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CHAPTER

A Resisting and RegulatingCorporations through Ecologiesof Alternative Enterprise: Insuranceand Electricity in the US CaseMARC SCHNEIBERG

Little ‘r’ republicanism has proven a resilientanimating theme in struggles over corporationsand economic order in the United States, withits producerist visions of economic autonomy,self-governing communities and egalitarian,regionally based, small-stakeholder economies ofyeoman farmers and independent producers.1

Indeed, republican–producerist projects ofreforming and reconstructing American capital-ism have figured centrally in seemingly quitedisparate places, ranging from nineteenth- andtwentieth-century struggles over banking and rail-roads, the agrarian revolts and various strands ofunionism to the local foods movement and evenfaith-based organizing (Goodwyn, 1976; Hattam,1990; Voss, 1993; Berk, 1994; Donohue, 1999;Schneiberg, 2002; Marquis and Lounsbury,2007). As the Table 37.1 suggests, even in theUS, that ‘wellspring of corporate capitalism’, pro-ducer groups, farmers, workers, consumers andpublic officials have been remarkably varied inhow they have worked to contest corporationsand realize republican aspirations for moredecentralized development. These groups havedeliberately sought to reform markets and cor-porations via overlays of organizational control,whether through the regulatory state, in the formof independent commissions or mandatory disclo-sure, or through private governance, ranging fromself-regulatory associations and third-party certi-fication to consumer boycotts and collectivebargaining. They have also used state power todirectly recompose the architectures of marketsand corporations, via anti-trust policies,

corporate charter reform, regulation or even(rarely and briefly) nationalization.

This chapter fills out the table by analysing animportant but less well appreciated strategy for con-testing corporations and reconstructing capitalismalong republican lines: working mostly outside cen-tral states or formal political institutions to recom-pose markets directly by organizing parallelsystems of cooperative, mutual and local/state-owned enterprise. The heart of this strategy is tocomplement, compete with or bypass for-profitstock corporations by self-organization among pro-ducers or consumers and by cultivating enterprisesstructured to serve different constituencies and pur-poses than shareholder value and financial returnsfor a specialized investor class.

I advance three points in the service of a broadercounter-narrative about these alternative forms.First, dismissing cooperatives, mutuals and thelike as relics of a small-town agrarian economylong past or as utopian experiments revived in the1960s, underestimates not only their salience andpersistence in American capitalism, but also howthey stand with the regulatory state, anti-trust andprivate governance as vehicles for resisting corpora-tions and pursing distinctively modern projects ofdevelopment, market-making and revitalization.

Second, worries notwithstanding that coopera-tives and related forms sometimes look increasinglylike corporations as they adapt to market conditionsor incorporate managerial principles, they nonethe-less possess distinct structural features that have letconsumers and producer groups opt out of provisionby corporations and pursue investments in service,

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innovation and improvements that would not other-wise occur (Heflebower, 1980; Hansmann, 1996).Cooperatives and kindred forms eliminate the inde-pendent investor shareholder from the firm. Theynot only unify ownership and some level of formalauthority over the firm with the roles of producer,consumer or citizen. They also substitute a marketexchange and dependence on distal corporationswith an ownership relation, local and decentralizedcollective self-provision and potentials for self-governance. Such features transform relationshipsand incentives among stakeholders and the firm.They shift the purposes and masters served awayfrom shareholder value, eliminating many of themoral hazards associated with investor-ownedfirms, including incentives for stockowners to ben-efit themselves at producers’ or consumers’expense. They tie enterprises instead to the substan-tive economic interests of the consumer or producergroups and communities they serve. Moreover, insupporting business strategies and investments thatcorporations are unwilling or unable to pursue, theycan foster competitive dynamics that drive corpora-tions and markets to new equilibria and create pos-sibilities for decentralized, small stakeholderdevelopment (Schneiberg, 2011).

Third, more fully understanding these dynamicsrequires supplementing organizational-level preoc-cupations with the internal features of cooperativeor local state-owned enterprises with ecologicalperspectives that consider the evolution of alterna-tives as systems of enterprise and their effects assystems on corporations, market dynamics and thestate’s regulatory capacities.

This chapter develops the core argument by pre-senting two cases of the use of alternative enterpriseecologies to resist and regulate corporations in theAmerican economy. The first involves the evolutionof a system of consumer-owned mutual companiesalongside joint stock corporations in the property

insurance industry through the first half of the twen-tieth century. The second involves the mobilizationof municipal enterprise and electrical cooperativesalongside and against investor-owned corporationsin the electrical utility industry. Both cases reflectrepublican–producerist aspirations for economicdevelopment and reconstruction. Both reveal sur-prising leverage for contesting corporations andupgrading markets via organizational diversity andalternative enterprise forms.

1 Mutual Enterprise in PropertyInsurance Markets

The US property insurance industry of the late nine-teenth century through the early twentieth strikinglyresembled contemporary finance in key respects,standing as a system in which firms and share-holders relentlessly pursued short-term gains at pol-icy holders’ expense. The sector and its governanceinstitutions were dominated by national and inter-national stock corporations including Aetna, INA(later Cigna) and the Hartford that were closelylinked and that often closely coordinated their activ-ities via rate-making associations (MerrittCommittee Report, 1911; Reigel, 1916; Wandel,1935). These companies did not make money fromtheir insurance operations via careful underwriting,reducing hazards or otherwise serving clients’insurance needs, but rather from ‘banking profits’derived from maximizing premiums and investingthem in securities and other financial instruments.Stock corporations thus faced powerful incentivesto focus on dense urban areas and large commercialrisks, where premiums were easy to collect involume or values were high, which yielded accu-mulated and correlated risks in cities but unevencoverage that left various regions and risk classesunderserved (Bissell, 1921; Zartmann, 1921).

Table 37.1 Strategies for Contesting Corporations/Reforming Corporate Capitalism

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Reform markets and corporations Classic regulation Private (neoliberal) governance

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Corporations also relied on independent agents andbrokers to sell policies, who were paid on commis-sion, and saw none of the costs of losses on policiesthey wrote. Here, too, key players faced powerfulincentives to maximize premium flows with littleregard to risks, generating complaints about com-missions as a ‘corruption fund’ that induced agentsto lower underwriting standards, waive restrictions,misclassify properties and pass risks, good and badalike, on to the companies (who then passed themon to largely unregulated reinsurance pools).Furthermore, companies treated their actuarialexperiences as proprietary trade secrets and resistedefforts to pool loss data. Failures to pool data leftinsurers without key foundations for estimating losscosts, knowing how far one could trim rates incompeting for premiums, or estimating the level ofrisk piling up in firms’ underwriting portfolios(Dawson, 1921; Parker, 1965). To make mattersworse, stock corporations and their rating bureausproved stubbornly resistant through the 1890s bothto the overall level of losses and to investing inhelping individual insureds reduce losses. This rein-forced disincentives for individual firms, agents andinsureds to invest in loss cost-reduction, while fos-tering a general disregard for hazards associatedwith urban growth and industrialization (Brearley,1916; Wandel, 1935; Heimer, 1985).

Thus, like contemporary finance, the propertyinsurance industry of the turn of the last centurywas organized as a vehicle for generating incomefor investments and produced powerful tendenciesfor high-volume provision with excessive risk-taking, inadequate reserves and accumulating cor-related risks in congested urban districts. Indeed,convergent incentives and underinvestment ininsurance infrastructure left the industry vulnerableto scrambles for premiums and ‘rate demoraliza-tions’ that eroded reserves, amplified underwritingcycles and magnified rather than reduced uncer-tainty for policy-holders and local economies.Insureds frequently experienced rate hikes andinsurance shortages after price wars and large fires(Brearley, 1916). When cities burned, companieslacked the reserves to pay and experienced wavesof bankruptcies that wiped out whole segments ofthe industry, followed by company reorganizations,new cartels and enforcement schemes, steep rate

advances for regions or whole classes of policyholders and protests against the ‘insurance com-bine’ (Bissell, 1921; Oviatt, 1921; Zartmann, 1921).

Consumer, business and farm groups respondedwith a full range of measures: anti-trust prosecu-tions; regulatory schemes that subjected rates andrating associations to state oversight; and privategovernance solutions, including boycotts and col-lective bargaining over rates (Grant, 1979;Schneiberg, 1999). They also organized ‘veritabletidal waves’ of property insurance mutuals from1870 to 1900, yielding at least 3200 insurancemutuals in operation in the first decades of thetwentieth century (Bainbridge, 1952; Schneiberg,2002). This was an alternative system of enterprisestructured along radically different lines than for-profit stock corporations, national markets andinsurance provision for banking profits. Mutualswere consumer-owned enterprises tied to the sub-stantive interests of insureds and their economicneeds as producers and property owners ratherthan the interests of an independent class ofowner–investor shareholders. They were coopera-tive enterprises grounded in strategies of collectiveself-supply and self-organization among pre-existing communities of producers and consumers.They reduced incentives for company owners tobenefit themselves at consumers’ expense by unify-ing those two roles and eliminating the specializedinvestor–shareowner from the firm. And theyconstituted both a dispersed system of insuranceprovision and an infrastructure for realizingJeffersonian, producer–republican aspirations foreconomic order pursued by the Grange, FarmersAlliance and other anti-corporate movements dur-ing the late nineteenth and early twentieth centuriesin their effort to break ‘trusts’ and forge a moredecentralized economy of independent producers,farmers, regional markets and self-governing com-munities (Schneiberg, 2002; Schneiberg et al.,2008).

For Grangers and Alliancemen, corporate con-solidation and Wall Street left the producingclasses degraded and in servitude, dependent andindebted to non-producing sorts – ‘combines’,middlemen, furnishing agents, financiers and‘eastern interests’ – undermining virtue anddepriving producers and their communities

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throughout the west and south of resources forlocal development (Buck, 1913; Bainbridge,1952; Knapp, 1969; Goodwyn, 1976; Nordin,1974; see also Berk, 1994; Voss, 1993). Farmersespecially were ‘fleeced coming and going’, theircommunities ‘starved’ for development resources,and their children at risk of becoming ‘slaves’.The solution was to combine legislation againstmonopolies with programmes of cooperativeenterprise and self-help grounded in the mobiliza-tion of friends and neighbours in local commu-nities and the creation of a ‘cooperativecommonwealth’ of farmers and independent pro-ducers organized into purchasing associations,processing cooperatives, state exchanges, insur-ance mutuals and more. Cooperatives, advocatesargued, would not only break servitude and foster‘a free and independent people’ but also let pro-ducers recapture for themselves and their commu-nities the fruits of the labour and resources fordevelopment. Grangers routinely likened stockinsurers to railroads, advocating mutual responses.

Patrons, you cannot afford to pay those high pre-miums to joint stock companies. Insure yourselvesand keep some money at home. Commercial com-panies wasted seven tenths of the premiums. Thisimmense sum is an annual gift from the hard work-ing people to a set of sharpers who ridicules us forour stupidity while reveling in luxury on our hardearnings. (cited in Kimball, 1960: 45)

Moreover, mutual solutions drew upon andencouraged civic virtues – self-help, diligence andself-discipline within local communities – fosteringresponsibility and self-improvement among policyholders, and even serving as training schools inbusiness methods and democratic management(Knapp, 1969:14; Heimer, 1985). ‘It has alwaysbeen the practice of mutual companies’, a key advo-cate explained, ‘to instruct owners in their duties totheir own properties, and to keep them up to themark by constant supervision’ (Atkinson, 1921:370). Such solutions instantiate self-governingcommunities.

Since the executive committee and all the appli-cants are neighbors and acquaintances . . . no manwith a secure reputation can secure insurance . . .and every policy holder is constantly, as it were,

under the surveillance of its neighbors, who aremembers – many of them – of the same company;consequently the opportunities for fraud are notgood [and] usually results in ostracism for theoffender. (Bissell, 1921: 123)

‘The policyholders, in a sense constitutea family’, another observed. ‘They are boundtogether by neighborly ties, and this almost eradi-cates the moral hazard’ (cited in Schneiberg, 2002:54). Mutuals, in short, were mobilized both as orga-nizational weapons against corporations in strug-gles over prices and service, and as platforms forbroader efforts to reshape American economicorder, to promote economic self-sufficiency andfreedom and to pursue visions of a more decentra-lized and egalitarian republic of farmers, indepen-dent producers and self-governing communities.

Mutual enterprise made great business sense fortheir client consumer–owners, letting them organizean insurance system without the liabilities of for-profit provision and emerging, as much as the cor-poration, as a ‘natural’ organizational product ofcapitalism. Mutuals’ proliferation transformedinsurance market dynamics – and the behaviour ofcorporate insurers – in ways that decisively bene-fited insurance consumers (Heimer, 1985;Schneiberg, 2002; Schneiberg, 2013). Most simply,mutuals directly competed with national stockinsurers and their associations, counter-balancingthe ‘insurance combine’ and tempering corporateexcess –overcharging, onerous terms and poor ser-vice. Based on ties to insureds, elimination of theagent-middleman and distinct operating advantagesin selecting risks and managing losses, mutualsoffered insurance from 25 per cent to as much as75 per cent below stock company rates. In so doing,they made serious incursions in the Upper Midwestand key industrial commercial lines, including tex-tile and grain mills, and forced stock corporations to‘meet the competition’ (Merritt Committee Report,1911; Bissell, 1921; Bainbridge, 1952; Schneiberg,2002). Like regulation and anti-trust, mutuals werea potent check on corporate profit-seeking andcartels.

Furthermore, unlike anti-trust and regulatorymeasures, mutuals also allowed property owners,producers, large industrial concerns and farmers


alike to opt out and effectively bypass the system offor-profit provision by stock corporations (Oviatt,1921; Grant, 1979), avoiding that system’s uncer-tainty-producing dynamics. Mutual companiesrepresented a strategy of backward ‘collective ver-tical integration’ by consumers that eschewed mar-ket relations between consumers and thecorporations in favour of an ownership relation inthe firm and collective, often local self-supply(Heflebower, 1980). Mutuals eliminated indepen-dent shareholder–owners from the firm, along withincentives for firms to chase profits or shareholdervalue at insureds’ expense (Heimer, 1985;Hansmann, 1996). Moreover, as their numbersincreased, mutuals constituted an alternative,decentralized system of provision that was orga-nized to serve insureds rather than the pursuit ofbanking profits. This system introduced institu-tional diversity and redundancy into Americanproperty insurance, enabling property owners tobuffer themselves, their communities and their busi-nesses from the market turbulence, rate hikes, and‘insurance famines’ associated with the investmentstrategies and underwriting cycles produced byprofit-seeking corporations in national markets.Indeed, property owners regularly flocked tomutuals when faced with rate hikes, insuranceshortages or more restrictive claims policies afterrate wars or conflagrations (Schneiberg, 2002;2013). Mutuals also seeded insurance marketgrowth and local development, directly and throughtheir effects on corporate insurers. As producergroups and communities scattered in different loca-tions used mutuals to supply themselves collec-tively with insurance, they expanded provisioninto under-served areas, making insurance marketswhere there had been none, but also signalling richlodes and inducing stock corporations to enternewly developing regions and lines in the Midwestand plains states (Bainbridge, 1952; Hansmann,1996; Schneiberg, 2013). Such dynamics helpedshape American economic development. Propertyinsurance was a condition for credit. Credit wasa condition for industry, commerce and trade. Thismade insurance an infrastructure resource on a parwith banks and railroads, failures to provide steadysupplies of insurance an impediment to economicgrowth (Merritt, 1911; Mowbray, 1946), and

mutuals a spur to development. As Figure 37.1shows, mutuals proliferated regionally, emergingmost heavily in places like Wisconsin, Minnesota,Missouri and Nebraska and creating foundations forcredit and decentralized development in whatbecame the mixed economy regions of the UpperMidwest and plains states. Here, the evolution ofalternative enterprises went beyond counter-balancing corporate excess to create new economicincentives for corporations, foster market growthand thereby support regional development,a productive economy and middle-classcommunities.

Finally, mutuals realigned the incentives firmsand insureds faced regarding hazards and losscosts, dramatically transforming both the competi-tive dynamics of insurance markets and the strate-gies of corporate insurers. Prior to the 1890s, stockcompanies simply underwrote risks ‘as found’ andresisted making investments in prevention or lossreduction, whether by building engineering or test-ing capabilities, installing prevention technologiesor redesigning factory layouts, production pro-cesses or dwellings (Brearley, 1916). Stock insurersconstrued their underwritingmatters in terms of lossand expense ratios and were indifferent to the over-all levels of losses, burning rates and the like so longas they could use their rating associations and salesforces to sustain acceptable ratios of premiums tolosses. To complicate matters, investments in pre-vention were subject to information asymmetriesand had collective goods or transaction-specificproperties (Heimer, 1985). Companies were ata disadvantage relative to policy holders in evaluat-ing hazards associated with particular plants, tech-nologies or processes and the extent to whichinsureds took precautions. In addition, nothing pre-vented policy holders from simply switching firmsafter their insurers invested in developing expertiseor improving the policy holder’s facilities, appro-priating insurers’ investments rather than sharingthose costs via higher rates. Companies were thusreluctant to bear the costs of investment or reducerates when property owners argued they hadreduced hazards, leaving insureds with little reasonto avoid skimping on their own prevention invest-ments and efforts. Nor were such incentives forth-coming where rate wars in competitive lines

516 Marc Schneiberg

decoupled rates from hazards or prompted agents torelax underwriting standards (Merritt CommitteeReport, 1911; Wandel, 1935). Provision based onstock corporations produced powerful disincentivesfor firms or stakeholders to invest in improvementand loss cost-reduction (Bissell, 1921).

Mutuals, in contrast, aligned incentives forinvestments in loss cost-reduction (Heimer, 1985).Mutuals made policy holders the owners of theenterprise and eliminated a role division that letfirms or policy holders try to benefit themselves atone another’s expense, whether by overcharging forcoverage or using confusing policy language todeny claims, or by skimping on prevention andwithholding information about risk. As owners, pol-icy holders could not only use the firm to invest ininspection and prevention technology services formembers of the mutual association, knowing thatthey would capture the payoffs of those investmentsin the form of reduced loss claims. They could alsodirect the firm to support and reward policy holders’investments in prevention via dividends, lower ratesand lower or no assessments. Mutuals established

a quid pro quo of tying rates more closely to docu-mented hazards, passing savings from reducedlosses onto insureds, while refusing to transactwith clients who ‘neglected their duty’ (Atkinson,1921; Heimer, 1985; Hansmann, 1996). Moreover,mutuals derived advantages in pursuing these stra-tegies because members were well known to oneanother, located in the same area or trade andembedded in local networks of mutual monitoringand control. Embeddedness let mutuals assess andselect clients, tap into members’ specialized knowl-edge of factories, production processes and the likeand encourage responsibility among clients theyserved (Schneiberg, 2013). And, as mutualsevolved, they developed sophisticated engineering,research and inspection facilities, worked closelywith insureds to redesign plants and produceda stream of new prevention practices and technolo-gies, letting them capture a range of key insurancelines, including farm risks and large commercialinsureds (Merritt Committee Report, 1911;Atkinson, 1921; Bainbridge, 1952; Heimer, 1985;Schneiberg, 2002).

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Mutuals’ success introduced a new form of riv-alry in insurance markets – competition based onimprovement, consultation and loss cost-reduction,forcing stock insurers and agents to adopt thesepractices (Merritt Committee Report, 1911). Stockcompanies developed their own capabilities both byrebuilding their underwriting operations and bycreating infrastructure organizations – the FactoryInsurance Association for inspecting risks, theUnderwriters Laboratories and the National FirePrevention Associations – which broadly institutio-nalized pricing principles, prevention efforts andquid pro quos that mutuals had pioneered(Brearley, 1916; Oviatt, 1921). Agents likewiseinvested in learning about prevention, becoming‘expert advisers’ to insureds in helping them makeimprovements that would give them the best rate.Along with prevention work by mutuals, theseefforts not only reduced losses for the propertiescompanies and agents insured but also created posi-tive externalities, producing benefits to people whomay not be insured at all, such as the neighbours ofa factory, apartment complex, or retail establish-ment that installed fire prevention measures.Between 1900 and 1940, these efforts combined toyield a roughly 60 per cent reduction in the averageloss cost from fires (Schneiberg, 2013).

Even lawmakers and state officials recognizedmutuals’ benefits for consumers and insurance mar-ket dynamics. In their Progressive Era struggles tocreate public administrative machinery to regulaterates, architects of regulation combined proposalsfor state regulation of stock corporations with mea-sures that cultivated mutual companies and diver-sity within insurance markets (Merritt CommitteeReport, 1911). In effect, producers, consumergroups and officials effectively deployed ‘fourthcell’ strategies of mobilizing alternative enterpriseecologies to resist corporations and reconstruct mar-kets not just alone but also in combination withother strategies.

2 Public and Cooperative Enterprise inElectricity

Few sectors differ as much from insurance as theelectrical utility industry, a capital-intensive,

technologically advanced, ‘network’ industry ofvertically integrated firms. But like insurance, thiswas an infrastructure sector – one providing a goodsufficiently essential for industry and commercethat its availability – and absence – shaped thegeography of development. Like insurance, thiswas a sector dominated by stock corporations, orinvestor-owned utilities (IOUs). Between 1900 and1930, IOUs combined stand-alone utilities into cen-tralized electric networks; secured long-term fran-chises granting them monopolies in most serviceareas; integrated generation, transmission and dis-tribution within corporate hierarchies; and forgeda pyramid of holding companies that concentrated75 per cent of the business into ten power groups(Hughes, 1983; Schap, 1986; Nye, 1990). As ininsurance, relying on corporations to provide infra-structure goods exposed cities and consumers topredatory practices and service failures that acti-vated republican anxieties over centralization anddependence, sparking repeated mobilizationsagainst the ‘power trust’. Here, too, contestantsturned to regulation and anti-trust. States enactedcommission regulation during the Progressive Era,followed by the Federal Power Commission in1920, the ‘death sentence’ effort in Congress todismantle the holding company pyramid and thePublic Utility Holding Company Act in 1935(Funigiello, 1973; Anderson, 1981; McGuire,1989). Here too, cities, business groups and consu-mers also mobilized alternative enterprises, turningfirst to municipal utilities and then to cooperatives,both as organizational weapons against corpora-tions in conflicts over prices and services, and asvehicles for fostering decentralized, locally basedand self-governed forms of more egalitariancapitalism.

Drives formunicipals emerged from local strugglesover electricity markets and municipal reform as oneof two Progressive Era responses to private utilityfailures, predatory corporate behaviour and the fail-ures of franchise regulation to correct those problems(Nord, 1975; Rudolph and Riley, 1986; Nye, 1990;Rodgers, 1998). With IOUs focusing on dense urbanareas to maximize income for their investor–ownershareholders, many American cities received no ser-vice. Those that did issued multiple franchises tocompeting firms to resolve conflicts with utilities

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over prices and service extension. Yet, franchise reg-ulation promoted wasteful duplication, consolidationamong local operators and corruption as utilitiesbribed city officials for franchises (and officialsdemanded pay-offs). Corruption, along with the con-solidation of local utilities into regional holding com-panies, let IOUs escape public control, leading toshoddy service, neglect and high rates –hazards thatdeepened as consolidators saddled utilities withwatered stock and debt to finance system-buildingand utilities passed those costs on via rate increases.

One solutionwas commission regulation, an optionproposed in 1898 by utility magnate Samuel Insullthat was codified around 1907 and ultimatelyembraced by IOUs (MacDonald, 1958; Anderson,1981; McGuire, 1989). Commission advocatesrejected competition as ruinous, arguing that utilitieswere best organized as natural monopolies subject topublic controls at the state level via independentcommissions of experts empowered to regulate ratesand service. This scheme would avoid duplication,counter-balance monopoly with public oversight andrequirements to serve and contain regional consolida-tions beyond municipalities’ reach. State-level solu-tions would also insulate regulation from localpolitics – grassroots democracy, demagoguery andcorruption – a foundation of the utility problem forthis branch of progressivism – ‘taking utilities out ofpolitics’ and subjecting them to public controls thatcombined the rule of law with the objectivity ofscience (Nord, 1975; Rodgers, 1998).

In contrast, municipal advocates eschewed tech-nocratic for republican solutions, aiming instead toreform government and solve problems of privateprovision via local control of infrastructure anddecentralized economic orders of self-owned, self-governing communities (Nord, 1975; Rudolph andRiley, 1986; Rodgers 1998). Municipal advocatesmight concede the case for natural monopoly. Yetthey theorized local politics, control and (public)ownership as the solution, not the source, of theutility problem. Substituting public for private pro-vision would eliminate the franchise rackets andswarms of private utilities that surrounded city gov-ernment, rooting out one source of corruption.Moreover, by lodging control of utilities withcitizen–customers and the local business groupsmost directly affected by utility operations,

municipal ownership would overcome the moralhazards of corporate ownership. It would eliminateindependent investor–owners from the firm alongwith their tendencies to serve themselves at consu-mers’ or cities’ expense, whether by under-investing in electrification, exploiting monopolypower to hike rates, or using utility receipts tofinance speculation and empire-building. Instead,in unifying ownership and control with local con-sumption, municipals would tie utilities to the needsof consumers and local communities, generatingpressures for low rates and improved service andfostering a more democratic and egalitarian republicof self-governing cities.

As a National Public Ownership League presi-dent explained,

municipal enterprise is simply ownership by a largebody of citizens instead of a ownership by a smallbody, many stockholders in place of a few, andequal instead of unequal holdings, whereby thebenefits of industry are more evenly diffused, andthe conflicts of interest between the owners and thepublic is eliminated by making the owner and thepublic the one and the same. (Parsons, 1901: 1)

Municipals can not only promote accountabilityand align incentives for efficiency, according toJohn R. Commons, particularly in smaller cities,where

government lies close the people. The officials areknown to everyone. They cannot retire under theshield of their friends and party councilor. They areaccessible to the complaints of everyone . . . and theresult is a constant effort on the part of officials tomeeting the demand for efficiency and economy.(Commons, 1899, cited in Schap, 1986: 24)

They also, municipal advocate Stiles Jonesstressed, and in stark contrast to centralizing regula-tion in expert commissions, teach ‘citizens self reli-ance and a capacity for self government’. The issuein the debate over reform, he explained, was not just

administrative efficiency, but rather the effect onthe development of the power of self-governmentin the people.. . . Efficiency is a fine thing, buta successful self-government is better. Democraticgovernment in a free city [is a] greater ideal to workto. And democracy plus efficiency is not unattain-able. (Jones, 1914, cited in Nord, 1975; 233–34)


Advocates thus saw in municipal ownership pro-spects for efficient, public-regarding utilities andways to strengthen equality, institutions and habitsof self-rule. Fuelled by reform efforts and conflictsin local markets, municipal electric utilities prolif-erated alongside IOUs from the 1890s through theearly 1920s, peaking at roughly 3000 (seeFigures 37.2 and 37.3). They then fell on hardtimes as IOUs subsumed stand-alone utilities intocentralized electricity networks to exploit econo-mies of scale and waged political war against publicownership to counter economic competition frommunicipals (Schap, 1986; McGuire, 1989). From1922 to 1932, municipal numbers and market sharesrelative to IOUs fell sharply, as corporate utilitiesmerged into inter-regional holding companies, con-solidated control over generation and transmission,and used state regulation, laws limiting municipali-ties’ bonding authority and service areas and moreto undermine municipal utilities’ abilities to expandoperations, raise funds for improvements and other-wise compete. Yet, with-holding companies’increasingly blatant subversion of state regulation,municipals enjoyed renewed support during theNew Deal as anti-utility forces mobilized at thefederal level to preserve public ownership of thenations’waterways, dismantle the holding company

pyramid and construct federal hydroelectric gener-ating plants that gave preference to non-corporateutilities (Schap, 1986; Funigiello, 1973; Nye, 1990;Brigham, 1998). This support rested on a growingcoalition of western progressives, neo-populists inthe Senate, public power advocates, labour and farmgroups including a revived Grange, aspiring regio-nal planners, socially conscious engineers andsouthern agrarians who advocated decentralizationof industry and regional economies. It let munici-pals regain market share relative to IOUs during the1930s, institutionalizing an enduring system of1900 publicly owned utilities that served smallMidwestern cities and urban centres like LosAngeles, Seattle, San Antonio and Nashville.It also sparked the creation of a system of 1000electrical cooperatives, which, like municipals,endured through the current period, providingpower to steadily growing numbers and shares ofelectricity customers.

Cooperatives were a response to the failure ofIOUs to provide power to millions of rural house-holds, and the astonishing under-development thatwas the result. Barely 10 per cent of US farmsreceived power in the early 1930s, and those thatdid paid up to twice the urban rate (TwentiethCentury Fund, 1948: 442; Nye, 1990: 287).

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Electrification rates were low even in relativelyprosperous mixed-economy states like Michigan,Wisconsin and Oregon, where only 12.4 per cent,19.6 per cent and 27.5 per cent, respectively, offarms were connected to the grid in 1934 (REA1940). In the Plains, West and South, matters werefar more dire, with at most 4 per cent to as few as0.9 per cent of farms linked to this foundation ofmodernity in Wyoming, the Dakotas, Texas andOklahoma, Alabama, Georgia, Kentucky,Arkansas, Louisiana and Mississippi. Fearful thatsuch deprivation would fuel massive internal dislo-cation and fascism, Roosevelt’s NewDealers turnedto an electrification programme that was organizedby the Rural Electrification Administration (REA).

The REA first pursued recovery by offering IOUslow-interest loans to build transmission and distri-bution networks to connect farms to the grid.Borrowers would receive the monopoly franchiseand be able to use receipts from power sales as bothcollateral and means to pay off what were essen-tially self-liquidating loans. Yet, IOUs were indif-ferent to rural markets, and conflict with theadministration over holding-company legislationand the TVA led them to refuse the offer.In response, the REA launched a campaign thatinvited rural communities across the country toorganize local cooperatives to do the job, and

supplemented loans with educational services,organizational plans, political cover against IOUcounterattacks and the technical support needed toconstruct, connect and energize power lines.The federal hydropower projects like the TVA andBonneville also served as incubators for coopera-tives, advocating them to communities in their ser-vice areas, and integrating cooperatives intoregional development clusters by providing themorganizational and technical support and grantingthem preference in the sale of low-cost power.

The resulting burst of co-operativism effectivelycombined federal intervention and farmers’ agita-tion for service with republican hopes for decentra-lized development via community self-organization(REA, 1938: vi; Funigiello, 1973; 128–35; Nye,1990: 305–18). The New Dealers’ turn to coopera-tives made state-supported voluntary action themeans for solving utility corporation failures andpromoting regional development, self-consciouslylinking federal activism to traditions of communityself-reliance and democratic self-governance, partlyas a way to deflect fears of statism. ‘Electricalcooperatives carried the spirit of self-help intoa field of monopoly’, the REA explained.

The farmer’s cooperative, the heart of the Federalrural electrification program, is an organized

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Municipals Cooperatives

Figure 3


expression of the neighborly spirit . . . shown atJamestown when the settlers . . . banded togetherto help one another build a home [and] is appliedtoday whenever . . . neighbors unite for a barn-raising [or] any common action is taken for mutualhelp. This spirit of neighborliness, or cooperation,of working together for a common end, lies at theheart of the representative democracy that is theAmerican nation.. . . The rural electrical coopera-tive is an adoption of the principles of democracy tothe economic sphere. (REA, 1940: 55–56, 60)

Here, too, advocates saw in cooperatives ways toovercome conflicts of interests between stock own-ers and the public associated with investor-ownedcorporations, fostering efficiency and aligning uti-lity enterprise incentives with the substantive needsof local communities. In cooperatives, an associa-tion of cooperative report explained:

The people who receive the service are also jointowners. The municipal systems and public powerdistricts, as well as the cooperatives, are locallyowned and locally managed [supporting stronger]pressure from the users for service to fit local needand for efficiencies in management. (Wise, 1965:41–42)

Like mutuals in insurance, mobilizing ‘fourth cell’strategies in this sector profoundly transformed uti-lity market dynamics. Municipals served as ‘the gunbehind the door’, counter-balancing the ‘powertrust’ by competing directly with IOUs in manyservice areas. Even credible threats of organizinga municipal could evoke service improvements andrate reductions, with the onset of constructionprompting rate cuts by IOUs of one-half to as highas two-thirds (King, 1914: 29; Twentieth CenturyFund, 1948; Brigham, 1998). Generation and trans-mission cooperatives that supplied retail coopera-tives had the same effects in wholesale markets(Anderson and Nelson, 1960).

Municipals and cooperatives also let citizensand communities bypass for-profit provision byinvestor-owned utilities. Like insurance mutuals,both forms replaced dependence on corporationsfor key goods with ownership relation and strategiesof self-supply, eliminating incentives in firms tochase profits at customers’ expense and yieldingalternative, decentralized systems of provisionorganized to serve consumers and their

communities rather than independent investor–shareholders. This was particularly important forregions and classes of customers outside the denseurban cores who had been largely ignored by IOUs.As strategies of self-provision, municipals wereoften the only means smaller communities had forsecuring power for themselves before 1930 andwere the organizational infrastructure electrifyingsmall and medium-sized cities throughout theMidwest and Plains states through the ProgressiveEra (Schap, 1986; Brigham, 1998). Cooperativesenabled millions of rural customers to connectthemselves to power, managing by 1950 to integrateinto the grid rural areas that had had 5 per cent orless of their farms receiving power fifteen yearsearlier. In Arkansas, Alabama and Iowa,83 per cent, 89 per cent and 96 per cent of farmswere connected, respectively, and even the twoleast-electrified states, Mississippi and Oklahoma,succeeded in connecting 58 per cent and 68 per centof their farms to the grid, marking thirty- to sixty-fold increases in electrification rates (REA, 1951).

Indeed, both forms seeded market growth,absorbing the risks of widespread electrificationand market development, creating retail markets inunserved areas and inducing IOUs to extend serviceor enter the wholesale trade in regions they hadshunned (King, 1914; REA, 1938; TwentiethCentury Fund, 1948; Wise, 1965). Both forms laidfoundations for a truly national power network byconnecting widely dispersed consumers in some-times very sparsely populated places. Furthermore,in expanding markets and networks both formshelped promote modernization and balanced regio-nal development in the vibrant, mixed-economyregions of the Upper Midwest, Pacific Northwest,Tennessee Valley and more generally in ruralAmerica. During the Progressive Era, local publicownership via municipals crystallized growth coali-tions and fuelled development in small, medium andeven some large cities throughout the Midwest(Schap, 1986; Nye, 1990). During the New Dealperiod, municipals and cooperatives were linked tofederal power projects that granted them preferencefor low-price power and opted for flat-rate policiesinstead of pricing power in proportion to distance.Such strategies effectively mobilized both forms asvehicles for a regional development path in the

522 Marc Schneiberg

Tennessee Valley states and the Pacific Northwestthat avoided concentrating large power users anddevelopment near dams or in urban centres, andthat provided power for modernization, the mechan-ization of farms and the introduction of technology inhomes that reduced the hours that women devoted todomestic labour in rural communities (Funigiello,1973; Brigham, 1998; REA, 1940; Wise, 1965).

Finally, like mutuals in insurance, public owner-ship and cooperatives in electricity demonstratedpotentials for using alternative enterprises toupgrade regulatory capacities and enhance conven-tional strategies for contesting corporations or mak-ingmarkets. Western progressives and NewDealerslooked to public enterprises as sources for informa-tion about costs, capital requirements and more, touse as yardsticks for more effectively regulatingIOUs, which proved notoriously unwilling orunable to supply public commissions with reliabledata (Twentieth Century Fund, 1948; Brigham,1998). Moreover, in response to attacks on whatwas called their socialist statist excess, the REAand the federal power projects self-consciouslycombined federal intervention and regulation withlocal, voluntary self-organization via cooperativesas themeans to pursue one of themost extensive andsuccessful development programmes in US historywithout having to create a correspondingly massivesystem of direct local administration. This strategyhelped legitimate and institutionalize an organiza-tionally diverse system of cooperative, public andcorporate provision that persists – and thrives –

through the present day.

3 Conclusion

Efforts to resist, reform and even displace corpora-tions have generated strategies of contestation inAmerican capitalism whose variety and ingenuityare not fully perceived in contemporary debates.Most centrally preoccupying such discussions arestrategies that take existing enterprise structure(corporations) more or less as given but seek toreform corporations and markets by subjectingthem to overlays of organizational control. Thesestrategies can take public and private forms, work-ing through the regulatory state, or through private

governance schemes – self-regulatory associations,collective bargaining, consumer boycotts or morerecently certification schemes and other reformsthat harness the ‘market forces’ of shareholder acti-vism and informed consumer choice as disciplinarymeasures. Also subject to discussion are strategiesthat use state power to more directly reconstruct themarket and corporate architectures, including anti-trust interventions, or also more recently, corporatecharter reform and even partial nationalization.

Figuring far less centrally in current debates, if atall, is a fourth option for resisting and regulatingcorporations, one that would be self-evident not justto Progressive and New Deal era scholars, activistsand policy analysts but also to millions of contempor-ary consumers and citizens: working mostly outsideformal or central state institutions to recompose mar-ket architectures directly by organizing alternativesystems of cooperative, mutual and local/state-owned enterprises. As the preceding case studiessuggest, these forms are neither relics of the past norutopian experiments. To the contrary, they haveserved and continue to serve as vehicles for contestingcorporations in local markets, pursuing distinctivelymodern projects of development, market-making andrevitalization, and at least partially realizing republi-can aspirations for decentralization, economic auton-omy and small-stakeholder capitalisms of vibrantcommunities and independent producers. These areforms with distinct structural features. They havefeatures that tie the firm to the substantive economicneeds of consumers, business groups and regions,rather than the pursuit of shareholder value, that fosterpossibilities for local control and self-government andthat induce investments in services, economies andimprovements that corporations are unwilling orunable to pursue. Equally important, when mobilizedas systems or ecologies of enterprise, cooperative andkindred forms have introduced diversity, alternativecircuits and productive redundancies into the archi-tectures of markets. They have let consumers, produ-cers and their communities opt out or bypassprovision by for-profit corporations. They have cre-ated levers for increasing and upgrading competition,seeding market development, supporting investmentsin quality and improvement, and for buffering busi-nesses and communities from instabilities in criticalmarkets, harnessing corporations to these more


public-regarding purposes along the way. They havealso created levers for expanded access to vitalresources and fostering broader, more balanced andegalitarian paths of development. They have evenbeen built into regulatory architectures, linking cen-tral sponsorship and local action and enhancingstates’ capacities to reform corporations and under-take large-scale redevelopment programmes withouthaving to create correspondingly massive arrays ofbureaucratic controls and local administration.

These combinatorial possibilities and alternativeenterprise strategies more generally could proveparticularly important in the current period, giventhe obstacles to conventional state action, the declin-ing efficacy of other countervailing forces and thebreadth of existing organizational infrastructures fornew forms. In electricity, municipals and coopera-tives together currently serve nearly 40 million orapproximately 27 per cent of customers served byutilities, including those in Los Angeles and else-where in California whose investments in generationand modernization let them serve customers withoutraising prices during the California energy crisis,buffering communities from market instabilities(APPA, 2014–2015). In food, local retail coopera-tives were platforms for introducing organic, wholeand bulk foods into the markets and. as parts ofdeveloping ecologies of farmers’ markets, commu-nity-supported agriculture programmes and localfood restaurants provide at least some leverage forpushing corporate chains to feature organic and localon their shelves. In finance, about 6900 local com-munity banks and recent experiments with publicbanking along the Bank of North Dakota modelcoexist with over 6600 or so credit unions with97 million members or roughly 46 per cent of theeconomic active population of the United States(WCCU, 2013). Even in manufacturing, in theruins of mass production, in urban communities, inhigh technology, one can find vibrant experimentsnon-corporate or even post-corporate forms rangingfrom workers’ cooperatives and other forms ofworker-owned enterprise, localized production andmaker movement enterprise to open source provi-ders, crowd-sourcing firms, co-working spaces andincubators, B-corporations, sharing economy provi-ders like Zipcar and more (e.g., Kruse et al., 2010;Davis, 2013), indicating possibilities for fourth cell

strategies for revitalization and revival in the mostunlikely places, even in this wellspring of corporatecapitalism.

Note

1. Republicanism in the US context was a theory ofgovernment and political order that figured cen-trally in the American Revolution. It took tyrannyand the arbitrary exercise of domination as thecentral threat to freedom, located sovereignty inthe people, and sought to realize liberty viaa government of representative democracy withdivided powers, rule of law and other checks andbalances against the arbitrary use of state poweron behalf of any faction, including state officials(e.g., Bailyn, 1967; Wood, 1969; Pettit, 1997).During the nineteenth and early twentieth centu-ries, agrarians, workers associations and otherstransposed republicanism into the economy inresponse to the rise of the corporation, redeploy-ing its ideals to help frame their efforts to under-stand and contest corporate capitalism and itsincreasing concentration of economic power(Hattam, 1990; Voss, 1993; Berk, 1994 andsources cited therein; for a recent treatment, seePettit, 2006). In this economic configuration,republicanism represented an alternative to corpo-rate liberal, industrial unionist and socialist con-structions of the American economy. It saw in thateconomy a class structure of producers, includingskilled workers, artisans, yeoman famers andsmall employers and non-producers who livedoff the fruits of producers’ labour, including mid-dlemen, furnishing agents, bankers and financiers,large capitalists and monopolists. It took eco-nomic servitude, uneven development and unfairdiscrimination stemming from corporate consoli-dation and concentrated economic power to be thecentral defects of American capitalism, whether inthe form of sweated wage labour, debt peonageand credit famines, political corruption or mono-poly pricing in transportation, distribution andfinance. It viewed politics and law as constitutiveof economic order, rather than as a handmaiden ofeconomic necessity destined merely to serve mar-ket forces, technological imperatives or

524 Marc Schneiberg

immutable economic laws. And it supportedvisions of a decentralized, regionally based econ-omy of independent producers, skilled workers,farmers and self-governing cities of virtuous citi-zens, framing political mobilization to realizethose visions via financial and monetary reform,anti-monopoly legislation, the regulation of rail-roads, insurance and electrical utilities and thecreation of a ‘cooperative commonwealth’(Goodwyn, 1976) of consumer, producer andstate-owned enterprises.

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The CorporationA Critical, Multi-DisciplinaryHandbook

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