopolisation of knowledge, while giving newly troubling meaning to Marx’s statement that ‘Capital is dead labour, that, vampire-like, only lives by sucking living labour, and lives the more, the more labour it sucks’ (Marx, Reference Marx1894, Vol. I, Chapter 10, Section Introduction). Under intellectual monopoly capitalism, AI does not merely replace human labour but actively extracts knowledge, expertise, and even patterns of thought. These human capacities are transformed into proprietary resources that fuel capitalist accumulation, deepening asymmetries of power while raising urgent questions about control, autonomy, and the future of work.Footnote 28
Much AI development concentrates within a few privately owned cloud platforms, creating hierarchical relationships between algorithm developers and platform-dependent firms (Rikap, Reference Rikap2025). AI-driven corporations can advance shareholders’ goals through non-human management systems that align perfectly with profit motives. These self-improving algorithms pose unprecedented risks, potentially harming stakeholders in ways previously unimaginable.Footnote 29 In the AI era, robust ex-ante and ex-post monitoring of corporate systems becomes crucial to protect broader societal interests.
Conclusion
Much like in the Middle Ages, we live in a world where non-state corporate bodies wield immense power. The idealised vision of capitalism – characterised by centralised state lawmaking and decentralised markets, as envisioned by classical legal and economic theory – has never accurately reflected reality. Rather, it has served as a kind of (dis)utopian ideal. The gap between this theoretical model and actual economic practice has only widened over time, particularly with the growing autonomy and scale of business corporations. Modern corporations engage in internal rule-making and consolidate many market transactions, increasingly taking on the role of coordinating and directing human activities. While Coase demonstrated that firms could internalise market transactions and Fuller argued that they could substitute for the rule-making functions traditionally exercised by the, state, contemporary business corporations have advanced further by structuring markets under their own quasi-judicial authority. Digital platforms, in particular, have played a pivotal role in facilitating the monopolisation of information flows pertaining to both suppliers and consumers. Simultaneously, feedback mechanisms have been strategically leveraged to intensify reputational incentives among suppliers, thereby reinforcing platform control. Within this framework, the notion of monopolisation assumes a qualitatively distinct dimension: it no longer pertains solely to market dominance in terms of share or scale but rather to the monopolisation of the very organisational infrastructure of the market. This structural capture aligns digital platforms less with conventional monopolies and more with the historical logic of early chartered colonial corporations – entities that did not merely participate in markets but actively constituted and governed their institutional architectures. The regulatory and adjudicative capacities of nation-states have proven comparatively limited when juxtaposed with the expansive transnational reach of large corporate entities, and a new form of legal pluralism characterises the global economy.
However, unlike states – where citizens can vote – or free markets – where individuals can ‘vote with their feet’ – corporations lack comparable sources of democratic legitimacy. They do not benefit from the identification mechanisms of states or non-profits, nor are they driven by the same incentive structures.
Legal measures such as antitrust regulations and efforts to democratise corporate governance have sought to address this legitimacy deficit in different ways. By either dispersing power between owners and workers or balancing their concentrated influence, these efforts aim not only to enhance democratic accountability within corporations but also to ensure that corporate power remains compatible with political democracy. Without such a balance, the disproportionate influence of major corporate shareholders threatens to destabilise democratic institutions. The last three decades have witnessed the disruption of these arrangements.
Contemporary business corporations, frequently reinforced by their associated philanthropic foundations, exert considerable economic and political influence. The hierarchical dynamics between monopolistic entities and their subordinate counterparts increasingly resemble those of feudal overlords, vassals, and serfs, thereby lending theoretical support to concepts such as ‘information feudalism’ (Drahos, Reference Drahos2002), parallels with ‘agrarian societies’ (Pagano, Reference Pagano, Cafaggi, Nicita and Pagano2007), and the emerging notion of ‘techno-feudalism’ (Durand, Reference Durand2020; Varoufakis, Reference Varoufakis2023). However, critical distinctions exist. While mediaeval corporations were cohesive bodies guided by shared ideological missions, modern corporations display a dual nature: they are both legal persons and tradable financial assets. Contemporary business corporations increasingly operate as financial instruments based on intellectual monopolies and weakly connected to their own workforce, which they often exploit indirectly through dependent satellite firms.
By turning knowledge into private property, corporations have profoundly altered the balance between monopolised and publicly accessible knowledge, thereby reshaping market dynamics. Open markets depend on widely shared knowledge. In late feudalism, universities – organised as autonomous corporations – helped establish open science and expand the knowledge commons, supporting competitive markets. Intellectual monopoly capitalism represents both a return to quasi-feudal hierarchies and a break with this mediaeval tradition of open science.
As corporations have monopolised knowledge and outsourced production, they have become wealthier, more exclusive, and more politically powerful. The 2011 US Supreme Court ruling granting corporations expansive political speech rights greatly amplified their influence over elections and legislation, treating them as ordinary associations while ignoring limited shareholder control and limited liability. This decision overturned a long American democratic tradition, articulated by Theodore RooseveltFootnote 30 and codified in the 1907 Tillman Act, which prohibited corporate campaign contributions to protect political equality. As Justice Stevens (Reference Stevens2010, 43) wrote in his minority dissenting report to the Supreme Court 2011 decision, ‘The Act was primarily driven by two pressing concerns: first, the enormous power corporations had come to wield in federal elections, with the accompanying threat of both actual corruption and a public perception of corruption; and second, a respect for the interest of shareholders and members in preventing the use of their money to support candidates they opposed’. The right of corporations to speak out exacerbates both problems. Both democracy and corporate efficiency have suffered. Democracy has turned out to be the best tool for rich and powerful individuals, through control of corporations, to gain political power and further increase their wealth. While many corporations have benefited from rent-seeking activities, the corporate system as a whole has become less efficient. Political power, influenced and corrupted by corporations, has failed to implement fair industrial policies, enforce antitrust laws, and promote competition.Footnote 31
The growth of business corporations has become increasingly tied to military procurement, as many modern technologies are inherently dual-use, serving both civilian and military purposes. This dynamic also generates conflicts between distinct capitalist superstructures: whereas corporate political influence once tended to reinforce a single national institutional order, intellectual monopolies today actively intervene across borders – shaping foreign regulatory frameworks, political processes, and technological infrastructures in ways that pit rival configurations of corporate power and state authority against one another. The rise of intellectual monopolies has reinforced adversarial relations among nation-states, operating like a global system of high tariffs that protects domestic industries while restricting rivals’ technological and military capacities. Military secrecy is therefore not a side effect but a structural feature of intellectual monopoly capitalism. It operates as a central mechanism that sustains both the growth and stability of this system.Footnote 32
Intellectual monopoly capitalism is increasingly intertwined with economic protectionism and militarisation. The historical model of open science and competitive markets that emerged in the late mediaeval period is being progressively displaced by entrenched alliances between corporate actors and state institutions. This transformation has fostered neo-feudal tendencies that weaken international cooperation and erode democratic governance.
Contemporary business corporations – especially large technology firms – have moved even further by structuring markets under forms of quasi-judicial authority of their own. Their role in monopolisation now extends beyond dominance in market share or scale to the control of the very organisational and institutional infrastructure of markets. In this respect, they resemble less the classic monopolies of industrial capitalism than the early chartered colonial corporations, which did not merely operate within markets but actively constituted and governed their rules and structures.
Addressing these developments requires a fundamental rebalancing of political and economic power, as well as much tighter international cooperation to promote open science and open markets and to curb the growing concentration of control over knowledge caused by intellectual monopoly capitalism.
Acknowledgements
I thank Cecilia Rikap, Katharina Pistor and nine anonymous referees of JOIE for useful comments.
Open access
