It seems very popular these days to blame Big Corporations for the troubles and ills of our economy. They are too greedy, they exploit their workers, they make poor business decisions, go bankrupt and get bailed-out from the government (the taxpayer). It’s very popular, especially on the Left, to use Big Corporations as a punching bag to appeal to their constituents, and this type of demagoguery is nothing new. That said, not nearly enough people have actually thought about what a corporation is and why they cause so much trouble. Let’s take a closer look at these evil monstrosities.
Government Loves Corporations
Mitt Romney, Republican candidate for President, famously said that “Corporations are people”. In a way he is right. A corporation is a collection of people that have come together for a common cause; typically to make money by providing a good or a service to the public. A corporation cannot have more rights than the collection of rights of the people that form it, and since all humans have the same Natural Rights (speech, life, the fruits of their labor, etc) they cannot invent new rights or legal shields when coming together. Neither can the government grant special rights or privileges to a corporation above those rights of a single individual because individual people have rights, not brick buildings. The only rights allowed to a corporation are the EXACT SAME rights as the individuals who organized it.
The trouble comes in when governments allow corporations to apply for special legal privileges that are outside the scope of Natural Rights. All of a sudden this imaginary entity called a “corporation” now has special legal protections that a normal person does not have. Government grants these legal protections to whomever they want; those who bribe, or jump through their legal hoops, or possibly know someone on “the inside”. Without these additional protections, the owners of the business organizations (corporations) would be liable for any damages to person or property just the same as if you or I were responsible for damages.
Government makes friends with businesses by limiting the amount of liability placed on the owners of a corporation. This wins votes, money and power by selling their influence as well as giving out new imaginary “rights”. If the government told you that you could rob or cheat someone without being held personally liable, would you be more inclined to rob more or less people? This influence peddling is Fascist and bridges the gap between Big Government and Big Corporation. Unfortunately this friendship is all to common and exists in nearly every country. Bailouts are the most obvious example of this mutual “friendship”, but the ramifications of government interference runs deep.
Regulation also plays a part in this Big Gov/Big Corp relationship. Once a corporation grows in size they want to limit the amount of new competition that enters the field to protect their profits and influence. Big Gov will enact regulations, for your safety of course, which increases both the cost and complexity of new, small businesses to compete with the Big Corp.
Licensing is a good example of this type of regulation. Requirements to obtain a specific license restricts the number of people that can legally enter the workforce in a specific sector. The stock brokerage profession is a great example. All stock brokers and money managers in the US are required to obtain a license from FINRA, which is a “private organization” that regulates the brokerage industry. Remember, this is a supposedly private organization, but its licenses are required by the government.
Corporations in a Free Market
Corporations could exist in a Free Market, even without any type of government intervention. Since a corporation is nothing more than like-minded people deciding to organize together for a common cause, they are free to do so. As long as they do not deny Life, Liberty or Property to anyone else.
The difference between a corporation in the Free Market and a corporation which is granted special rights by Big Gov is that the owners of the Free Market corporation would be personally liable for all damages. The owners of Big Corporations currently have their personal assets protected, and only the corporation’s assets are legally liable when being sued. In a Free Market, without such government intervention, the owners of the corporation would be liable for all damages since joining together does not give them additional rights to shield their assets from liability.
It would be possible, through contracts, to tell potential clients that the owners have pooled a certain amount of resources/capital together, and that all of their other assets are not subject to liability. It would then be up to each of the corporation’s clients and customers to decide if they want to do business with such liability limitations. If so, they would sign the contract with the corporation stating that they understand that the corporation’s owners cannot be sued for more than the assets owned by the corporation. If not, the potential clients could refuse to work with such a group of people.
Conclusion
The Freedom of Association, the ability to pick the people that you associate with, allows for the ability for free people to come together to form groups and organizations. At times these groups decide to produce a good or service and to provide it to the general public in order to make a profit. Hopefully this will never change.
Corporations, at their very root, are nothing more than this type of organization. The confusion comes in when Big Government gives corporations special rights and privileges to shield legal liability and to limit/restrict competition. These special rights are not subject to natural law, and it is not possible for people to organize together and gain additional rights.
The owners of corporations should be responsible and liable for the damages caused by the market organization which they have formed. Removing this liability causes corporations to take risks which they would otherwise not take because their personal wealth is not at stake. With the addition of special regulations, Big Gov and Big Corp can legally take advantage of the customers, and work together to benefit each other. Big Gov enjoys controlling Big Corp and industry for power purposes, and Big Corp enjoys the extra protection that Big Gov provides.
This is an evil partnership, and one that would not exist in a truely Free Market; where the individual and consumer have the power, and must be convinced through peaceful means to part with their hard earned money.
-Ashe
Recommended Watching:Â Evil Monopolies are Fairy Tales In Free Markets
Tags: corporation, magic rights, regulations
There are some problems with this post. I thought Stefan Kinsella covered this. The first thing one needs to do is draw a distinction between banking institutions and other types of businesses. I'm sure we are all aware of the privileges inherent in a central banking regime. So, I am going to assume you are addressing other types of businesses that produce goods and services.
There are two types of liability. There is liability for debts incurred with creditors, and liability incurred from torts.
Liability for debts falls under "limited liability". Shareholders/owners/partners can not be held personally liable for a company's inability to repay a creditor or vendor. Limited liability is given in incorporation, but partnerships and sole proprietorships can have a limited liability status (LLC). All this does, is tell a potential creditor that the owners will not be held liable for debts. It is a private agreement between the bank and the comapny. A bank is under no obligation to accept this status. They can, and many times do, require significant capital collateral, and/or contribution by the comapny.
Tort: a wrongful act, not including a breach of contract or trust, that results in injury to another's person, property, reputation, or the like, and for which the injured party is entitled to compensation.
Liability for torts falls under "vicarious liability". What that means is, if an employee of, say, UPS accidentally drives his truck through somebody's living room, the driver is not liable, the company/owner is liable. Most companies, if not all, carry sufficient general liability insurance to cover any liabilities for torts. If company's were not liable for torts, they wouldn't carry general liability insurance.
In cases of torts arising from extreme negligence or malice, upper management can, and have been held civilly and criminally liable.
There is only one instance that I am aware of where companies are not 100% liable for torts, and that is Gulf drilling. The government places a cap on the amount of liability insurance a company must carry. It a lawsuit exceeds this amount, then the government picks up the difference.
This could do possibly more to level the playing field and fix the messes we are in, then almost anything else