Exploring how Corporations came to be, what that entailed and how they affect a free marketplace. by Gene DeNardo
(libertarian)
Friday, November 14, 2008
The Corporation is concept that has evolved over the last few centuries to become the single most important factor and dominant force in our modern lives. There is hardly a human activity that doesn’t involve or isn’t controlled or at least monitored by a corporation. We work for them in their buildings, we walk their streets, our kids play on their fields, we eat their food, we breathe the air they pollute, we sleep in their beds, we watch their TV programs and we send our taxes to a government that makes possible their very existence.
There is a common status quo cliché that goes something like, "we could start all over from scratch and things would turn out exactly the same as they are now". This infers that the same people would be rich, the same poor and subsequently life with the mega nationals would be just like it is today. We would all be the same big, happy corporate family.
By definition, a Corporation is a group or "body" as opposed to an individual. Individuals consensually organize into larger groups when it is of some advantage to individual members. A Corporation is body organized to achieve an advantage, usually economic, over individuals or over individuals organized as a group in a non corporate manner.
By legal definition, the corporation is much more. While the individual is a product of nature and laws are a product of collective groups backed by collective force, corporations can only exist through laws. Our laws, of course, have not only given birth to the concept of incorporation, but have brought the concept into full maturity with much of our legal system devoted to maintaining the power and even the "rights" of the corporation.
The biggest legal advantage is that of "limited liability". Limited liability laws have privileged corporation by limiting their liability. Corporations, by law, are only liable for the value of their assets, no matter the amount of liability that they incur through their actions.
Regardless of limited liability law, risk itself does not disappear. When corporations evade their liabilities, someone else must experience the risk and pay the tab it might be a creditor who will never receive payment, an individual or the government.
This spreading of risk is a common thread of Socialism or more precisely, Corporatism. A true free market, a market in which all are free to engage in consensual exchange without force, can never be attained with state franchised incorporation. The force of the state has been used to advantage one form of association over all others. Freedom of the marketplace has been compromised.
Incorporation has always been a franchised privilege, but it was originally constructed to achieve specific goals. When kings or states were challenged with projects that seemed to overwhelm the capacity of normal economic enterprise, a corporation might be formed. The corporation would be allotted the task, whether it is sailing to distant ports to trade or an infrastructure project such as a bridge or harbor, and along with the task allowed exemptions for liabilities or responsibilities that restricted others from accomplishing the goal. These "privileges" were recognized and because of that recognition, incorporation was traditionally limited to a specified time span.
Early Americans were greatly suspicious of the corporations. Many laws were enacted to protect individuals and limit their powers. The American Revolution took place in part as a revolt against the monopolies of the incorporated trading companies. Early corporations required a state approved charter to come into existence.
No founding American could ever conceive that our future laws would consider giving corporations the rights of a person. Yet, that is exactly what has occurred. Over time, through court decisions and copious legal budgets corporations have gained many rights of "personhood". This is significant when considering they have evaded many of the "responsibilities" of an individual. They have sought and attained the best of both worlds.
We have completely dispensed with the corporate time limitation, but have retained all the original privileges and added many more. One of those fundamental privileges is what is known as the "corporate shield".
The corporate shield protects corporate officers and investors from the mistakes and wrongdoings they would be responsible for if they were acting as individuals rather than under the protection of incorporation. Instead, the corporation itself may experience the liability but retains the protection of limited liability. Shareholder/investors can lose their investment, but cannot be held liable beyond that. Officers, even when harm and injury have been proven, are seldom held liable criminally or even civilly.
Investment in ownership requires risk assessment. Once you become an owner, you have a vested interest in your enterprise and you assume the natural liabilities of the marketplace. When you able to remove this natural liability legally, you are able to remove much of the risk of investment. This legal advantage opens the causeway for a flood of funding that finds its way to Corporations. This concentration of wealth can only further distort the marketplace.
Corporations, originally formulated under time restrictions, now have the ability to live forever. While a corporation can die a natural death due to poor management decisions, our government works to prevent this possibility with constant bailouts. The combination of liability protected subsidized investment and infinite lifespan has helped foster the unprecedented growth of the corporate business form.
The corporate tax advantages are plentiful. The corporation has the freedom to locate its operations in whatever state or country provides the most advantageous tax structure. New Hampshire is a favorite as half of all American corporations are centrally located there.
Double books, which are illegal for an individual, are common for corporations. One book is kept for tax purposes and another to present a better light to investors Paper transfers to subsidiaries to defer gain or hide profit are commonplace. Accounting has become more of an art than science.
Corporate subsidies consume an enormous part of government budgets. Bailouts have become commonplace. We are experiencing an era when it is more important to save the existing status quo corporate structures than to give any credence to the notion that the semblance of a free marketplace actually exists. Even the "guise" of a market governed by supply and demand has been forgotten.
An argument that is often heard from apologists of state franchised incorporation is that for a small fee anyone can incorporate. The idea is that without great financial burden, we all have the "opportunity" to incorporate, therefore the legal fiction created by state franchised incorporation is justified. Why would we want to create an incredibly complex legal structure in order to require everyone to jump through a reasonably easy hoop to get everyone to the exact same place on the same playing field? If the playing field is level to start with, why tilt it one direction and then justify the tilt by allowing everyone to get the advantage of the tilt?
And, what if we all did incorporate? Is it even possible for everyone to be privileged with limited liability at the same time? Is it possible for liability to disappear simply because we declare everyone to possess limited liability?
In a free world, in a truly free market, there would be no restrictions to cooperation. Free association would permit any and all combinations of individuals to attempt to attain whatever goals it is they hold in common, whether economic or otherwise. But, true freedom does allow power and force to favor or subsidize one form over the other, for any reason.
In our world, the line between Big Government and the multinational corporation is disappearing. Elected officials seem to serve corporate interests, who enable their election through contributions, more than the people who voted them into office. This should not be surprising. The entity that legally created incorporation with all its privileges and advantages, the government, certainly shouldn’t be counted on to keep the result of corporate law, the corporation, in check. It will not be until we revert to the natural state of free economics, where all parties stand on equal footing and bear the liability according to the market they act in, that we will see a return to economic justice. It is only then that we will be able to determine if the corporate form can actually survive within a truly free market. Until then, the jury is out.
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in this article are those of Gene DeNardo only and
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Your explanation of what a CORPORATION is and how it is differentiated from GOVERNMENT is about as lame as having Larry the Cable Guy translate the Bible for us!
In the first place, you completely miss the very important distinction between a CONGLOMERATE (which you seem to think is ALL corporations) and the many, many SMALL CORPORATIONS which are prevalent in the US economy. Many professional corporations (doctors, dentists, CPAs, etc) are incorporated. Many SMALL businesses are also incorporated without wielding any monstrous influence on anybody!
A corporation means that STOCK has been issued. It does provide the entity with certain "person-like" capabilities like owning property and borrowing money, and it also limits legal exposure. But, this doesn't INSULATE corporations from financial responsibilities. In fact, LAWSUITS actually PURSUE corporate wealth in ways that would NEVER occur with non-corporate entities. Claimants PERSISTENTLY and very SUCCESSFULLY try to tie corporate responsibility to injuries, accidents, and liabilities. Look at McDonald's and the HOT COFFEE lawsuit, or Dow Corning and BREAST IMPLANTS or even the linkage of AUTO ACCIDENTS to corporate recalls or PHARMACEUTICALS to lifetime disabilities.
Your point that CORPORATIONS have tremendous strength ignores the many, many different sizes and purposes of corporations as blatantly as ignorning the differences in GUNS that are used in criminal ways. To just say that GUNS are evil and used without restraint because SOME are used improperly is itself a reckless accusation.
What you actually seem to be asking for in your article is MORE control of, MORE restraint by, and MORE responsibility shown by CORPORATIONS when it is really just unfettered Capitalism that promotes and encourages these abuses because GOVERNMENT is reduced in its oversight responsibility. If you're asking for the GREEDY to acquire a CONSCIENCE, you might as well ask for SANTA to bring you that NEW LAPTOP you've been hoping for and see if it happens!
Posted By: Jake, the champion of the constitution
Date: 2008-11-15 03:25:58
Dear Gene -
Very interesting article, thanks for writing it. You certainly have a point in that the British empire used its 'corporations' to rule the world and act in its name. One has to wonder if Blackwater and Halliburton and many others are just the latest imperial incarnations.
I think corporations, generally speaking, also try to manipulate scarcity (in many ways) and perception/marketing whenever possible to increase profits. That's another 2 advantage,s although both are not necessarily evil, just that corporations are better equipped to have an actual effect. What do you think?
Hi Master C, I like the Larry the Cable guy analogy, that's funny! I completely understand the distinction between conglomorate and corporation. Perhaps I wasn't clear enough, the article is about the basic nature of incorporation, how it warps a truly free market and the inherent advantages it possesses over individuals. And yes, many small businesses are incorporated and don't yield "monstrous" influence but they are advantaged.
Yes I mention stock, of course, and the inherent fund raising advantage which helps morph these corporations into conglomerates. Less risk, more investment, simple concept.
And yes because of this they have deep pockets and are the target of lawsuits, and because of deep pockets they have teams of lawyers ready to go. And, again, they possess "limited liability" which again advantages them over a deep pocketed individual who possesses "unlimited liability" and can lose everything and more in a lawsuit.
I understand we are witnessing Capitalism, any system which amasses capital could be considered Capitalism. The article addresses the basic fundamentals of "Free Market Capitalism". Any advantage in the marketplace that favors or benefits one party or one group over another is an obstruction to a truly free market. If you don't think it is any advantage to incorporate, then I respect your opinion, but there is a "world" of evidence, only a small fraction which I have presented in the article, to the contrary.
Hi Jake, I agree with you on both points, Haliburton could definately be interesting fodder on the continuation of Imperialism through the Corporate Conglomorates[description courtesy of Master C!}. And yes, monopolies use the "illusion" of scarcity to their advantage. The duration of higher cost can be extended if a good "appears" to be scarce, increasing profits, centralizing more wealth and creating more monopoly. With open competition this is far less probable although "cartels" have some success.
Well done, Gene! I've felt for a long time that corporations are more like (fascist) governments than individuals. It is also noteworthy that corporations are the primary tools for the ultra wealthy to maintain and enhance their wealth and thus their power. Lack of regulation of corporations leads to them conquering each other as well as smaller businesses. How is that more justified than imperialism among nations? Tyranny is tyranny, whether it be economic or political. If we truly beleive in liberty and justice for all, then economic tyranny needs to be ended just as much as the political kind!
Indeed, you make corporations sound like the Borg of Star Trek. Scary!
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