3. Organizational Law and the Alternatives to Capitalist Firms in Liberal Market Economies

To what extent does organizational law make the existence of alternatives to capitalist firms viable? Many economists express doubts regarding the long-term viability of any alternatives to capitalist firms, including labor-managed firms, mutuals and social enterprises. The property rights structure of these alternatives, they argue, fails to provide participants with the appropriate incentives to maximise the joint surplus, and this leads to chronic under-investment problems that ultimately undermine their long-term chances of survival. This paper argues that this seemingly straightforward justification fails to take into account the essential role of organizational law provisions that constitute alternative forms of business as legal entities and ensure their continuity through the use of a variety of mechanisms. The paper emphasizes the functional value of legal entity status, examines the variety of mechanisms available in selected liberal market economies, and shows that alternatives to capitalist firms are viable when the requisite institutional conditions are present.