Guest Post: In Defense Of The Corporation

Tyler Durden's picture

Submitted by Keith Weiner

In Defense Of The Corporation

Today, the government of the USA is in an accelerating transition.  For the first 100 years (with a few exceptions) the government of the USA existed to set man free from men.  The rights of the people were respected by the law and by the courts.  And it is no coincidence that the USA grew from a small agrarian society in the 18th century to a wealthy superpower barely a century later.

But today, the government is taking control over every facet of the economy: sector by sector, law by law, regulation by regulation, court decision by court decision, czar by czar, presidential diktat by president diktat.

In this environment, formerly good and honorable words like “police officer”, “banker”, and “corporation” have taken on negative connotations as people become aware of the nature of our present system.  The evil is not in the fact of being a police officer; it is in the nature of enforcement of bad laws (and neglect of enforcement of good laws).  It is not in the nature of lending (i.e. exchanging wealth for income), but in helping the central bank create inflation (i.e. counterfeit credit).  It is not in the nature of forming a large-scale enterprise, but in buying coercive powers and in forming an evil alliance with government.

By Corporation, I do not refer to the modern parasite that latches onto the government, seeking to coerce its customers, destroy its competitors, and feed at the public trough.  Benito Mussolini coined the term for this system—fascism—though of course he did not regard it as the terminal stage of civilization.  People today also call this “crony capitalism”, a term I don’t favor, as it is not any kind of capitalism at all, but the negation of capitalism.

Ayn Rand once noted that, “civilization is the process of setting man free from men” (“The Soul of an Individualist” in For the New Intellectual by Ayn Rand). When the government abandons its legitimate mission of protecting the individual rights of life, liberty, and property and instead institutionalizes their violation, then that society is reaching the end.  What inevitably must follow next is the disintegration of the specialization of labor and then collapse of the civilization back into a dark age.  Without the specialization of labor, each man must learn to produce—and physically labor to produce—everything he needs on his own, using only the resources of the patch of ground he happens to be on.  This relegates him to the level of a beast, and under such conditions life is short and miserable.

It is in this light that I offer my two (gold!) cents about the nature of the corporation.  Stripped of its pejorative connotations—and of the looting of the current system—what is a corporation?  Earlier, I noted that a corporation is a large-scale enterprise.

Let’s begin there.  I will first propose something that I think should not be controversial.  The production of certain goods and services requires a large scale.  There is no such thing as a local subsistence computer chip manufacturer.  Intel does and must operate on a world-scale.  Only at this scale is it possible to pay for the vast research and development necessary for a chipmaker.  Only at this scale can a factory produce such small and delicate things as computer chips.

The same thing applies to an airline, or even food production.  We take for granted today that we can go to a supermarket and buy almost any fruit or vegetable at any time of year, any meat, or processed food.  It will be safe, and it will be affordable to a wage earner.  This was not true 100 years ago, and it is not true in many places in the world today.

What are the requirements of operating at large scale?  One needs a large amount of capital (more than one man could provide), large numbers of employees, and large numbers of customers.  Let’s look at these in order.

What are the requirements of raising a large amount of capital from strangers?  First there must be a business plan that promises a good chance to pay the investor a good return on his investment.  And there is something else.  The investor understands that the money he invests is at risk.  But beyond that, he will not willingly risk his life’s savings, house, and his family legacy.  If investing an ounce of gold necessarily put the other 99 ounces he owned at risk, then no one would invest, period.  The investor has a choice of how to pursue his goal of exchanging income for wealth.  He can always fall back on hoarding during his working career and dishoarding in retirement.  The entrepreneur, on the other hand, has no choice.  If he cannot raise capital from investors, he cannot get into business (or expand his business beyond his workshop).

What about hiring a large number of employees?  With each hire, the company incurs a risk of loss due to any number of factors including if the employee is injured, the employee causes an injury to someone else, the employee damages the company’s property or the property of a third party, etc.

The same issues apply to selling at world-scale, to numerous customers all over the world.  If a customer is injured due to faulty product design or manufacturing, if customers change their taste and refuse to buy a product which has been manufactured in large quantities in anticipation of big sales numbers, a competitor sues for patent infringement, or any number of other things happen, the company incurs a risk of loss.

One of the requirements of operating at large scale appears to be in conflict with two other requirements.  To raise money from investors, there must be a limitation of liability.  To hire a large workforce and to sell in large volumes incur risk of loss that could exceed the company’s capital.

I propose for consideration by the reader a statement that I realize is controversial today.  I propose that the only solution for the above three constrains is the limited liability corporation.  Without the limitation of liability, it is not possible to operate a business at larger-scale than a family workshop.  It would be possible to make shoes, barrels, swords, and all of the other goods of the Dark and Middle Ages.  It would not be possible to reach the Industrial Revolution, much less to produce refrigerators, cars, computers, or the Internet.

In addition to the limitation of liability, there is another important attribute of the corporation.  The corporation itself owns its capital such as money, land, buildings, tools, inventory, etc.  And the corporation is the party of record in contracts such as with landlords, suppliers, customers, banks, etc.

This is the other controversial aspect of the corporation.  For legal purposes, a corporate entity is a “person” with the rights of speech, liberty, contract, and property.  As described above, it would not be possible to operate a business larger than a family workshop if each tool had to be owned by a person (a wage earner?), each contract had to be signed personally by a person (a manager?), and each debt incurred by an individual person (one of the investors?)  It is the corporation as such which engages in production, owns its means of production, sells its output, contracts with other parties, etc.  It is not merely a loose confederation of family workshops in a cottage industry, wherein each is an independent entity.

Thus we must conclude that our modern, industrial, information-age civilization with its advanced transportation, communication, health care, and other technologies literally owes its existence to the limited liability corporation that has the rights of personhood.  Let us all work towards the day when the corporation returns to this definition and is no longer a large-scale parasite, seeking ill-gotten gains at the public trough.

© April 28, 2012 by Keith Weiner

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
mikla's picture

Brave essay.  Unpopular message.

NotApplicable's picture

Agreed. Given the alternative is caveman life, you'd think it would be a bit more popular.

Ahmeexnal's picture

Corponation. There, fixed it for ya.

Germany plunges back to full blown nazism:

http://www.thelocal.de/national/20120430-42263.html

The Berlin police force is preparing to break in its new high-tech water-cannon monster-truck for the annual May Day protests in the German capital, with demonstrations and clashes expected to begin on Monday night.

http://www.thelocal.de/politics/20120430-42257.html 

A far-right party on the campaign trail in Germany's most populous state is threatening to put caricatures of Mohammed outside mosques in a string of cities, prompting fears of violence.

 

Switzerland no longer tolerating "third world immigrants".....from neighboring Frankenreich:

http://www.thelocal.ch/3224/20120430/

Residents of France who work across the border in Geneva have become the targets of a virulent anti-migrant campaign calling for their houses and cars to be burned.

Some 90,000 foreigners, most of them French, cross the border to work in Geneva, sparking tension in an area with the highest unemployment in Switzerland - 5.3 percent in March, against a national rate of 3.2 percent.

A pamphlet distributed this month outside the Geneva University Hospitals calls for the elimination of "this border scum".

"They are everywhere... in a number that far exceeds the tolerable quota, with their arrogance, their pollution, their contempt, their insolence and their privilege," the pamphlet said.

"Total war is declared," said the tract, which was reprinted by the local Socialist Party in a newsletter expressing alarm over the document's violent nationalism. "Burn their houses, their cars. Border workers, get out."


falak pema's picture

you sound like Attila the hun except you are from the country of the hamburger bun. Is there a pun there? Or are you just a meatloaf without the bread loafs? 

Ahmeexnal's picture

Spain rated as "bono basura" (junk bond) by S&P:

http://economia.elpais.com/economia/2012/04/30/actualidad/1335769269_262...

 

Foreign capital accelerates its flight from Spain. Eurocrisis entering parabolic stage, hyperinflation soon to follow:

http://economia.elpais.com/economia/2012/04/30/actualidad/1335784235_238...

 

Spain continues to be the largest consumer of drugs in the world:

http://www.elmundo.es/elmundosalud/2012/04/30/noticias/1335807433.html

 

YPF CEO sold his personal shares before nationalization by Argentina:

http://www.elmundo.es/america/2012/04/30/argentina/1335796495.html

Ahmeexnal's picture

While NL  celebrates the queens birthday, gezellig ist tot as germany orders coffee shops in Netherlands to stop selling THC to foreigners. The church bells in A'dam will no longer chime at 4:20.

http://www.abc.es/20120430/sociedad/abci-termina-turismo-porro-amsterdam...

 

Un tribunal de La Haya ha dado el visto bueno al decreto que prohíbe a los célebres «coffee shops» la venta de marihuana y hachís a los no residentes en Holanda, lo que supone un golpe mortal para un sector que atraía a turistas y visitantes de todo el mundo a este país. La sentencia se ha hecho pública el último día de plazo antes de que el decreto entrase en vigor el primero de mayo.

Las tiendas podrán seguir abiertas, pero a partir de entonces será necesario un documento que atestigüe que el cliente reside en el país. La norma empezará a aplicarse en la zona fronteriza con Bélgica y se extenderá a la capital, Amsterdam, el año que viene.

La medida era una vieja aspiración de los países vecinos, sobre todo Alemania y Bélgica, de donde partían la mayor parte de compradores de este peculiar turismo.

AldousHuxley's picture

many small corporations competiting = good for consumers and investors

 

big corporations = efficiency and corruption of government

 

corporations have grown in size and influence, but like any other institution, they too will be replaced.

 

 

BigJim's picture

I agree with the earlier poster, it's nice to see this issue addressed, even if I don't think the article's author has thought it through sufficiently.

His principle argument is that no one will invest their money if loss arising from that investment is not limited to the amount invested.

And yet we all routinely embark on activities that entail much higher risks than we are initially investing. Marriage, children, getting training in a specific field, just going out for a drive - as individuals, unprotected by the government, we could all face catastrophic loss arising from these undertakings.

And, morally, exactly why should your liability be more limited than anyone else's just because you've formed a corporation?

We have auto insurance to sheld us from making ruinous payouts in the event we wind up causing a massive accident. I don't see why similar free-market mechanisms wouldn't arise if we took away corporations' privileges - privileges that only arise because the state grants them.

Furthermore, let's examine some instances of corporations and what they produce. The author makes the mistake of lumping the potential risks of all corporations together. Yes, you need a large scale enterprise to produce computer chips. But the risks arising from their production is fairly small - and, consequently, liability insurance would be consequently small, say, compared to a corporation drilling for oil in the Gulf of Mexico, or producing power from a Uranium/Plutonium fission plant.

'Investor insurance' - to cover your ass if your investments wind up causing massive damage to other people's property or lives. Your premiums would reflect the risk... which is at it should be.

Dr Benway's picture

I think this is a great article.

 

There are powerful advantages to having large corporations and the scale efficiencies they allow, and as the author points out some industries would not be possible without the LLC. More to the point, any society that harnesses these efficiencies will be able to dominate any society that does not.

 

Problem is, when crony-capitalism crashes, people will blame the capitalism half and not the crony part.

sgt_doom's picture

His name is Weiner so it should be weiner bun?

His name pretty much sums up his idiotic Tea Party douchebagging post.....

NoClueSneaker's picture

... screw Berlin. Hamburg has that truck toy for more than two years :-P

The biggest show starts at June 2nd. 3000 nazis and 10.000 NWO cops will show the populace how the german democracy works.... and yes, optimus prime is also there.

 

mikla's picture

It is understandable that the populace feels oppressed, because it is.  The people blame corporations, when they should look to their own governments (and yes, the oligopolies that co-opted their governments).  Government-controlled capitalism is called Fascism, and that is what we have, worldwide.

However, this essay attempts a clear statement to the contrary: "Economies-of-scale" is significant.  Growth of an entity with access-to-resources is essential for some industries/product-pipelines.  The result is prosperity.

Another thought would be that corporations similarly allow an individual with a good idea, and access to capital markets, to create an institution strong enough to defend itself from (government/beurocratic) oppression.

The best thing for any totalitarian system is to ensure all individuals are insignificant, and to deny their ability to become (or grow) anything beyond the single individual.

It takes an enormous amount of work, and fabulous logistics, to kill millions of people.  That's why throughout history such a job is only performed by governments, and not corporations.

So yes, the populists are correct that the "too-big-banks" and "too-big-Monsantos" are killing the people, but that's only because they've co-opted the governments into Fascism.  The problem with that relationship, however, isn't the corporations (though they are at fault).  Rather, the problem is with the governments:  Why on Earth do people think Government should have that type of power?

Remove that civil deference, and the fascist relationship collapses.  Corporations then deliver value, or die.

Our only problem today is that corporations don't deliver value, and the governments choose to keep giving them money-and-power directly, and yes, that is killing their people.

GeneMarchbanks's picture

Remove that civil deference, and the fascist relationship collapses.  Corporations then deliver value, or die.

No doubt that has been true. Little by little however, the corporate attitude has taken over in America. There is no state, no government. The so called 'revolving door' wasn't something the State created. It's the opposite. First came Goldman then Treasury.

Corporations are getting better and better at seducing us into thinking the way they think—of profits as the telos and responsibility as something to be enshrined in symbol and evaded in reality. Cleverness as opposed to wisdom. Wanting and having instead of thinking and making. We cannot stop it. I suspect what’ll happen is that there will be some sort of disaster—depression, hyperinflation—and then it’ll be showtime: We’ll either wake up and retake our freedom or we’ll fall apart utterly. Like Rome—conqueror of its own people.’ --DF Wallace

Sophist Economicus's picture

Treasury - Founded 1776

Goldman Sachs - Founded 1869

You're entitled to your own opinion, not your own facts

GeneMarchbanks's picture

Excellent facts. Too bad they have nothing to do with what I'm saying which is that the last two or three Treasury Secretaries have been straight out of Goldman.

 

roadhazard's picture

BushCo's Treasury Sec. was from Enron.

Vampyroteuthis infernalis's picture

I agree with the article in the sense that corporations are nothing more than just entities. It is what the entities do that matters. Families, individuals, governments and etc. can either be good or bad depending on how they are run. If we want our corps to be moral again, we need to change societies' values. If not, the corps. will continue to extract from the helpless to enrich the immoral and wealthy.

sgt_doom's picture

But beyond that, going back to the treasure secretaries, at least back to Andrew Mellion, then the 5th richest man in America when he was treasury sec'y through multiple administrations, they've all been a scurvy lot, some with direct relations to royalty (Dillon's daughter was Princess of Luxembourg, after all....).

midtowng's picture

It isn't government that owns the capitalists. It's the other way around.

It wasn't the government that corrupted the system. It was the wealthy capitalists.

This is a natural transition of capitalism, not of government.

Sophist Economicus's picture

So true!   That's why under Stalin, when there were no corporations, the government was a sterling beacon of honesty and provided such a nurturing environment for their people.

 

Since Stalin's death, the only last bastion of government idealism, stripped from the nasty side effects of corporations is North Korea. 

 

You should move there and drop us a line on that natural transition thing

midtowng's picture

Very clever, except that it completely misses the point. Stalinism was NOT a trasition of capitalism.

Fascism is a stage of capitalism, not communism.

It's a sad statement on the American educational system that so many people can't tell the difference between fascism and communism. Both systems being totalitarian does not make them equal. Of course some people still call China communist, so reality doesn't seem to make a difference here.

BigJim's picture

Look, throughout history, every polity gets hijacked by an oligopoly. Either from within, or from outside.

Capitalism just happened to be the dominant economic system when it happened to us.

We came the closest of all civilisations to being free. But we fell asleep at the tiller and now we're allowing ourselves to become enslaved too.

Maybe enough people will wake up to bring a change to the system while we still have a vote. But, frankly, I'm less than optimistic.

vato poco's picture

Big Jim wins the thread. Capitalism, Free Markets, corporations, and governments *always* get hijacked by the scum that wriggle their way to the top of the heap. Hell, the US Constitution, _as it was written_, was a fine & dandy idea for a government. "All other powers besides - essentially - delivering the mail, collecting tariffs, and (maybe) building interstate freeways are expressly reserved for The People"...got a nice ring to it, don't it? Even if they DID whomp it up in secret in the middle of the night, while telling the people they were doing something entirely different. Maybe that's what doomed it all right from the start.

But if the country were to run on its original, specifically delineated precepts - that means no fucking "judicial review", and "all powers not expressly given to fedgov belong to the states" for starters - we'd all be a lot more free and (hopefully) happier. We'd have a lot fewer wars under our belt, anyways.

But no go. That's the thing about rats & roaches: doesn't matter how deep you bury 'em, or how many you kill with the disinfectant of sunlight, you'll never get 'em all. They'll lay low, live on scraps and garbage, breed like flies and just wait you out. You'll get tired & give up before they will. And they **never** quit: so sooner or later, you've got yourself an infestation of vermin fucking up your once-glorious system/markets/corporations/governments. Like B follows A. The only question lef tis what's next? I ain't optimistic, either. At best, there's gonna be a lot of people having their lives and savings destoyed; at worst, there's gonna be a lot of dead US citizens.

BigJim's picture

Thanks.

A lot of the political arguments I see seem to work from the premise that there could be some ideal system, in which sociopaths couldn't wriggle their way into positions of power and start using its levers to subvert the system to their ends. So, when libertarians argue for minimal government, collectivists always (and correctly) point out that sociopaths will exploit the concomitant lack of regulation to fuck other people over. What the socialists never seem to realise is that bigger government's larger levers afford those same sociopaths even more power to fuck others over.

So... I don't think there is one, static, ideal, system... because it will always be subverted. I think this is what Jefferson meant when he said the tree of liberty needs frequent watering with the blood of patroits and tyrants. We, the people, have to be vigilant and continually hit the reset button whenever the system starts going awry, before it goes too awry.

Of course, people are usually too lazy, or simply calculate they have potentially much more to lose by rebelling against the system as it stands than just keeping shtum. So, in the early stages of systemic subversion, there is little resistance, because people are weary from the bloodshed that arose from the previous rebellion, and remember how much worse things were before the regime change.

However... kleptocracies rarely correct themselves, but become more corrupt over time, eventually forcing the majority of head-duckers to the conclusion that they really haven't anything left to lose anymore.

sgt_doom's picture

Technically and educationally speaking, Stalin's gov't was State Capitalism, while today China's gov't is Totalitarian Capitalist State, and the USA is a Corporate Fascist State --- I'll bet you had probs with arithmetic when you were a wittle boy.

dolly madison's picture

It isn't government that owns the capitalists. It's the other way around.

 

I think it's a bit of both.  When Microsoft didn't pay lobbying money to the government officials, they went after Microsoft.  And they are going after the internet companies with SOPA, etc.  If big corporations don't give the government officials lobbying money, the government starts going after them,  I'm sure there are also cases of the corporations trying to buy off the government first. 

So, it is probably the natural way for a system of representative democracy and corporations to end up with them in an evil alliance together benefiting themselves above the people.

I think several things could greatly alleviate this.  First, giving the people the powers of recall and referendum would go a long way to fixing the problem.  There are many checks and balances in our constitution, but we need a check and balance that gives the people more power to boot out corrupt politicians, and to veto bad laws.  After all there is nothing more important than the government fearing the people more than the people fearing the government.

Second, perhaps making the CEO and board of directors personally liable could go a long way to making the corporations act like responsible citizens without stopping the economy of scale because it still exempts the shareholders from personal liability.

BigJim's picture

 I think it's a bit of both.  When Microsoft didn't pay lobbying money to the government officials, they went after Microsoft.  And they are going after the internet companies with SOPA, etc.  If big corporations don't give the government officials lobbying money, the government starts going after them,  I'm sure there are also cases of the corporations trying to buy off the government first. 

+100

sgt_doom's picture

thank you and exactly right, and in the midst of a LBO "pump and dump" so obvious that finally even David Stockman could figure it out.....

Ah oh, the corporate PMC's assassin is out to get the Weiner guy:

http://craphound.com/images/tumblr_lybqzwyo7Q1qk3l1so1_1280.jpg

 

blunderdog's picture

The "corporation" neither knows nor cares what may be different between dollars provided by government and those provided by end-customers.

 

NotApplicable's picture

Sure it does. It's much easier to seek rent than to have to openly compete for customers.

malikai's picture

Personally, I'm in favor of unlimited liability. But, to each his own.

NotApplicable's picture

I'm assuming you've never owned your own business, then. As a sole proprieter, you're only a single customer away from losing everything you own in a lawsuit.

malikai's picture

I understand that, and realize the absurdity of court rulings these days. I should have qualified my position by including a fair and impartial judicial system. Something I have not seen in my lifetime, but is rumored to have existed some where, at some time.

BigJim's picture

But how is that any different from any other person going about their day-to-day business?

Exactly why should your liability be more limited than anyone else's just because you've formed a corporation?

We have auto insurance to sheld us from making ruinous payouts in the event we wind up causing a massive accident. I don't see why similar free-market mechanisms wouldn't arise if we took away corporations privileges.

buzzsaw99's picture

Let it burn, stir the ashes, let it burn some more.

GeneMarchbanks's picture

‘Corporations aren’t citizens or neighbors or parents. They can’t vote or serve in combat. They don’t learn the Pledge of Allegiance. They don’t have souls. They’re revenue machines. I don’t have a problem with that. I think it’s absurd to lay moral or civic obligations on them. Their only obligations are strategic, and while they can get very complex, at root their not civic entities. With corporations, I have no problem with government enforcement of statutes and regulatory policy serving a conscience function. What my problem is is the way it seems that we as individual citizens have adopted a corporate attitude. That our ultimate obligation is to ourselves. That unless it’s illegal or there are direct practical consequences for ourselves, any activity is OK.’ --DF Wallace

Rasna's picture

The CITIZENS UNITED ruling changed all of this... Corporations are "People" with ALL of the rights pertaining there unto.

RichardP's picture

The CITIZENS UNITED ruling changed all of this...

Not so.  Corporations have long been considered legal entities, with rights and responsibilities under the law - just as you are likewise considered a legal entity, with rights and responsibilities under the law.  The Citizens United ruling simply reaffirmed what was already known - it did not create a new definition.

http://en.wikipedia.org/wiki/Legal_entity

Dr. Engali's picture

I don't have a problem with corporations in general. The problem I have is  they have all the politicians in their back pocket aren't allowed to fail or held accountable when they practice bad business behavior.

Caviar Emptor's picture

We will shortly see the grinding death of the small corporation (small business) and the rise of the mega-multinational combine. Thanks to the engineered biflationary squeeze on margins where cost of doing business and all input costs rise while consumers' incomes and net worth decline. 

If you're in doubt, just check out latest earnings reports. Apple and the 35 largest US multinationals added jobs 3 times faster abroad than at home. And 60% of their revenue now comes from overseas

http://online.wsj.com/article/SB1000142405270230399060457736788197264890...

i8emallup's picture

The objective of a corporation is to maximize profit for its shareholders.

Any and all means required to achieve this objective are fair game.  There are many cases where these objectives conflict with the greater good of human life. 

In some cases, the value of the quality of human life, even the value of human life itself is actually an externality, something to be disregarded so that the brimary objective can be achieved. (Slavery, Military, For Profit hospitals)

This is why there needs to be a careful review of the laws surrounding corporate personhood.

Alcoholic Native American's picture

Correct a corporation is essentially a capitalism bot.  And if I was one I would use some capital to buy off law makers that might impede my ability to maximize profit.

 

Done and done, resistance is futile.  Capitalism wins.

 

 

GeneMarchbanks's picture

Except it's worse, it's War Capitalism as bad or worse than Stalin's War Communism.

Esculent 69's picture

the purpose of any business is to maximize profits PERIOD. to have a solid business based on legitimacy of its service, not to create a fraud of a system that rewards the early inside investors to loot the late investors.  Or engaging in selling worthless assets that are rated AAA by Government agencies who oversee these assets and have a vested interest in those assets succeeding no matter what is what the real problem is. go look at all the people who are in government that go to goldman sucks/ jpmorgan/ citigroup, etc..... Once the government allows, condones, and rewards these corporations for perpetrating fraud without punishment, then this will continue.

http://technorati.com/business/article/jon-corzine-to-be-hoisted-by/

 

sgt_doom's picture

"the purpose of any business is to maximize profits PERIOD."

Ooooooohhhh, repeating those Rush Limbaugh and Hannity talking points right on que, robot child!

You may wish to read up on financial history, sonny boy.

 

W10321303's picture

Capitalism = Long-term investment that creates Long-term value.

Your comments just signify the diseased nature of most of the discussion in this regard for the past 30 years. "even the value of human life...." Even when the alleged articulate and educated try to express some sober judgement about the sociopathic corporation (modeled on the European/Dutch, Portugese, British, American) SLAVE plantation they fall on their faces.