Wednesday, July 06, 2011

The left-libertarian argument against corporations, in brief

This is intended as a brief response to Tibor R. Machan's latest piece:

It has always been my view that corporations are groups of people united for various purposes, often to benefit from a business venture guided by competent management. Initially I worried little about the legal details, nor even about the legal history. A bunch of people incorporate or form a company to achieve certain perfectly acceptable, even admirable goals. Sometimes this can be done via a partnership, sometimes by incorporating, sometimes for profit, sometimes not.

Then I started to get involved in political philosophy and found that there is a whole lot of hostility toward these outfits, mainly from Leftists but also from some so called left-libertarians. I am not sure why from the latter.

First, let's narrow this down to corporations specifically (as opposed to other types of partnerships).

The corporation as such is not just a large partnership -- a joint stock company, or something of the sort.

Rather, the corporation is a creature of the state from beginning (its claim to legitimacy is based on state charter) to end (it receives "artificial personhood" and "limited liability" by state edict).

These state-bestowed privileges result in state-imposed injury on others. For example, a person injured by someone acting on behalf of a corporation is limited as to the damages he can seek to recover.

These state-bestowed privileges also distort the market by making the corporation artificially competitive/profitable. The single proprietor or partners in a non-corporate business must either carry liability insurance that corporate owners get automatically from the state (in the form of that "limited liability"), or else run a perpetual risk of personal financial ruin that corporate "shareholders" don't run. This raises their costs, and therefore their prices, but not the corporation's.

The corporation's artificially inflated profits produce additional distorting ripples in the market. Corporations grow faster than they could in a free market because they have more capital to invest in that growth. And the bigger they get, the more effectively they lobby government for additional privileges, subsidies and "protections."

It's a snowball effect that starts with that one little thing -- "here's a corporate charter -- you aren't bound by the same rules as other market actors, the state will protect you from risk."

Corporations are not pure market actors. They are part-market, part-state actors. The "market" part is privatized profits. The "state" part is socialized risk. Aside from the obvious prima facie unfairness of that kind of setup, it has consequences. Negative consequences. Sort of like Gresham's Law -- bad business drives out good.

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