01 April 2006
Are corporations a bad thing?

Are corporations ie limited liability companies, a bad thing? Stefan Molyneux (who has a pretty good series of MP3 talks) thinks so (hat-tip Jay Jardine). So, it would appear, does Chris Dillow, although I can't quite be sure because while he's in favour of the market and against "business", he hasn't (as far as I know) elaborated on the matter.

Molyneux's argument seems to boil down to this:

  • Corporations ie limited liability companies, are creatures of the state
  • They enjoy privileges ie limited liability, that other organisations don't have
  • They are efficient at what they do
  • They are easy (for the state) to tax and (because they are efficient) bring in enormous revenues
  • They are very powerful, using that power to get what they want out of Congress (in the US example)
  • What they want, usually, is to exclude the little guy
  • This they achieve by getting Congress to approve subsidies and regulations that aid corporations and harm sole traders

I am not quite sure where medium-sized corporations fit into Molyneaux's scheme of things.

For good measure I could also chip in the argument that the real problem with corporations is that in a world dominated by corporations states are reluctant to allow anything else.

My thoughts:
  • It can't see anything philosophically wrong with corporations
  • It may be possible that corporations could exist without the state
  • It seems to me that corporations have achieved a great deal
  • This is really an issue of size rather than type
  • The real problem is the power of the state

So, you can't see anything "philosophically" wrong with corporations?

The state may allow them to exist but ultimately no one is forced to deal with them, so it seems to me that I can hardly object to them

Corporations without the state?

All you actually need for limited liability is an agreement with your creditors that your liabilities are limited. The list is probably not that great including, for the most part, banks, suppliers and employees. All of these people already have contracts with you - usually written - so, it wouldn't be all that difficult to write in a clause to all those contracts on liability in the event of insolvency.

But who would deal with you?

Well, you'd have to offer something in return. Independent auditing of the accounts might be one. Higher prices (in the form of higher wages or interest rates) might be another. Presumably, these things exist right here and now - assuming, that is, that creditors have some reason to doubt whether they will get their money back or not.

But you say only "possible"?

Well, the big fly in the ointment is that (to the best of my knowledge) no corporation has ever existed without the state's say-so. Of course, it is possible that the state (normally) banned corporations - or in some other way made it impossible to create them - and so special legislation was needed. The other possibility is that people did try to create them and failed.

The great achievements of corporations...

Oh, railways, drugs, computers, cars, cheap food etc. Just a few things.

So, it's size rather than type?

Yes, it's the big ones that are the worry - no one is particularly worried about the political influence of the local panel beaters. Anything big, whether it be a religion, a media organisation, a paramilitary organisation or a trade union will attempt to throw its weight around. Corporations are no different.

So, the state should attempt to keep things small?

It can try but I doubt if it'll succeed and even if it does succeed that is likely to be a bad thing. Size has its uses. There are such things as economies of scale and there are other advantages. I rather like the fact that as a consumer I can walk into a McDonald's on the other side of the world and order something familiar.

But you doubt if the state will succeed?

Government action seems to me like squeezing a tube of toothpaste. Sure one part will go down but the tube will pop up somewhere else. For instance, in the UK campaign donations above a certain size were banned so all of a sudden political parties started accepting "loans".

So, what can be done?

Not much. A separation of powers and a written constitution help but ultimately the price of freedom is forever making the case for it.
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  1. Great points. I think that limited liability could indeed exist without state backing, similar to how long road corridors could be assembled without compulsory purchase - it would be more cumbersome to do so of course, but in a more voluntarist society certainly not impossible.

    I don’t there’s anything morally wrong with a corporation, I think it is useful, however, to point out the potential ‘moral hazard’ of granting corporate charter (and LL) to companies that might not otherwise achieve it through voluntary contract.

    Posted by Jay Jardine on 04 April 2006 at 01:47am

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