The Corporation IS evil, just not for the reasons you think

The repeated refrain from the left about the "Evil Corporations" is in fact spot on, but the analysis of WHY they are evil is utterly incorrect. While I'm not even sure if there is a coherent opinion of corporations on the Right, the libertarian position certainly posits it's own conclusion -- basically that the relationship between the corporation and the state forms a sort of power cabal that is inherently anti-free market, and more broadly forms the backbone of the warfare-welfare state. While this is true enough, it is only a critique of the symptom rather than the cause of this reality. I will attempt here a proper explanation of the inherent flaw in the corporate entity, refuting the leftist concept of "greed" and in support of an anti-corporatist argument.  At the highest level, suffice it to say that the corporation is evil strictly because it is anti-free market, rather than somehow being an inherent market phenomenon as common experience and insufficient consideration would have us believe.



To start with, this article is not meant to be an expose of corporate evil: the modern institution of corporatism clearly delivers unto society a great many goods, but the accompanying monopolization/cartelization of industry, the destruction of small business and entrepreneurship, the takeover of political policy, the laying waste of the world's environmental resources, the wage slavery and homogenization of culture are all real impacts of the modern corporate world.  But cataloguing these destructive behaviors is not the purpose of the article, nor is it my purpose to weigh the pros and cons of such a system.  Rather, insofar as these evils are in fact purpetrated and it is clear to most every reader that this is true, I will simply run with the premise: The Corporation IS Evil.

Again, as this argument develops, I cannot stress enough at the beginning that one must differentiate "the corporation" from general business enterprise -- the two are certainly not the same thing, and as entrepreneurship seems to be as fundamental to human nature as are breathing or smiling or anything else, let me be clear that I am in no way critiquing general business enterprise, and as you will see quite the opposite.

Let's start then with a definition: what is a corporation?  It is a way for an individual or a group of individuals to undertake a business enterprise while separating their personal liability from that of the enterprise itself.

How is the liability of the individuals actually limited?  The limits to liability are granted as a guarantee from the government (be it city, state, federal, or otherwise).

There are two fundamental problems here:

The first is a bit more "squishy" but also more obvious, namely that the limitation of individual liability has already incurred a certain moral hazard such that profits can be made by the individuals but losses are socialized through government decree and guarantee, so in an important way the individual can take greater risks without having to bear the costs.  I call this the "squishy" argument because it delves into the world of morality and the psychology of human behavior, which are of course highly contentious domains of consideration.

The second problem is what really strikes at the heart of the matter and is an argument based on economics: the limitation of individual liability is essentially a form of insurance -- the individual receives a blanket policy covering their personal assets in the event of any kind of business failure.  But what we have here is a monopoly of a particular good -- insurance against business risk.  The fundamental problem with the corporation is that it entirely crowds out what would otherwise be a flourishing market to provide individuals with insurance against liabilities encountered through business risk.

What we know about monopolies is that they have a tendancy to provide fewer and lower quality goods at higher prices than will be produced by an industry that allows free entry for producers that wish to compete for the right to offer that good.  That is precisely what happens with the corporation -- the circumstances produced by that arrangement dictate a woefully inadequate means of limiting individual liability, and that inadequacy is paid time and time again by the consumers and the general public as I will explain below.

Let's imagine for the moment that no such thing as incorporation through the government exists -- what would that look like?  As an individual entrepreneur, what it immediately means is that I am fully liable for any business losses either incurred by failure to make a profit or else through potential lawsuits that would be levvied upon me should it turn out that my product actually harmed consumers or others through tangibly negative externalities.  This means that it is FAR riskier for me to go into business, and all things equal I am less likely to start a new enterprise or purchase an existing enterprise than I would be if I didn't have any personal liability associated with it.  This of course means that, all else equal, fewer new enterprises would be started, and of course you can then see why such proposals to create state-backed corporations were popular in the first place -- it effectively lowers the cost and risk of entering into a new enterprise.  Of course, the consequences of these policies is exactly what we've come to know and love today -- out-of-control corporate power in every manifestation (more on this later).

So then, sticking with a hypothetical world without corporations, what we have is a deficiency in services that limit liability for individuals that wish to partake in business enterprise.  Well what does the market do with a deficiency?  Deficiency = opportunity -- there is demand for limitation of liability, and other enterprising folks have an opportunity to profit (and of course lose money) by attempting to supply this very good.  Removing the corporate monopoly would immediately generate a market for firms to provide a service of limiting liability for entrepreneurs exactly the way firms today offer limits of liability to drivers of automobiles.  In fact, this industry does exist in our real world in a very limited capacity, so this is not at all a hypothetical proposal.

Now, for a private party to offer to limit an entrepreneur's liability, how would that work?  First of all, much more due diligence would be done on the part of the insurer to understand whether the individual or individuals requesting the service are qualified to receive the service.  Since any loses due to business failure or lawsuits stemming from harmful products would be borne by the insuring firm, the insuring firm would be highly incentived to make sure that the proposed business enterprise would work.  This includes:

• That the individuals involved do not have a prior record of business failure, fraud, or other kinds of flawed profiles.
• That the business plan itself is sound, and geared towards LONG-RUN profitability (the longer the business runs and continues to pay premiums for indemnification, the more money the insurer will make).
• That suitable measures are in place to prevent risks of lawsuits -- that the products are made with a sufficient level of quality to satisfy consumers, that the products will not harm consumers, and that the products do not produce demonstrative negative externalities or byproducts that will harm other persons or property.

What does this mean?  It means that greedy criminals will be weeded out and not allowed to consume the insurance service (or if the insurance company fails to weed these people out, they themselves will go out of business very soon).  It means that entrepreneurs with short-term, get-rich-quick mentalities and business models will not be insured.  It means that less risky vs. more risky business models would be the norm.  It means that nearly all of the consumer protection and environmental protection you could ever want or imagine would be provided on a case-by-case basis through an evaluation of the business proposal, and in a capacity far exceeding anything we have in place today.

All of these positive benefits of a free market for the production of insurance for entrepreneurs are utterly wiped out by the current corporate model.  What else is to be called "Evil" but that which annihilates good?  Therefore (ergo...) the corporation is evil, just as the old refrain goes.  Not because entrepreneurship and business enterprise themselves are evil, and not because people are inherently greedy, but simply because the system prohibits the possibility of adequately controlling the entry of greedy, stupid, and dangerous people into the market, while at the same time failing to ensure that the rest of us don't pay the consequences of this flawed policy.

But let's take this one step further -- in practice, the corporate veil goes much farther than limiting individual liability, it also effectively limits the liability of the corporation itself.  There are two effects to describe here, but let's be clear that in either scenario any actual losses are "socialized" or borne by the public at large.  At most only a small fraction of the constant nuisance of corporate destruction is actually paid by the corporations directly, namely when they both CAN and are FORCED to pay.  This situation only occurs in dire circumstances where the political gain of focing this action might exceed the political pain of socializing the costs of the corporate failure.

The two effects are this: on the one hand, it is counter to the government's interest to let businesses fail, such that a broad suite of measures are introduced to ensure that this doesn't happen, and on the other hand when a corporation does in fact fail, it is either bailed out or it's costs are entirely socialized (pardon the redundancy).  What does this mean? It means that the consumer, and the public at large, are repeatedly forced to absorb the failures of corporations at every turn.

For starters, why do I say that it is counter to the government's interest to let corporations fail?  The most obvious reason, of course, is that corporations line the pockets of the political class.  I won't even begin to catalog this effect as it is so well-known and well-documented that it would be futile to repeat, but everything from the military-industrial complex to the prison-industrial complex to the agra-industrial complex to what has fully manifested itself as a corporate-industrial complex is sustained because it keeps politicians in office and makes them rich on the side.

More simply, governments like to keep corporations going because they employ people, produce needed goods, and are generally a popular thing in many regards.  As badly as they might act, governments all around the world have an interest in seeing their corporations succeed insofar as it remains popular for them to do so.  Each society of course tolerates the evils of corporations differently and either allows more or less of it.  Of course, no modern society seems to draw a distinction between general business enterprise and corporate activity, so typically where corporations are less popular there is simply very little business enterprise.

Additionally, though I would suggest subconsiously, because governments have stepped in and provided some insurance to businesses via the corporation, they are also staking their claim that this entity is fit to operate, and so would look bad if they were wrong.  Finally, when businesses ultimately DO fail and it's time to pay the piper, the costs forced upon society can be quite unpopular as well (more to come on this...).

Assuming that it is in the interest of governments to protect their corporations, how do governments go about preventing their failure, including preventing both liabilities of losses as well as lawsuits for fraudulent or negligent behavior?  There are myriad ways -- tax advantages and other policies designed to favor the largest corporations are put in place (heavily lobbied-for by the corporations themselves of course).  Furthermore, no real precautions are taken in the production of goods to avoid future liability, though again myriad regulations that are poorly conceived, partially adhered to and poorly enforced must be waded through, but actual scrutiny of business practices doesn't come close to what the free market would offer through it's profit-seeking insurance agencies.  Finally, remember that when you try to sue a corporation in the court of law, the same authority vested in the judge is vested in the corporation -- the consequence is an utterly perverted yet totally ineffective system of holding corporations accountable for their failures and outright damage caused to individuals and to personal property.

So everything is stacked in the corporations' favor, and of course they thrive at everyone else's expense.  What do I mean expense?  Let's examine the second effect of the de facto limitation of corporate liability rather than just individual liability, namely, the socialization of costs associated with its failure.  When a corporation ultimately DOES fail, who pays for it?  When a corporation becomes insolvent, there are two things that can happen -- bankruptcy or bailout.  Even in the case of bankruptcy, the corporation is only liable up to the amount of money that it has, and so is not fully-liable in a proper sense for its losses.  In this case, it's creditors soak up the losses entirely.  In the case where the failure was due to fraud or negligence on behalf of the corporation going bankrupt, there may well be a debt owed to it's creditors that should rightfully be paid back, and in a free market system of private insurance firms, these insurance firms that had guaranteed to product to be fraud- and negligence-free would be on the hook to pay that out.  Does the government pay out creditors in these situations?  No.

On the other hand is the ever-popular "bailout."  This is just a clear case of ripping off of society by the government and the corporations.