On the Illegitimacy of Corporations
Corporations are not free-market
phenomena. They are not part of a system of consensual exchange among
individuals. Corporations are government entities! They are the for profit side
of our government. The dominant class in America consists of the people who
move freely between non-profit and for-profit government institutions. Corporations
are accepted as a normal and good aspect of American free enterprise, no one
thinks to question their very existence. We blame and punish the persons in the
corporation for their abuse of the system, yet it’s obvious that the problem is
systemic.
We know that corporate officers have
every incentive to enrich themselves and few checks against them. We know that it s criminal for any corporate official to earn more than
our president, yet we are taught that corporations are Free Market phenomena
and so the government/corporate class remains free to pay corporate officers
any salary they can get away with. Enron is just one more scandal in this
incestuous, illegitimate system. Like all scandals, it brings out the usual
calls for more regulations to control these leviathans that we ve created. Regulations do not change the essential
corruption of the system itself. Let me explain.
Corporations illustrate again the Dilemma
of Interventionism that I discussed in Consensualism
over Coercion. When a government interferes with any aspect of the free,
cooperative, and self-responsible functioning of individuals in society, it
creates distortions that eventually will be seen as undesirable and will have
to be controlled or curbed by new interventions. Having intervened in human
interactions, the government enters a slippery slope leading to total
regulation and control. Partial government intervention creates a situation of
chaos, such as we now experience. The only way to eliminate the chaos is to
have either complete government control of society, or complete
non-governmental, consensual/cooperative control of society. There is no stable
middle ground. In the case of corporations, we should either put them under
complete government regulation like the Post Office, with fixed salaries and
procedures (i.e. maximum salary for CEO $250,000), or we must eliminate their
legal structure completely, allowing only truly private businesses to exist. The
latter is the proper solution—the only one that can work in a truly consensual
world society.
Look at corporations. They are not
private businesses; they are not the result of undistorted individual decisions
to buy and sell. They are government-created machines. They are, in essence,
arms of the government but very poorly regulated arms. Adam Smith warned
against the existence of government-granted corporations in no uncertain terms.
He insisted that they exist only for unique national needs that could not be
met in any other way, and that their existence be time-limited. Consider that the
modern corporation is the creation of certain laws that annul the usual
relationships in private businesses: (From the Encyclopedia Britannica)
1. Juridical personality Corporation law makes the
corporation a fictional person, with the rights of any person to sue and be
sued, make contracts, and hold property. It is an artificial, state-created,
business machine.
2. Limited liability the capital suppliers (shareholders)
are not liable beyond the amount of their investment. A private/consensual
businessman is liable for all debts he incurs, without limit.
3. Transferability of shares rights in the organization may be
transferred readily from one investor to another without reconstituting the
organization under law. Investors are not owners. The only real owner is the
government that charters the corporation.
4. Indefinite duration Long after the original
incorporators are gone, the corporation can continue to exist as a business
machine, with unending turnover of investors, officers, and employees.
Let us consider the general
socio-economic results of this legal fiction:
1. The Separation of both Ownership and
Management from Responsibility No single persons, or group of persons is responsible for the
corporation s actions or debts. In private business,
the single owner or partners are owners and managers, and are completely and
personally responsible for their actions and debts. In the corporation, human
ethics are replaced by corporate ethics (oxymoron).
2. Creation of Perverse Incentives Managers have every incentive to
increase their income at the expense of the shareholders and the corporation
itself, and there is little to stop them. Why shouldn
t they get a bigger chunk of this multi-billion dollar behemoth? Aren t they in control? Who will notice? The result, of
course, is the excessive compensation of executives and worse, the abuse of
their control to profit from any number of unethical practices such as stock
price manipulation, insider trading, and other personal profits stemming from
their role as officers. When scandalous behavior is revealed, the government
adds a few regulations. In fact, as government creations, corporations
should be completely regulated. Salaries of corporate officers should be
set by the government, they should be civil service employees, not
free-wheeling entrepreneurs taking advantage of government-granted powers!
3. The Bureaucratization of Business Corporations are not free
associations of free and responsible persons, they are bureaucracies created by
the government. They imbue our working lives with the authoritarianism of the
state. The managers are indeed officers, with state-granted powers over the
organization and its employees. Bureaucracy is not the result of management
style; it is the natural and necessary consequence of all organizations created
by the state.
4. The Stock Market Without the corporation there would
be no market for the freely-exchangeable corporate shares. The stock market,
then is not a free market or consensual entity, it is the creation of the
government by the force of law. It naturally has only a tenuous relationship to
actual corporate value. Investors, corporate officers, and government officials
have every incentive to make stock prices rise as high as possible. The result
is a simple pyramid or Ponzi scheme. Get in early and make profits while others
climb in. Get in late and lose as everyone else cashes in. This is not a
natural or normal business phenomenon. It s a
gambling casino created by the state. The amount of lying , disinformation, and
cheerleading resorted to by stock analysts, the media, government officials,
and corporate officers is embarrassing. Just look at what these entities have
been saying and doing during the creation and collapse of the recent stock
market bubble.
Now let us consider some of the
historical effects of this government institution:
1. Destruction of morality The incentives of the management of a
corporation are clear they seek to increase their income and prestige. Now one
of the ways they can do this, but not necessary, is to increase the stock price
of the corporation. Now one of the ways to do this, but not necessary, is to
increase the profits of the corporation. Now the ways of doing this are many
and not necessarily ethical. One can increase profits by hiding costs, playing
shell games, maximizing short-term return at the expense of long-term return,
polluting the environment, pushing costs off onto other persons, lobbying for
government contracts, lobbying for favorable government regulations, moving
factories to where labor is cheapest, etc. etc. etc. What s
wrong with any of this you might ask? The problem is that the corporation is not
a private individual or group of individuals who are morally responsible for
their actions it is a profit-maximizing machine. Its ethic is simple maximize
share price and profits. Individuals in a private business in a consensual
society would have to be moral because they are both owners and managers; and
members of a consensual society that holds them responsible for their actions.
2. Exorbitant salaries for management The amount of money taken home by the
average CEO is in the millions of dollars; far more than any private business
man would withdraw from his company for his own luxury. But what s to stop
officers from paying themselves and their buddies as much as they can? The
population is convinced that their salaries are a normal and good aspect of
free market capitalism!
3. Scandals Let us establish a rule: whenever there s a scandal we should look for the government
interventions that gave these individuals the ability to enrich themselves
without the immediate knowledge and protestation of the victims. In this case, it s not that certain individuals are corrupt and spoil
everything, the problem is that the corporation itself is corrupt. It is an
abrogation of normal consensual interactions among free and responsible
individuals. Give a person power over other people and their money, and they
will abuse it everytime. Don t be surprised.
4. Exaggeration of the Business Cycle This is intimately related to the
Stock Market as mentioned above. Inflation of share prices yields vast
increases in paper wealth, causing increased spending, causing increased
business production. When the bubble bursts, as all bubbles must, the
outrageous expectations crash to Earth and a recession occurs that wipes out
the over-capacity and over-consumption. We have recently witnessed the biggest
bubble of all time, and it is being followed as I write by a worsening
recession that promises to be much longer and deeper than the stock market
cheerleaders would have us believe.
5. Destruction of private businesses How can Mom and Pop compete with WalMart? How can any private business compete with a
government-chartered machine for concentrating capital and reducing
investor/manager risk? Walmart is just one example of the destruction of normal
community business and social structure. Corporations are gradually gobbling up
every aspect of American life, beginning with industry and now spreading to
agriculture and services. Private business can exist only by filling the small
niches left over. The corporatization of all goods and services means the
bureaucratization of our lives. From school to work, we are always the servants
of government-created authorities. Personal freedom and responsibility are
increasing absent from our lives. We are forced to live and act like machines.
6. Corporate control of the media Just fifty years ago, there were
hundreds of privately owned newspapers, each freely dispensing it s views to
the paying public. A few corporations own almost all newspapers today. The
content of the papers naturally follows the needs of the corporations. Real
dissent and criticism of our corporativist, authoritarian society and its
leadership are practically absent.
7. Corporate control of government The government creates the
corporations, the corporations dominate business and therefore society at
large, the corporations therefore dominate the political process, and you have
a self-perpetuation loop of government control over individuals interests. Corporations
want, of course, government regulations that make it harder for private
businesses to compete. The government obliges by producing so many regulations
and requirements that only large corporations with vast resources can feign
compliance. Government regulators always have an eye on a fat corporate job in
the industry the regulate, therefore their complete ineffectiveness in
protecting the general public.
8. Corporate class society There are two classes in America: Those
who benefit from government institutions and interventions, and those who do
not. In the upper class are corporate officers and their beneficiaries,
incorporated monopolies like medicine and law, beneficiaries of patent and
copyright laws, and government employees. The rest of the population has to
scramble to make money without the benefit of government privilege.
9. Monopoly concentration of wealth and
power Corporations,
given their incredible government-created access to investor cash and their
access to government favors, can freely buy up other businesses and even
competitors. Competition is thus greatly diminished and business increasingly
controlled and operated by persons far away with little knowledge of local
conditions. Private business owners would not expand into products and services
with which they are not familiar. Private owners take pride in their work and
would not sell out to the highest bidder nor would corporations be that highest
bidder in a non-corporate society. Private businesses would stay more confined
to their geographical area where they could easily see every aspect of their
business.
You will no doubt argue that without
corporations we wouldn t have the kind and variety of goods and services that
we have now. You are right. If business here in America and everywhere on Earth
were private only, our lives would be immeasurably different. Sure, we might
not have some of the gadgets we have, and some things would be more expensive,
but look at the benefits! We would not suffer the ethico-socio-economic
ailments outlined above. Society would become naturally cooperative an
interaction of equals with no persons exploiting government-granted powers over
others. Businesses would become more local in character. They would be smaller
in scope and would concentrate on what they do best. They would be far more
responsive to individual customers.
Small businesses would thrive as one
could create a business without fear of corporate competition and without
having to meet the regulations designed for corporations. Businesses would not
be viewed as institutions but as private concerns owned and run by people like
ourselves. There would be no scandals, because there would be no
government granted privileges and powers to abuse! There would be no
multi-million dollar executive salaries, no insider trading, no stock market,
and no exaggerated business cycles. All business, and therefore all life
would become human in scope. Individuals would become self-responsible. People
would work as part of an organic organization, not as cogs in a machine. Employment
would be a mutually beneficial relationship between individuals, not a selling
of one s services to an impersonal machine. Corporate interests would not
contaminate our media. Corporate interests would not contaminate our
government.
How can we become a non-corporative
consensual society? It s certainly not so simple as
just eliminating corporate laws. We cannot replace the immense
government/corporate structure that runs our society without knowing exactly
what we re doing and where we re heading. We must
have a complete vision and understanding consensual human society. See my other articles on
this matter. We have to eliminate authoritarianism and government
intervention in every aspect of our lives business, banking, education,
charity, safety, etc. We have to reduce government, if one wants to continue to
call it that, to the role of policeman and arbiter. Government should prevent
the use of force by persons against other persons, and try to set it right when
such occurs. Irresolvable disputes among persons must not be resolved by force
but must be taken to elected arbiters. Pollution of the environment should be
treated like any other taking of values from a person. If the person does not
agree with or is not compensated for the dirtying of his air, water, or soil,
he should be able to count on the help of the state to stop the pollution or
have the polluter make a reasonable settlement with the affected population.
In the case of corporations, privatization
would not be so difficult as in other areas, and certainly much easier than
privatizing government departments as was so poorly done in the Soviet Union. In
the US, stockholders would become partners. Since most stockholders would not
want the responsibility or liability of actually owning and running a company,
even as a small partner, they could sell their shares to investors who did. The
value of shares would no doubt drop when this privatization is announced, as
they would lose their Ponzi-scheme premium and society would no longer be
organized around propping up share prices.
I want to help create this revolution
so my children and the rest of humanity can enjoy life in a sane, humane
society of free and responsible persons.