Topic: Economics
Corporations and the Free Market Exploring how Corporations came to be, what that entailed and how they affect a free marketplace.by Gene DeNardo
(libertarian)
Friday, November 14, 2008
Whenever a fundamental change to the status quo economy is suggested, countless "crazy baldheads" standup and shout "Free Market" as if just the mention of these two sacred words deny all the existing controls and privileges that exist in our "real market". Many of these same zealots applauded the brave actions of Prince Paulson when he heisted his three quarter of a trillion dollar corporate bailout plan across the face of America. After all, what would our "Free Market" be without our beloved monopoly corporations, who seem so all encompassing and all pervasive that they could only have come into existence by the hand of God eons ago!
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 gaurantees their profits.
You have probably heard the cliche, "we could start all over from scratch and things would turn out exactly the same as they are now". This usually 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 family. Hardly..
By definition, a Corporation is a group or "body" as opposed to an individual. Individuals do not normally organize into larger groups of their own free will unless it is of some advantage to its members. In this instance, this is certainly the case, with the assistance of an extremely forceful state. A Corporation is body organized to achieve an advantage over individuals. It has no advantage by definition over other corporations, but it seeks to "equal" itself, put itself on a level playing field with other corporations.
Undoubtably the biggest advantage corporations enjoy is that of "limited liability". It means exactly what it says; corporations have a limit to what they are liable for, while this certainly is not true for an individual. A shareholder, one who invests and shares ownership of this body [corporation], is liable only for the amount invested.
Basically, when a corporation exceeds its liability in any way, when it extends itself beyond its value, the cost is socialized. It matters not whether the creditors take a bath or the government steps in, someone besides those within the corporation must make up the difference. This forced market condition in and of itself, is blantant socialism. It is also reason enough to deny the viability of a true "Free Market". Great advantage has been chartered by the state to group form over the individual. But that isn't the whole story.
In our Society ownership entails responsibility. If your business finds itself failing, you must devise a plan to rightly reimburse your creditors. If you market a product that causes harm to others or is fraudulent, you are held accountable for your actions. There is nothing to hide behind, you are your product.
That is, unless you are incorporated. The Corporation is a shield that protects its officers and its investors from the mistakes and wrongdoings they may be responsible for. The Corporation itself may be found liable but only to the extent of its worth. The shareholders can only be liable for the amount invested. If you follow court examples, it is difficult to prosecute an officer of a Corporation for actions of the company, even if they may be directly responsible.
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. What if you could remove this liability? You have removed much of the risk of investment. This opens the causeway for rivers of funds that find their way to Corporations. Concentration of wealth ensues, and the playing field is tilted even further.
What if you could live forever? Escape death taxes? This is exactly what Corporations do. The wealth they have concentrated escapes time. It continues to compound and build as the only death it can die is by its own hands, and our Government works to prevent this possibility with constant bailouts. Concentration of wealth is a fertile seedbed for monopolization. Like the super size action figures in comic books, corporations are immortal and larger than life.
This article is written to point out the fact that the basic nature of the Corporation is incompatible with a truly "Free Market". But we should note a few developments that have occurred over time that accentuate this condition.
Americans were greatly suspicious of the early corporations. Many laws were enacted to protect individuals and limit the power of this recent concept. It could be said 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 early 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 what is call "personhood". This is significant when considering they have evaded most all of the "responsibilities" of an individual, yet have been successful in reinforcing many of the rights. They have sought and attained the best of both worlds.
The tax advantages are plentiful. Offshore investment is a favorite. Double books, which are illegal for an individual, are common for corporations. One book bragging about their profits to potential shareholders or creditors and another whining about losses to Uncle Sam. Paper transfers to subsidiaries to defer gain or hide profit are commonplace. Accounting has become a magic trick rather than a math exercise.
Due to recent events, we have been bailed out of any need to talk much about subsidies. Uncle Sam and the corporations share the same checking account. We supply the funds they decide where it goes and who gets it. What they really mean by "Free Market" is a market that has no cost to them, but costs plenty to the consumer.
Should we all incorporate? Would that level the playing field? In a truly free market, no barriers or encumbrances should exist between two willing participants in a transaction. As long as no harm or injury occurs, they should be able to carry on as they please in the most efficient manner. Requiring incorporation just to bring equality between parties that were equal by nature is a futile effort and certainly is a barrier and an encumbrance to trade. And, in doing so we would have removed much of the liability and risk that is natural and inherent to all in a free market.
And if we all were incorporated? We would all possess limited liability. No one would be responsible and no one would feel the full brunt of risk, any burden would be carried by those outside of the corporation and who would they be? It would be some kind of Corporate State devoid of individuals except those within the Corporation. Hey wait a minute, sounds feasible, not that far off!
In a free world, in a free market, there is no limit to cooperation. Citizens can do as they please with who they please or as many as they please, in whatever form they please, but to state franchise incorporation is to permit selective advantage and limit the freedoms of those not selected. Protected corporations create a world of their own with rules of their own.
Corporations began with these innate advantages and over time this advantage chipped away at the basic freedoms and rights of individuals. In our modern world, the line between Big Government and the Mega National Corporation is virtually non-existent. Who is really in control is a difficult question to answer.
What we can do about it is the more important question. It doesn't appear the powers that be have any desire to start the game over and give everyone a just and equitable go at it. We have to devise a strategy that reverses the special status and associated privleges they have attained. Until we do, many of the decisions that determine our lives will continue to be made for us.
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The views expressed in this
article are those of Gene DeNardo only and do not represent
the views of Nolan Chart, LLC or its affiliates. Gene DeNardo is
solely responsible for the contents of this article and is not an
employee or otherwise affiliated with Nolan Chart, LLC in his/her role as a columnist.
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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