3.2.3 Law and markets

The Maya people of Belize have lived on the land for about 3,000 years, long before Spanish explorers and British colonists arrived. They shared the land for farming, housing, and culture, without a concept of land ownership.

After Belize gained independence in 1981, the state issued oil exploration licences on Maya land. The Maya disputed the licences, arguing that their long use of the land gave them legal property rights. But the government disagreed, claiming the land belonged to the state.

The Maya eventually won a legal battle, confirming their land rights in both international and local courts. But such cases are not always, or even frequently, resolved in favour of indigenous communities. Powerful individuals, businesses and states often abuse laws to take land for their own profit. Even after their victory, Belize has not followed the court's ruling, showing how hard it can be to enforce laws when it is the state who breaks them.

Laws define property rights and affect who benefits from economic activities that involve capital assets. Markets need laws to function, but they can be created and abused to maximise profits in capitalist economies. Understanding the role of law can help us change it to support more regenerative economies.

Laws are rules for human behaviour and relationships, created and enforced by authorities like the state. There are different types of laws with different roles:

• criminal laws: deal with actions that harm others, like theft or assault, to protect people and uphold rights. Breaking these laws can lead to fines or prison;

• civil laws: deal with relationships between people and things, such as contracts, worker rights, and liability, the legal responsibility for something. Civil laws create trust for people to make agreements, and help resolve broken agreements or accidents;

• constitutional laws: define government structure and protect basic rights, like free speech. They limit state power and protect individual freedoms.

• administrative laws: regulate how state organisations operate and handle issues like protecting ecosystems or public health.

• customary laws: are traditional rules followed by specific communities and passed down through generations.

As societies change, laws evolve too. Changes in culture, technology, science, and politics influence the law. Laws also shape social norms, making legal reform a key way to change social behaviour and values.

Some ways that laws enhance freedom in markets include:

• protecting private property: markets depend on private property, which laws protect. Something can only be bought or sold if the seller owns it. Even services, like hairdressing, involve selling labour. Laws define what can be owned as property and protect the rights and responsibilities of ownership;

• creating trust: many market exchanges involve risk. Legal tools, like contracts, allow people who don’t know each other to trust that others will follow through on agreements;

• balancing power in markets: laws protect consumers from harm, like pollution. They can also promote fairness, like antitrust laws that stop large businesses from abusing market power through colluding with other firms to raise prices or other activities that abuse power. For example, in August 2024, a U.S. court found Google guilty of using unfair tactics, like paying to be the default search engine, to maintain its 90% market share. Limiting market power abuse helps increase freedom for most people.

Property rights are the legal ownership and control over resources and goods. These rights include the ability to possess, use, and control property, like living in, furnishing, or painting an apartment you own. They also allow you to transfer ownership by selling or giving it away or to exclude others from using the property.

How property is defined depends on the legal system, but some common types of property include:

There is a big difference between real or personal property, and intellectual property. With physical goods like land, buildings, or bikes, one person’s use of the property can reduce another’s ability to use it. For example, if you are riding a bike, someone else can’t use it (unless it’s a tandem!). Economists call these goods rivalrous because they cannot easily be shared at the same time. Physical goods are also excludable, meaning you can prevent others from using them, like locking up a bike. Private goods are both rivalrous and excludable and you can rent or sell them to earn money.

Laws can turn ideas into property, making them a capital asset. Legal scholar Katharina Pistor calls this process coding capital (encoding into law) meaning that the law declares something as private property, allowing someone to own it and make money from it. A patent is one way to code ideas into capital. It gives legal ownership of an idea for a set time, allowing the owner to profit. Many ideas, like the light bulb (Figure 8), the Coca-Cola bottle design (Figure 7), or a COVID-19 vaccine (Figure 9), have been patented.

Pistor explains that almost anything can be coded as capital, but we must be cautious. Coding changes how we view and value things, which things are appropriate to be bought and sold. Coding new forms of capital also gives power to some groups to profit from them and may deny access to others. So coding capital is an ethical issue, explored further in Section 3.2.5.

Property rights are so common that many people see them as a natural part of society. But laws have been created by humans, and may reinforce power and inequalities.

Land

Laws can strengthen individual or business market power by deciding how resources are owned and used. An important historical example is the Enclosure Movement in England. Before the 16th century, villages shared land for grazing animals and growing crops, known as the commons. But in the 16th century, the English state passed laws allowing wealthy, politically-connected landowners to enclose these common lands, turning them into private property. Landowners first fenced off the land, excluding commoners, and the law coded land as a capital asset for the rich and powerful.

Similarly, European states used their military power and their laws to seize land in Africa, Asia, and the Americas, known as colonisation. They imposed their legal systems, ignoring existing indigenous use of land. Colonisers claimed large areas, took natural resources, established plantations, and enslaved people. Even human beings were treated as capital, used to generate wealth for the colonisers. European colonists made enormous profits, while indigenous communities were enslaved, displaced, or killed. This abuse of power continues today, as seen in Belize, where the Maya's land use was threatened by the state's oil exploration licences.

Ideas

The law reinforces market power not only by controlling land, but also by enclosing ideas through intellectual property rights, like patents, copyrights, and trademarks. These laws give creators and inventors exclusive rights to sell and profit from their ideas and inventions to encourage innovation. But there are questions about how far these rights should go.

Legal personhood is a legal status that treats a business as a legal entity separated from the shareholders/owners. Like a person, businesses that have the status of legal personhood can own property and enter contracts. They also have standing, which means they have the legal authority to sue or be sued in a court.

One benefit of legal personhood for businesses is limited liability. This means if a business goes bankrupt or faces a lawsuit, shareholders or owners are only responsible for the money they invested. They don’t have to use their personal financial assets to cover the business's debts or penalties. This encourages more investment, especially on a large scale.

Concept: Power

Skills: Thinking skills (transfer, critical thinking)

Time: varies, depending on option

Type: Individual, pairs, group?

Option 1: Video on coding capital

Time: 30-40 minutes, including some discussion

• Watch Coding Land & Ideas | The Laws of Capitalism Episode 1, a video from the Institute for New Economic Thinking about the ideas presented in Section 3.2.3

• There is a natural break in the video at minute 13:22 when Pistor moves from discussing coding land to coding ideas. This is a good point to check for understanding of the first part of the video, before moving on to the second part.

• Consider the following questions either individually, in writing or as a verbal reflection, or discuss with a partner, small group or class

  • How does ‘coding’ something as capital change the way society values it?

  • How does ‘coding’ something as capital change the relationships between people who use the thing that has been coded? How has power shifted?

  • What does ‘coding’ capital have to do with capitalism? (See Section 3.2.1 if you have not already read it).

  • Entrepreneurs and businesses are often seeking to code even more things as capital. Do you think we need more coding of capital in society or less? Why?

• How one man fought a patent war over turmeric - this story from National Public Radio (NPR) in the US tells the story of Dr. Raghunath Mashelkar who discovered that U.S. scientists had patented turmeric's wound-healing properties, a practice long known in India. Outraged by the company trying to limit turmeric’s use through the patent, Mashelkar set out to challenge the patent and protect this traditional knowledge. Difficulty level: easy

• The Road to Freedom (with Joseph Stiglitz) - a podcast interview with economist Joseph Stiglits that explores different understandings of freedom. He argues that instead of thinking of freedom as freedom from state control, we should be thinking about freedom to, and the role of the state in providing the basic goods and services (food, water, energy, healthcare, education, etc) that enable people to have more choices in their lives. You may want to start the podcast at 4:47 to minimise the podcast duration to ca. 43 minutes. Difficulty level: medium

• Intellectual property is broken - a short video from the Institute for New Economic Thinking, where economist Dean Baker explains how patents are enabling firms to receive unreasonable profits, often at the expense of human wellbeing. He argues for more state funding of research so we don’t have to give firms monopolies. Difficulty level: medium

• Coding Land & Ideas | The Laws of Capitalism Episode 1 - Legal scholar Katharina Pistor explains the idea of coding capital, focusing on how land and ideas have been legally coded as capital assets to build wealth and power for the few. Difficulty level: medium

• Saving the Whanganui: can personhood rescue a river? - an article from The Guardian that explores whether legal personhood can protect the Whanganui River in New Zealand. Difficulty level: medium

• The Theft of the Commons - a long-form essay from The New Yorker about the enclosure movement. Difficulty level: medium

• The village that stood up to big oil – and won - a longform article from The Guardian about the legal battle between local people in the Niger Delta and the fossil fuel company Shell which is responsible for massive oil spills in the region that have devastated the local ecosystem. Difficulty level: medium

Dubner. S. (Host). (2024, April 26) Is our concept of freedom all wrong? [Audio podcast episode]. Freakonomics. https://freakonomics.com/podcast/is-our-concept-of-freedom-all-wrong/

Institute for New Economic Thinking (INET). (2022). Intellectual Property Is Broken [Dean Baker]. YouTube. https://www.youtube.com/watch?v=cJJZUgt8kVM

Pistor, K. (2019). The Code of Capital: How the Law Creates Wealth and Inequality. Princeton: Princeton University Press.

van Bavel, B. (2016). The Invisible Hand. Oxford: Oxford University Press.

Link to Quizlet interactive flashcards and terminology games for Section 3.2.3 Law and markets - in order of appearance

colonist: a settler in or inhabitant of a colony

state: a system that provides essential public services, and also governs and regulates other economic institutions

indigenous community

the original settlers of an area (pre-invasion/colonialism) who have retained their culture apart from colonisers

profit: total revenue minus total cost

property right: the legal right to own a resource and determine how it is used

capital: assets or valuable resources used to generate income

market: a system where people buy and sell goods and services for a price.

profit maximisation: the strategy where a business tries to achieve the highest profit possible

capitalism: an economic system where capital is privately owned, markets dominate, there is competition between businesses and the function is to earn maximum profits for owners of capital

economy: all the human-made systems that transfer and transform energy and matter to meet human needs and wants

regenerate: the process of restoring and revitalising something

criminal law: laws that deal with actions that harm others, like theft or assault, to protect people and uphold rights

civil law: laws that deal with relationships between people and things, such as contracts, worker rights, and liability, the legal responsibility for something

contract: a written or spoken agreement enforceable by law

liability: being legally responsible for something

constitutional law: laws that define government structure and protect basic rights; they limit state power and protect individual freedoms

administrative law: laws that regulate how state organisations operate and handle issues like protecting ecosystems or public health

ecosystem: the interaction of groups of organisms with each other and their physical environment

customary law: traditional rules followed by specific communities and passed down through generations

culture: the beliefs, values, attitudes, behaviours and traditions shared by a group of people and transmitted from one generation to the next

norm: a social rule for accepted and expected behaviour, can be stated or unstated

value: ideas about what is important or good

wealth: the total value (stock) of someone’s assets such as money, house, or investments

social cohesion: the extent to which people in society feel connected to one another and share common values

rule of law: the idea that all people and institutions within a country, state, or community are accountable to the same laws

private property: the ownership of property by private individuals and groups

antitrust law: a law that encourages competition by limiting the market power of any particular firm

market power: the ability of a firm to influence the price of their product in a market, as well as other market conditions

collusion: secret or illegal cooperation in order to deceive others

market share: the portion of a market controlled by a particular business or product

property right: the legal right to own a resource and determine how it is used

real property: land, buildings and other types of non-mobile assets

personal property: tangible property that you can see and touch like a bike, and intangible property that you cannot see or touch like stocks in a company

intellectual property: creations of the human mind such as inventions, designs, data, logos, computer code, and others

asset: something that is useful or valuable

tangible property: property that you can see and touch like a bike

intangible property: property that you cannot see or touch, like stocks in a company

rivalrous: goods cannot easily be shared at the same time

excludable: goods where it's possible to prevent others from using it

private good: goods that are rivalrous and excludable, and someone could rent or sell them to earn money

capital asset: assets or valuable resources used to generate income

coding capital: the process where the state declares something as private property through law

patent: the sole right for an inventor to sell and profit from an innovation for a limited time

power: the ability to influence events or the behaviour of other people

ethical: relating to beliefs about what is morally right and wrong

enclosure movement: the process that ended traditional rights on common land formerly held in the open field system and restricted the use of land to the owner

commons: a system where people self-organise to co-produce and manage shared resources.

wealth: the total value (stock) of someone’s assets such as money, house, or investments

colonisation: a process of establishing foreign control over a land area and/or peoples for the purpose of resource use and extraction

copyright: legal ownership of intellectual property with the right to control its reproduction and distribution

trademark: legal ownership of a symbol, logo, word or words that are associated with a business's identity

genetically modified: an organism with genetic material that has been artificially altered to produce a desired characteristic

legal personhood: the ability to have legal rights or responsibilities, like a person

shareholder: a person or organisation that ownes a share, or portion, of a business

standing: the legal right to challenge the conduct of another party in court

limited liability: a legal status in which a person's financial responsibility is limited to a fixed sum, usually the value of a person's investment

investment: money spent for the enhancement of human or physical capabilities

debt: an amount of money owed to an individual or organisation

fossil fuel: a non renewable energy source including coal, oil, and natural gas, formed over millions of years in the Earth's crust from decomposed plants and animals