NARRATOR: Thanks for joining this episode of the No. 86 lecture series, where we discuss basic principles and applications of Corporate Law along with landmark cases. Today’s episode features Seth Oranburg, who is an Associate Professor at the University of New Hampshire Franklin Pierce School of Law. Professor Oranburg also co-directs the Program on Business, Organization, and Markets at the Classical Liberal Institute at New York University School of Law. As always, the Federalist Society takes no position on particular legal or public policy issues; all expressions of opinion are those of the speaker. PUBLIUS: Professor Oranburg, in another episode we talked about the history of corporations. Now I want to talk about the future of corporations. Corporations are subject to a lot of rules and regulations, some of which were developed a long time ago. Assuming that some regulation is necessary, are there areas where it’s not needed or it needs to be updated? Who benefits from regulation? SETH ORANBURG: Regulations by their nature benefit corporations that are bigger and older for a couple reasons. One is simply economies of scale. Most regulations don't just have a variable cost like a tax per unit. They have some type of fixed cost, which is spread out over a number of units. So if you make only one product and you have to bear $10,000 of regulatory expense to bring it to market, that product has a $10,000 price tag attached to it. If you make a thousand products and you figure out the regulations once, you've now distributed that regulatory cost to $10 per product, simply by being bigger, having a wider scope. So just the nature of regulation alone is going to benefit big business. Second, big businesses have incentives once they reach a certain size to spend their money, not innovating on making better products but on ensuring that regulations benefit them. This is called lobbying and it's popular in America. It's probably necessary under the first amendment to allow corporations to lobby, but we could restrict the amount of favors that are given by lobbying because those favors are going to go to big companies and older companies that have more resources to allocate toward this and who have embedded these relationships for longer. And so what we see is that regulations systemically harm small and starting businesses just as a rule as, as a basic principle. Just if you just look at the simple economics and then if you look at the reality of it, of course it's even more serious than that because some regulations are not clear. So you don't even know how to comply with a regulation when you're just starting, which puts you at risk. And if some incumbent goes to the congressperson, goes to the attorney general and says this new startup company, which is doing things differently is violating Regulation 45. Well, that attorney general may very well go and conduct an investigation. And the investigation alone can destroy that innovative business model. Again, without any proof that what they did was wrong or illegal but simply some vague standard, which is hard to apply to a new line of business and is challenging to an existing line of business. There's an incentive there for that existing business to go and use its political leverage and try to remove that competition from the marketplace. So in general, these regulations are harmful. And then when you start looking at individual regulations, things get even more complicated. For example, in order to become a hair braider, you need hundreds of hours worth of study time and have to pass a variety of tests. Now hair braiding can cause certain harm. So too tight hair braid over a long period of time could cause hair loss for example, but this is not generally considered to be a super high risk area of work as compared to for example, working with toxic chemicals and hair braiding also happens to be an activity which is more popular with certain ethnic groups than with more traditional groups. So we have a rule here, which is prohibiting certain groups from engaging in a livelihood, and what's the rational basis for requiring as much or more time spent learning how to braid hair than engaged in distribution of toxic chemicals. And so part of the issue with regulation in general is that it can have disparate impactS. There's no question that Jim Crow laws pervaded this country. And to a certain extent they exist today. We have not rooted out all of the racist laws in society. And some regulations are racism and anti equality just by a different name. Not all regulations are here to protect us from true harms. Some are meant to protect the empowered from new classes and new ideas. And so we should look at these with some skepticism as well. So, writ large regulations are challenging. I mean, they clearly are necessary to provide some level of safety and security. We can't go around ensuring that every product we eat is safe, for every glass of water we drink is not tainted. There's a clear role for society to make sure your barber knows how to use a straight razor and to ensure that drivers on roads know how to operate their vehicles. So I'm not suggesting we abolish regulation writ large, but there are regulations which are used to systemically harm and disadvantaged groups of people. There are regulations which by their nature are more harmful than they need to be to small business versus large ones or to young ones versus old ones. And we can do better. We can do better by thinking about how regulations not just protect people, but hurt people and who we're hurting. And if the regulations have a disparate impact and create a less equal society then they should be scrutinized, because one of the goals of government should be to promote equality and access to opportunity in America. That's fundamentally the American dream. And to the extent that we're excluding entire populations of people, entire genders, entire races, or ethnicities, or systemically disadvantaging them, these regulations are potentially unconstitutional and certainly suspect. So we should be careful before we regulate, because in the name of protecting some, we may be protecting those that have privilege at the expense of those who deserve a chance to make it in today's America. PUBLIUS: You have written scholarship on this problem and proposed some possible solutions. What do you mean by the term “regulatory democratization”? SETH ORANBURG: Regulatory democratization is a term I coined to describe regulations that are designed to have less disparate impact on young and small businesses. So we can think of regulations across two axis. Regulations can be simple or complex and they can be rules or standards. So rule is something we decide in advance. Usually there's going to be some kind of committee that has a meeting and we present some type of clear rule, like a speed limit. So the highway over here, you can go 70 miles an hour. That's a rule. If you exceed 70 miles an hour, you're subject to being pulled over for violating that particular rule based regulation. It's all also a simple rule. I mean, we all understand what 70 is. It's not some kind of complicated formula. There's also standards. So for a time, some states had reasonable speed limits. You could operate at any reasonable speed during daylight. Well, what's that number? Well, that's a little more confusing. It's easy to set a standard. It's easy to come up with it but then how do you follow that? How do you abide by that? And you take some risks. Should I go 80? Should I go 70? Can I go 74? What's the number that I avoid regulation? So in general rules are less harmful to small businesses than standards because in order to get a standard, right you have to either go through the experience yourself and get slapped on the wrist and take the risk of that penalty, which can ruin a company or hire a high price lawyer. Who's going to work on figuring it out for you or hire a lobbying group to make sure that the standard’s decided in your favor and all those things are expensive. Whereas if there's a rule and everybody has to go 70, then you go 70, you can follow that rule. So regulatory democratization is thinking about things on this dimension and a shift potentially from standards to rules in order to reduce legal hurdles, to compliance. The more vague the standard, the more expensive it is to understand if you're complying with it. And the better advantage, the powerful, the wealthy, the incumbent, the large, the old will have over the upstart. On the dimension of simple and complex, as Richard Epstein argued, simple rules have a lot of advantages. In part, they're easier to understand for everyone and simply less costly, but I'm adding a little bit to that conversation because even complex rules can be understood by everyone when they are computable. So there is a type of complexity which can be simplified. And this is the process of regulatory democratization. For example, TurboTax simplifies the tax code. The tax code is a set of rules, that you make a set of choices. There are some standards that you might need an accountant for on the margins. So not saying it's perfect rule system but it is complex. I mean, if you've seen it, it's volumes of information more than any one person would keep in their mind at any one time. And more than a small business could probably afford to master. So you're again, hiring an attorney or an accountant to create an ad hoc product for you, which is expensive. But TurboTax created this out of the box solution where basically any small business owner can ensure tax compliance. So there are ways to make complex rules simple through the market system. If those rules are designed to be computable, if they can be programmed in some way, and if they can apply generally. Again, it would be hard to do with standards because we'll never know how a standard's going to be resolved in a particular instance till after the case is decided. Whereas a rule, theoretically, it should be noble in advance. And the process of regulatory democratization entrepreneurship is the innovation by variety of companies. TurboTax is one that I mentioned. Another one is Pal box. Pal box is democratizing access for HIPAA regulation. HIPAA is another very complicated regulation involving patient privacy. Many small doctors offices have had a great deal of trouble in sending emails or messages to patients because doing so, it's difficult to do in compliance with HIPAA. So Pal box offers a turnkey solution. So you just said it through Pal box a and boom, they take care of all the HIPAA work for you. There's companies that their work is figuring out drone regulation. Again, a series of complex FAA regulations about who can fly drones, where, and how you experiment with drones. And they offer a product where you can simply, you pay for their subscription to their product. They show you a map, tell you what you can do in these locations or not. You can reserve space. You can interface with that as well. So again, the regulatory democratization concept recognizes that regulations are inherently harmful to entrepreneurship because they advantage larger incumbent older businesses that have the resources to either take legal risks or make the law work for them, or shape the law in their favor. Or hire the high price attorney to give them the legal opinion that they can rely on. Small businesses can't do that. So if we want to help promote small business, and we also recognize that regulations have a purpose in society. They're not useless. Clearly deregulation is one way to level the playing field, but sometimes regulations save lives and help people. Can we make regulations smarter or at least more fair, more equal? Can we make regulations such that those who are already ahead, don't get a further advantage by the regulatory apparatus. And I think that we can, and I think that that should be part of the regulatory decision making process. That agencies, in addition to talking about costs and benefits to society should be required to talk about maintaining equal access. Because if we have a regulatory state, which systematically advantages the advantaged, we're going to continue seeing wealth disparities in America, we're going to see the erosion of the American dream. We're going to see a divide in the American population, even more than we're having, as people get frustrated with a system that doesn't work for them. So it's incumbent on us to think about using regulations in a way that at least does not promote inequality even further than it has to. PUBLIUS: What about rules that specifically regulate corporate finances? Do they place a heavier burden on new or small businesses? Could these regulations be updated or improved? SETH ORANBURG: Financial regulations need a major overhaul. We had a period of time from about 1980 to 2000 of persistent deregulation, and that was true regardless of whether we had a Republican or Democrat president. For example, Ronald Reagan was notable for his quote, unquote, "Reaganomics" which generally lowered tax rates and had a number of other deregulatory impacts, but Bill Clinton also repealed the Glass-Steagall Act, which regulated banking, so on both sides there was an interest in deregulation, and now that has really flipped. Starting in 2000, we had a series of financial crises, and all of them prompted heavy regulation that followed it, but many of these regulations were modeled after the 1933 Securities Act, which existed, well, in 1933, where the world looked a lot different than it does today, and there are some reasons to think that it doesn't work so well anymore because of such huge changes of technology and society. In 2000, the stock market had a crash, the dot-com crash and just like most crashes it was followed by various allegations of wrongdoing and public outcry. There was some wrongdoing in terms of some public corporations like Enron and WorldCom, which were clearly running some funny numbers with their accounting, but actually the dot-com crash was not caused by bad accounting practices. It was caused by a bunch of over-hyped companies that people were investing in that weren't making any money. People were investing in Pets.com, knowing that it was losing money. It was clear that these companies weren't generating revenue, but there was a change in mentality that revenue didn't matter. Growth mattered, and so people invested in growth, and it turned out that revenue does matter, but there's no amount of disclosure that would have changed that. Everyone knew exactly what was happening. They just made bad choices in retrospect. Enron and WorldCom were a bit worse, where there was some accounting scandals, but the resulting regulation, Sarbanes–Oxley Act of 2002, really stepped up the amount of regulation that public companies had to go through. In 2007 to 2008, we had another financial crisis, so obviously Sarbanes–Oxley didn't prevent a crisis. In fact, the great recession of '07-'08 was much worse than the dot-com crash. It was caused, at least in part, by some funky things called collateralized debt obligations and some machinations of investment banks that had created some synthetic products that were hard to understand, but there was a number of reasons for it to occur, and of course it resulted in more regulation. In 2010 we had the Dodd-Frank Act, the Dodd-Frank Wall Street Reform Act. This was a sweeping regulation. I believe it was 360,000 words long, so it was massive and at least by rumor, the politicians who enacted it had never read it because it's basically unreadable. But it layered on a huge amount of additional administrative bureaucracy to our existing set of regulations, and it particularly made it expensive to engage in banking. Well, anytime you make something expensive, you're going to change people's behavior toward it. So we saw afterwards diminution of small banks and an actual increase in large banks, which is kind of ironic because if you remember 2010 and the Dodd–Frank Act, the whole conversation was about too big to fail. We're going to get rid of too big to fail. We're going to make sure that companies aren't too big to fail. And now we have more big banks and fewer small ones. So it didn't work. At least it didn't do what it was supposed to do and it costs a lot of money. Continues to cost a lot of money every year that we have it. And in part, again, it was based on this idea from the 1930s. And the idea was simply that in the words of Justice Brandeis, sunlight is the best disinfectant, electric light the most efficient policeman. The idea was that if we require companies to make disclosures, they're going to be honest. People are going to see the truth and no one is going to be able to perpetrate fraud. Okay, well, since then, we've had Bernie Madoff, we've had the Fyre Festival, we've had cryptocurrency, we've had all sorts of obvious frauds and scandals in the public eye. And I think we need to start asking some questions about whether this whole disclosure focus really works in a world where we are bathed in information. No one has the time to read anymore. We're reading tweets instead of articles, we're reading Snapchats, and the entire way people communicate is just, we have the sea of information. It's not abundantly clear that yet more information is going to be useful because at this point in human history, we are so under the information age that it may be that we are overwhelmed. I think a lot of people feel overwhelmed by the amount of information they receive and corporations continue producing it because they have to. So if you have stock in any company, you're going to be receiving quarterly statements from companies that are going to have pages and page and pages of risk disclosures that are boiler plate, meaning standard. They're all saying the same thing. And so there's no reason to even read them because that it's just a bunch of gobbledygook. So what is really going on here? Well, there's a lot of paper being produced. There's lot of words being written, but there's not a lot of value being created from those words. So for these reasons, I think that we need to reevaluate this whole sunlight is the best disinfectant approach to financial regulation, which again, that has been the predominant approach ever since. And those are Justice Brandeis words related to FDRs, Franklin Delano Roosevelt's new deal policies that began in 1933 and extended throughout his presidency. Sunlight is the best disinfectant and electric light the most efficient policeman may not apply in a world where we simply have more information than we can deal with. Instead we might think about creating systems where we incentivize certain groups to suss out that information. So a new approach might be, for example, leveraging the power of crowds who congregate in certain internet areas that we can call portals or platforms. So what does that look like? Well, there already are investment portals where like AngelList, for example, or Manhattan Street Capital, where people can congregate and discuss potential investment opportunities. And these portals have some strong incentives to make sure those conversations are productive, not flame wars, that the results are profit as opposed to fraud because their portal reputations on the line. And so instead of requiring a certain standard amount of disclosure from all the companies that list on this, which result a standard set of disclosures, that for the most part all says the same thing, 70 common risk factors that every company needs to put in a report. Instead of saying that stuff, people are asking more critical questions that are directed toward a particular enterprise and are then surfacing differences between one opportunity and another and sharing it with a large group of people which reduces the per person cost of understanding information. It requires trust. It requires reputation and requires a new way of thinking about how we're going to encourage anti fraud activity. But if you just look at the world, it doesn't look like a safer place than it used to be. I mean, Bernie Madoff is still fresh in a lot of people's minds. Rappers like Ja Rule were promoting festivals that never happened and collecting millions of dollars for events that never were really going to take place. And celebrities like Kim Kardashian are pumping exotic cryptocurrencies, which seem to have no functional use. All these things are happening despite the fact that we have amped up our disclosure regime to maximum. And as a result, we are paying a lot of cost and I don't see the world being safer. Now, there are places that are safer. There are ways to create trust, and we need to start thinking critically about how we use new tools to create them. But we are bathed in information. More information may not be the solution, so we should consider how else we can encourage the appropriate simulation production of information, sort of like stock analysts do, because otherwise we're likely to see more of the same, which is to say consolidation, larger and larger institutions that can afford to bear these costs less and less choice and small fraud slipping between the cracks. A lot of small fraud hurting a lot of small people is not the way toward a safer and brighter American future. So hopefully we can find new ways to suss out these things that don't involve for example, the SEC expending its limited resources. They're simply not going to chase the little guy because it's not in their interest. So we need, a new thinking that leverages our technology to do better. PUBLIUS: Let’s talk about some rules that have been updated already and what sort of impact that’s had. A lot of small businesses or start-ups rely on crowdfunding to get started. I’ve also seen the term “regulation crowdfunding,” what does that mean? SETH ORANBURG: Regulation crowdfund is title three of the jumpstart our Business startups Act of 2012, and it like other regulations was promulgated under a law. So the Congress got together and voted to have this Jobs Act of 2012, which ordered the SEC to create a set of rules, which they announced in May, 2015, that allowed what's called crowdfunding, hence regulation crowdfunding, or regulation CF. Now crowdfunding has existed for some time in a number of other formats. So you have things like Kickstarter, where you can get a lot of people to invest in a project. You have DonorsChoose where you get a lot of people to contribute to a classroom and help teachers. But up until 2015, you couldn't fundraise for a corporation online by selling stock. You couldn't give people investment opportunities like this online, at least not to the general public, not directly into corporations. Crowdfunding changed that by allowing new companies, startup companies to advertise on websites, the ability to invest in them at a very early, nearly nascent stage. This should have, or could have, and still might give companies, startup companies new access to capital, which again is the life blood of business. You need to take in some cash at the beginning so that then you can buy, you can take out a lease on some office, or you can buy some equipment and businesses often need to make early investments in order to make profits later. Where does that money come from? Well, if you're small, you don't have a lot of choices. You could ask your friends and family, but if they're poor like you, they're not going to have money to give you. You could ask your local bank but after Sarbanes Oxley and the Dodd-Frank Act banking has become more expensive and small banks have closed and large banks don't like to lend to small businesses. It's too risky and not doesn't fit well on their business model. Plus they're just less interested in community development. So you can go to Silicon Valley, but if you're just trying to start a local business, those investors want to spend millions of dollars on ideas that will make billions often in the tech space. So that leaves a lot of people out of the marketplace without options for raising money. Crowdfunding provides a new way for those people to access money. And it actually draws on the power of the internet to bring people together, which we've seen in the case of Facebook can be good or bad. I mean, Facebook can create echo chambers but what we've seen so far in crowdfunding is that people look at it as a combination of investing and helping people like them. So we've seen a huge uptick in minority investment, in female investment. Women constitute about half the US population but until recently have received less than a 10th of venture capital fundraising. Why the disparity? Well, it's probably beyond the scope of today's conversation to really get into the sociology of why, but I can tell you that empirically crowdfunding is a better place for women and minorities to raise money statistically. Maybe this is because there are other people like them who are on the internet looking to help people like them. It's a sociological effect called homophily, activist choice homophily in the case of disadvantaged people helping each other. In any event, it seems to be happening, and that's a powerful step towards equality in American society. But regulation crowdfunding didn't go far enough. It only allowed companies to raise a million dollars and they may sound like a lot of money, but it's really not a lot for business today. A million dollars in today's money is not necessarily enough for a business to grow large enough to be interesting for venture capital, mergers and acquisitions, IPO, et cetera, the big successes. I think what we want to see in society is more women in minorities experiencing big economic successes through entrepreneurship. That would help dramatically bring people up a whole investor class and potentially create a new class of wealthy investors who succeeded in entrepreneurship, but that's not likely to happen while the limit of crowdfunding is so low. It's just there's only so much you can do with a million dollars. Now, thankfully, in my opinion, on November 2nd, 2020, the SEC revised what it called a patchwork of exemptions, including crowdfunding, and it raised the crowdfund limit to $5 million. I was delighted because I actually advocated for this change in my 2016 paper Bridge Funding: Crowdfunding in the Market for Entrepreneurial Finance, so I think this was four years in the making and I was glad to see a policy I proposed enacted and I'm excited to see what happens next. But I expect crowdfunding is going to start taking off, and I think it will continue to be a driving force for equality in society because instead of asking a few wealthy people either in New York City or Silicon valley who they want to invest in, now we can ask society and society can make those decisions differently. I think they'll make them on the basis of providing new opportunities for new ideas that are not just those Silicon Valley/New York coastal ideas. PUBLIUS: You wrote a paper about something called “bridge funding.” What do you mean by that and how is it different from generic crowdfunding? SETH ORANBURG: Bridge funding was a term I coined because funding of private companies occurs in stages. Companies don't get all their money at once. Usually they get early stage money sometimes from friends and family, sometimes through credit cards, sometimes from personal wealth just to start things up, maybe hire their first lawyer, do their incorporation paperwork, get their initial equipment. The second stage is seed funding, which typically again happens with friends and family, but maybe a slightly wider network. You raise a little more money, you do it through a different vehicle, such as a convertible note type of equity debt instrument. Then you start hopefully showing some actual progress and getting early stage venture finance. Sometimes from angel investors who tend to invest between 500 and a million and sometimes from venture capital investors who actually tend to invest 10 million or more. There's this gap in the market. How do you get from getting 500,000 or a million from angel investors, if you're lucky enough, all the way to being worth 10 million from venture finance? The answer is it's really hard. In fact, we see a trough in between that is called sometimes the seed valley of death. The valley of death is where companies die because they can't make it from the angel markets and their friends and family all the way to being worth the time and effort to a venture capital firm who wants to plunk down 10 million plus. There's this wide range of space where it's difficult to survive because no one... you're in no man's land from a capital raising perspective. If you're still burning cash at that point, which many companies are, if they're looking to really have that large profit later, you're dead. Bridge funding is the idea that we could provide some new source of funding that fits right in that space. I was hoping crowd funding would do this with regulation crowdfunding, which was promulgated in 2015 by the SEC in accordance with the Jobs Act of 2012. Regulation crowdfunding could have provided a new source of funding for companies in the valley of death. But instead, it limited fundraising to a million dollars, which is not enough to survive through this death valley. Now, crowdfunding has changed. In that paper Bridge Funding, I advocated that the limit for crowdfunding be raised from one to five million dollars so that it could play a key role in giving companies that middle of the valley boost so that they got their drink of water, right? They got seeded and could survive onto the venture investment stage. I'm really pleased to see that the SEC enacted this and as of November, that limit has been raised to $5 million. I'm hoping now crowdfunding is a source of this bridge funding. It could bridge between friends and family who you're limited to a certain amount, especially if you don't happen to come from a wealthy family. That could be a very limited amount. You need some way to bridge from that all the way to fly to Silicon Valley and asking venture finance for 10 million plus. Crowdfunding at $5 million could be exactly that bridge to provide funding for entrepreneurs to get through the seed valley of death. PUBLIUS: In your scholarship, you’ve also referred to “hyper funding.” Is that also a separate category? SETH ORANBURG: Hyper funding is a term I used to describe Elon Musk's tactics, which are becoming more popular, which is effectively a ostensible presale that's used to finance major operations. See, the securities laws, basically since their inception, only pertain to investment contracts. Now, how that's defined is based on a case called Howey. There's a four-part test. I won't bore you with the details. I'll simply tell you that pre-sales generally are not regarded as investment contracts. They're sales. They're regulated as the same way that a sale would be. But what happens when a person sells a product that doesn't exist? And how do you distinguish that from investing or how about when a person sells a product that doesn't exist and gives you a discount on the future product? Well, at some point we're in a gray area where effectively what's happening is a financial activity where you're not just buying a product, you're financing its development. Although you're doing it without getting necessarily the returns on investment you would. Elon Musk, who is just the master of the hype and presentation, at least he was, and using social media, using the big stage, Apple-style reveals, basically told the world that he wanted their money so that he could go and build the next electric car. Over the period of a week, he received $400 million in contributions that he used toward research and development. It took years from there to build the car. It may never have come out. It's not clear what would've happened if Tesla failed in the meantime. Of course it didn't, and we can't have a natural experiment on this, thankfully. At least the money wasn't lost, but we're seeing more and more of this, where there is... You can really hype up these products, hence hyper funding. It actually is a bit of a turnout of phase. One reason I use the term hyper funding: Hyper as in really fast, but also hype as in the Hyperloop, which was one of Elon Musk's hyped products. I also use the term as hype or funding, meaning are you really funding a project or are you buying into social media hype? Are you basically engaging in some kind of crowd herding mentality where you feel like you'll be left out if you don't jump on a bandwagon and give Elon Musk a thousand dollars? Basically, I wrote the paper to draw attention to what I see as an emerging trend in finance that's not recognized as finance. This type of hyper funding is seen as a consumer activity, but it's not really. It's an amazing amount of money for a product that is not going to exist for several years and Elon Musk has been repeating this with some success. It's not clear when the cyber truck's going to come out and he's already been paid for it. He's using that money without paying interest on it to continue developing Tesla. And by the way, returning proceeds to stockholders. I think we need to look more critically about these kind of activities. They are technically pre-sales, but how far in the future can you pre-sell a product that may never exist before you start to be engaging in some sketchy behavior that starts to look more like investments and speculation then it does like a traditional sale. When are we going to Mars and who... Right? And how much has raised, right? What if Elon Musk started selling houses on Mars today? And he got to use your money right now and you've got the... Who knows that that's ever going to happen? Is that really a sale or is that something else? It's one thing if it's on a small scale, but he's raising at this point billions with a B, billions of dollars through these methods so this is not small scale. It's a very cheap way for him to raise capital. He doesn't have to pay interest, doesn't have to pay dividends, doesn't have to comply with the SEC. He just uses effectively a cult of personality and a social media influence and a great showmanship. In a way, it's enviable. He's so charismatic, but at the same time, I think we should be worried. What has this enabled people to do and is this a new way to conduct fraud on a massive scale, especially because no one's getting any return on the investment? There's no chance. You're not going to make anything. You just get the product first. Hyper funding is a real concern that we should be looking at more, and maybe we should be reevaluating what we consider to be an investment these days because if this activity doesn't fit in our legal rubric of what's an investment and what's protected, then maybe we need to ask some new questions about how we're defining those things. PUBLIUS: Let’s close with a topic closer to home for most people. The 2000s saw the rise of the gig economy. Has that changed the corporate landscape in significant ways? SETH ORANBURG: The gig economy's changed everything and I think for the better. It's produced a lot of upward pressure on salaries because people now have an alternative. Whenever people have an alternative, that gives them leverage. If you can quit your job and still pay your rent by driving Uber, that gives you a power to quit your job you didn't have before. That's happening right now. We're seeing, it was called the great quitting, but I'm not sure it's the great quitting. I think it's the great reshuffling. A lot of people are leaving corporate jobs to go and work for themselves and some of them are using the gig economy, Uber, Lyft, DoorDash, whatever, as a bit of a personal safety net, not your traditional social safety net because they're not collecting from the government. They're actually doing some work in the interim while they redefine their professional ambitions. People weren't empowered to do this until recently so a lot of people who are living week to week paycheck to paycheck have to stick with their jobs. Even if they want to try their hand at entrepreneurship, even if they want to do something creative, even if they want to work for themselves, they couldn't do it, in part because they were trapped in these low-wage jobs that they couldn't get out of. As a result of COVID and of the gig economy which put a huge amount of pressure on businesses to employ people, we have seen wage rates skyrocket even without major legislation. I live in a state that has a minimum wage of, I believe it's $7 or so, but everywhere, every single grocery store in my area is advertising $15 starting wage for cashiers plus a thousand dollars signing bonus because they need to do something to lure people away from other opportunities. Remember, nobody has to drive an Uber. No one's saying you have to drive an Uber. It's just that it's a choice and if you find it profitable, you can do it. Or if you enjoy it, you can do it. The gig economy is then putting all this pressure on traditional businesses to try to create better working environments, better wages, giving people more of what they want. We're seeing that right now with higher wages. Now, I think a lot of people are frustrated because it's still hard to get people to work in restaurants. I'm not saying this on a moral basis. I'm just saying this empirically. The fact that people are not working these jobs indicates that it's not worth it for them to work these jobs, which means they have some alternative. Unfortunately, in my opinion, President Biden has also given the alternative of doing nothing at all and there is increased opportunities to do nothing and have a living wage, which is putting some downward pressure because now there is an incentive not to work in the gig economy, not to work in the traditional economy, not to work at all because if it's lucrative not to work at all, some people will make that choice as well. Again, we have to balance this with social safety nets and taking care of people who are truly in a tough time, but basically just think of it this way. If there's alternatives, people will explore them, and if the alternative is working for Uber, then we're likely to either see more Uber or people compete with Uber and say, "Well, I have to be better than Uber. I have to pay more than Uber. I have to give better conditions than Uber. I have to be as flexible as Uber. I have to somehow beat Uber or they're going to go do that." But then when the president says, "Well, we're going to give people money for not working," then as an employer, you have to compete with that. How do you compete with free money? I think that's harder. I don't think that creates the same amount of upward price pressure on the markets or it may be very difficult for small businesses to compete with that. Competition's a good thing. Competition for employees is a good thing, at least among... so long as they're kept in the system. That means that employees will go to the place that values them most. To the extent that people have that flexibility, that they don't have to give up their homes, pull their children out of school, disrupt their spouse's work or change their family relationships or move and incur all those costs, to the extent they can do that and change their livelihood, that will, I think, create competition that will promote working standards. The prototypical person that needs protection is someone living in a coal mining town, a one-company town. That person needs protection because they don't have any options. You either work for the coal mine or you starve. That gives the coal mine an incredible amount of power over that person and the coal mine can set wages at basically starvation rates, which is why there's a need for unions and industries like this. But once you start allowing and enabling people to work from anywhere, to have jobs in the internet, you can learn computer programming in a few weeks and and do it from the coal mine town, now you have alternatives and that produces some countervailing pressure where you could start to say, "No, I'm not going to work in the coal mine for $7.50 an hour. I'm going to stay at home and do computer coding for $14 an hour. Or I'm going to drive an Uber for $18 an hour." The more options that you have, that should... Well, we're seeing it. It should bolster prices and improve working conditions and we're seeing it. We're seeing people compete for workers. I think the existence of the gig economy, which again, is an option. No one's making you do it. There's still plenty of jobs in the real economy and now they have to pay people more, which we managed to get to the result of raising wages without having to raise the minimum wage from a legislative standpoint and this seems to be a competitive result and the expected result on the long term from the gig economy. NARRATOR: Thank you for listening to this episode of the No. 86 Lecture series on Corporate Law. The spirit of debate of our Founding Fathers animates all of the No. 86 content, encouraging discussion and critical reflection relative to how each subject is widely understood and taught in law schools and among law students. Subscribe to the No. 86 Lecture series on your favorite podcast platform to have each episode delivered the moment it’s released. You can also go to no86.fedsoc.org for lectures and videos on Federalism, Contracts, Jurisprudence and more. Thanks for listening. See you in class!