Reforming the Law of Capitalism with Katharina Pistor
Episode Summary
What if decades of debate about capitalism have been conducted at the wrong level? Most critiques of markets focus on outcomes, inequality, environmental damage, stagnant wages, and most reform proposals reach for public law to fix them. Katharina Pistor's argument, developed in The Code of Capital and now extended in The Law of Capitalism and How to Transform It, is that both the diagnosis and the cure have been misaimed. The outcomes are downstream of private law: the contracts, property rights, and corporate structures that code wealth upward while remaining largely invisible to democratic politics.
Host Matteo Gatti brings his own thesis into direct dialogue with Pistor's. His book Corporate Power and the Politics of Change documents what happens when political gridlock pushes corporations into the governing role. Pistor's book goes one level deeper — asking why the legal system is built to concentrate private power in the first place, and why public law interventions keep failing to change that. The conversation moves from structural diagnosis through a series of concrete reform proposals, none of which require an act of Congress.
Katharina Pistor is the Edwin B. Parker Professor of Comparative Law at Columbia Law School, a Fellow and Research Member of ECGI, and the author of the bestselling The Code of Capital (Princeton University Press) and The Law of Capitalism and How to Transform It (Yale University Press).
Matteo Gatti is Professor of Law at Rutgers Law School, where he writes on corporate power, governance, and political economy. He is a Research Member of ECGI and the host of this podcast.
Key Topics Covered
Capitalism as a Legal Regime, Not an Economic One Pistor's foundational claim is that capitalism cannot be understood without the legal infrastructure that constitutes and reconstitutes it. Limited liability for investors, enforceable contracts, credible commitments that are scalable at the national level — none of these are features of markets as such; they are products of legal choices. The implication is not merely descriptive: if capitalism is a legal construction, then its distributional consequences are not natural outcomes of talent and effort but the result of choices embedded in private law that could, in principle, be made differently.
Three Mechanisms That Allow Capitalism to Reproduce Itself Pistor identifies three structural features that allow capitalism to reconstitute itself even against regulatory pressure. The first is private legal empowerment — the combination of property rights, freedom of contract, and constitutional protection that allows private actors to use law proactively to create and protect wealth. The second is access to centralised coercion — private actors do not merely submit to state power; they litigate to shape the rules, especially in common law jurisdictions where case law is made incrementally. The third is legal arbitrage — since no law can fully anticipate future contingencies, those with the resources and expertise to navigate multiple legal systems can always select the most favourable rules, creating a structural advantage over those who cannot.
Why Public Law Reform Tends to Fail The historical pattern Pistor documents — from New Deal regulation through post-war capital controls through modern financial regulation — is that public law interventions are systematically outpaced by private law workarounds. Impose capital constraints, and you get currency swaps. Regulate banks for systemic safety, and shadow banking emerges outside the regulated perimeter. The lesson is not that regulation is pointless but that regulatory reform without attention to the private law substrate will consistently be arbitraged away. This is what distinguishes Pistor's framework from most reform proposals: the target is the code, not the conduct.
The Capabilities Approach as Normative Anchor Rather than proposing abolition of property rights or contracts — which she regards as essential to decentralised governance in complex economies — Pistor draws on Amartya Sen and Martha Nussbaum's human capabilities framework as an alternative normative foundation for private law. The appeal is strategic as much as philosophical: the principle that every person has the right to live the life they have reason to value is hard to reject on its face, which means it can bring a broad coalition behind it. But Pistor notes a deliberate "Trojan Horse" quality: once you accept that principle, you have to ask who is obligated to create the conditions for it — and the answer cannot be limited to the state, since the state is itself embedded in the capitalist system.
Limiting Legal Personhood for Corporations A concrete implication of the capabilities approach is that capabilities are human capabilities. Pistor argues for limiting the extent to which legal persons — corporations — can claim the same legal protections as natural persons. This would mean restricting corporate property protections relative to human ones, denying corporations First Amendment-style spending rights, and refusing to extend religious rights to them. The principle is that companies and organisations should be understood as being in the service of human flourishing, not as ends in themselves.
Limiting Arbitrage Without Throwing Out Self-Governance The conversation directly addresses the obvious objection: if legal arbitrage is structural, won't any new rule simply generate new workarounds? Pistor's answer turns on a distinction between complex regulatory mandates — which are slow, politically costly, and easy to game — and simple red-line rules whose legal effect is non-enforceability rather than prohibition. The model she points to is the treatment of speculative contracts (wagers) under historical common law: not criminalised, not regulated, but simply unenforceable. Courts were not asked to police complex conduct; they were asked a binary question — does this contract harm the capabilities of those affected? If yes, we will not enforce it. This shifts leverage without requiring comprehensive regulatory architecture.
- The precautionary principle in tort — Pistor proposes inverting the burden of proof where there is a credible risk of serious harm to public health or the environment: the actor must demonstrate safety, rather than the victim proving causation. She draws the analogy to fraud on the market in securities law, where courts recognised that requiring individual proof of reliance was functionally impossible and adjusted doctrine accordingly. The same logic applies to corporate pollution or data extraction, where harms are diffuse, statistically demonstrable, and causally opaque to individual plaintiffs. Product liability strict standards from the 1960s provide further domestic precedent.
- The clean hands doctrine applied to boilerplate contracts — Pistor revives the equity principle that a party seeking court enforcement must come with clean hands. Applied to the modern reality of click-through agreements — fifty-page terms that users scroll past on digital platforms — the doctrine would render such contracts unenforceable where they are structured to deny meaningful consent. The Delaware Chancery Court already applies an analogous principle in corporate law: a transaction may be formalistically legal under Delaware statute yet still be inequitable and therefore unremedied. Extending that logic to mass consumer contracts would change the leverage dynamics between platforms and users fundamentally.
- The European takeover directive's "breakthrough rule" as a model — Rather than harmonising the content of defensive measures across jurisdictions (a project Europe has never completed), the breakthrough rule says: whatever form your defensive devices take, they lose legal effect at the moment a takeover bid is on the table and a shareholder vote is required. Pistor uses this as a template for the broader reform approach — not standardising conduct, but specifying conditions under which legal protection is withdrawn.
Links
- The Law of Capitalism and How to Transform It by Katharina Pistor, Yale University Press (2025)
- The Code of Capital: How the Law Creates Wealth and Inequality by Katharina Pistor Princeton University Press (2019)
- Corporate Power and the Politics of Change by Matteo Gatti, Cambridge University Press (2025)
- Reconstituting the Code of Capital: could a progressive European code of private law help us reduce inequality and regain democratic control? by Martijn W. Hesselink, European Law Open (2022)
- Commodity Futures Modernization Act of 2000
- EU Directive 2004/25/EC on Takeover Bids
-
EU Product Liability Directive, Council Directive 85/374/EEC
Other Episodes
- The Limits of Private Sector-led Reform with Mark Roe - ep. 6 in Corporate Power and the Politics of Change with Matteo Gatti
Corporate Power and the Politics of Change is an ECGI podcast. All episodes are available on the ECGI website and wherever you listen to podcasts, including YouTube.
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