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Today, Jim Wilson points out an apparent inconsistency:
Corporations are the dominant form of organization in modern society. They make most of what we own and chances are that you currently work for one or have worked for one in the past. In the modern economy our fortune is tied to theirs. If they are not making profit levels they find acceptable, corporate share holders can disinvest and shut down much of the economy and compromise the economic well-being of everyone else. They wield a great deal of power over society. Many of us hear more direct orders from our corporate bosses in a given week than we hear from our government in a year.
We take this relatively recent development in our society for granted or natural. We look at corporations uncritically. This is especially true of more conservative libertarians and small government, free- market oriented friends. They feel that the modern business corporation is a legitimate part of the free-market as well as product of it but it is impossible to be consistently pro-free-market and supportive of modern corporations. They are one of the largest distortions of the free-market in existence today.
Corporations are by definition entities that have special government-granted legal privileges that are distinct from those of their individual members. They are distinct from other types of organizations operating on the market. A small business, a general partnership or sole proprietorship, which does great harm to the persons or property of others in the course of business, is legally responsible to the full extent of the damage. A business that receives a corporate charter however, has a limit on the extent that it could be held responsible. If a corporation is responsible for harm to the persons or property of others, shareholders may lose their investments and employees including management may lose their jobs but neither will be liable for debts to the corporation’s creditors or damage to other caused by their activities. In other words, corporate law sets up incentives for owners and managers to risk the well-being, health environmental, or national security of others with minimal risk of having to personally deal with the consequences. You can sue the corporation as an entity but the people responsible for its decision making and their accumulated wealth will be protected.
This feature is greatly responsible for much of the economic growth since the onset of the Twentieth Century. Growth is a product of special government treatment and it comes at a cost. As a result, large corporations have enormous political influence as well as massive influence over the economy and our individual lives. This is a violation of a truly free-market where the same liability standards would apply to all organizations. Libertarians are now in the awkward position of having to denounce government intervention that is likely responsible for a great deal of economic development or having to be inconsistent in their ideology.
Corporate law dictates that corporations be structured as a system of directors and subordinates. Special treatment is given to organizations that are highly hierarchical and pyramid shaped over the more egalitarian structured entities. The economy is now dominated by organizations set up in the same manner as the state and the military so much that such hierarchies now feel natural to us.
Corporations are similar to so called “free trade agreements.” While these by definition involve our government intervening in the economic policies of other governments and are inconsistent with a small government, conservatives universally support them. Consistent advocates of small government should oppose them. A consistent free market advocate should favor our government leading by example rather than meddling in the economic affairs of other countries. Only the favored industries tend to be ones our government subsidizes. If we actually grant all the assumption of free market rhetoric, the appropriate thing to do would be accept trade from all other countries regardless of their trade policies. A major point of these trade pacts is to get policies favorable to the stronger country “locked in.” When the weaker country elects new leadership or public opinion in it changes, the policies will remain unchanged. Our government also supports the World Bank and International Monetary Fund. They intervene internationally to promote U.S. business interests.
Many of the supposedly small government people in both the conservative and libertarian movements have a slightly corporatist bias. They ignore, take for granted, or even praise government intervention on behalf of corporate interest while railing against the welfare state or regulatory state. This is a double standard. It is unsurprising since a great deal of free-market rhetoric is funded by corporate interests. Corporate sponsored propaganda often makes corporations out to be the victims of government intervention rather than a product of it. The power of corporations should be questioned and advocates of free-markets and small government should play a key role. In doing this they would make their world-views more consistent.
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